What is a detour account?
Rollover fees range from about 1% to 3% of AUM.
For many investors, a detour account proves to be less expensive over time than a brokerage account that charges commissions on trading activity. However, a buy-and-hold investor who rarely sells their holdings may be better off with a commission-based fee structure.
Understanding computation wrap
A rollover account has the advantage of protecting the investor from over-trading, which can happen if the broker buys and sells assets in the account excessively in order to generate more commission income. This is known as "jostling."
In a detour account, a broker is charged a fee based on the total assets in the account, and thus is incentivized to obtain the highest possible return on the invested amount.
The main gaps
Rollover account is a flat fee for brokerage services based on total assets under management.
For active investors, a detour account may be less expensive than an account that charges a commission per trade.
In a spin account, the broker's incentive is to maximize gains rather than generate trading fees.
Wrap Accounts Vs. Traditional accounts
The Single Investor account provides access to professional money managers who work primarily with high net worth institutions and individuals. Mutual fund companies also offer capping accounts with access to a wide range of mutual funds.
A minimum investment wrap account may require $ 25,000 to $ 50,000. A mutual fund account with wrapping fees usually has a much lower initial investment requirement.
Long-term investors who buy and own stocks may be better off with the traditional fee structure.
Fees pay for marketing and distribution costs as well as payments to middlemen who sell money and work with clients. These fees are an additional fee for the investor in a mutual fund wrap-up account.
A detour account works best for an investor who wants a degree of hands-on management and advice. Investors who use a buy and hold strategy for a stock portfolio may be better off paying the incidental trading fees that the account incurs.
For example, an income-oriented investor may hold a portfolio of stocks and bonds that pay dividends, and make little, if any, changes for years. If the investor sells the shares after this, then significant capital gains taxes may be due because the cost-per-share basis may be much lower than the current market price.
An investor may be better off holding a portfolio to earn dividend income. No capital gains tax is incurred, and there are no commissions or bypass fees to be paid.
In this case, moving assets to a detour account would have resulted in more costs and reduced the total return for the investor.
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