Wraps and master trusts

Wraps and master trusts can provide convenience and choice, but beware high fees and adviser kick-backs.
 
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09.Case study

David, who had been investing in shares for around 10 years, was keen to diversify. He looked into wraps and master trusts.

“Their great appeal for me was the ability to access wholesale managed funds with their nil entry fees and reduced management expense ratios (MERs),” David explains. “But after some investigation I discovered some of the better performing wholesale funds allow investments of as little as $10,000 to $25,000. I know this isn’t ‘small’, but it’s a lot less than the $500,000 I thought was required and negates my primary reason for considering a master trust,” he says.

David was surprised by some of the administration costs he encountered. He says platform annual fees can look OK but account and other fees need to be added to find the real cost. It may be better value to go direct to a wholesale fund. With other funds and platforms the opposite can be true — sometimes the cheapest way to invest in a fund is through a wrap or master trust (in the case of some wholesale funds, it’s the only way).

David decided master trusts were a good way for investors to create a balanced managed portfolio, especially if they want to use a regular gearing (borrowing) facility and have the ability to move money around (for example from international shares to bonds). But he eventually decided that directly investing in managed share funds through a discount broker (which rebated the up-front commission) better suited his needs.

 

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