Wrap Fee Programs & Reverse Churning
One fee for advice and execution - unsuitable for clients who rarely trade.
What is Wrap Fee Programs & Reverse Churning?
A wrap account bundles advisory services, trade execution, and custody into a single asset-based fee, disclosed in a separate wrap fee brochure. Placing a buy-and-hold client with little trading activity into a wrap account, where they pay for services they never use, is reverse churning.
Wrap Fee Programs & Reverse Churning: a worked example
A client who makes two trades a year pays a 2% wrap fee on $500,000 - $10,000 a year for very little.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.