A wrap fee is a single annual charge, usually a percentage of your account, that bundles investment advice with trading costs and account administration.
The SEC describes a wrap account as one where a "wrapped" fee covers the management, brokerage and administrative expenses of the account, generally based on its total market value. Instead of an advisory fee plus a commission on each trade, you see one percentage.
Because trading costs are included, a wrap fee is usually higher than an advisory fee on its own, and the SEC's instructions for the Form CRS relationship summary encourage firms to say so. A firm sponsoring a wrap program must also explain that it may cost you more or less than buying the same services separately, depending on things like how much your account trades.
The wrap doesn't cover everything. Fund expenses, and markups or spreads on some trades, can still come on top. For comparison, fee-only firms that publish an asset-based rate charge a median 1% a year on the first tier of assets, and that figure doesn't include fund expenses either.
How to check
A firm that sponsors a wrap fee program has to give you a separate wrap fee program brochure (Form ADV Part 2A, Appendix 1). Item 4 lists the fee, whether it's negotiable, the share paid to portfolio managers, and the fees you can still pay on top.
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