Wrap accounts and master trusts are administration structures which enable investments (including those held in superannuation) to be held in an efficient and cost effective manner, particularly in relation to buying and selling investments, reporting, and dealing with corporate actions (such as the allocation of rights issues).
The key differences between wrap accounts and master trusts
- May hold managed funds, including low-fee wholesale managed funds, as well as direct investments such as shares and term deposits
- They are operated by a trustee but the investor holds the underlying assets in their own name
- The value of a member’s investment is determined by the underlying assets
- All fees and taxes are unbundled from the unit price and disclosed separately
- A cash account is used for each member through which income and expenses are passed
- Franking credits are distributed to individual investors through the cash account
- An investor’s assets in a wrap account can be transferred to a new wrap account
- Restricted to holding managed funds, including low-fee wholesale managed funds
- Investments are held by a trustee in its name, on behalf of the investor
- The value of an investor’s account is determined by the trustee based on the value of the underlying investments
- All fees and some taxes are bundled into the unit price for each investment and allocated to the investor
- Income from the underlying assets is paid to the master trust and then distributed to members
- Franking credits are incorporated into the unit price of the underlying investment
- If you want to change to a different master trust you will need to sell your investments in your current master trust, which may result in a taxable capital gain or a capital loss, as well as other transaction costs
What are the advantages of wrap accounts and master trusts?
These administration structures are designed to save you time and money by giving you:
- Access to a wide range of investments including low-fee wholesale funds, plus any cost savings that may apply as a result of pooling a large number of investors’ monies
- Comprehensive and consolidated reporting and valuations for all your investments in the structure
- Telephone and online access so it’s easy for you to keep up-to-date with your investments
- A transparent fee structure so you know what is being paid on your behalf
- The support to help you manage the administration involved in buying & selling investments, and managing corporate actions
- Most of the information you (or your accountant) need at tax time for your investments in the structure, in one consolidated report.
For whom are wrap accounts and master trusts best suited?
Comprehensive wrap accounts typically suit investors who:
- Have larger sums of money to invest
- Require access to direct investments and a very broad range of managed funds
- Want sophisticated reporting
- Wish to benefit from franking credits being credited directly to their account
Basic wrap accounts typically suit investors who:
- Have smaller sums to invest
- Prefer to use managed funds
- Are happy with a smaller range of managed funds
Master trusts typically suit investors who:
- Prefer to use managed funds rather than direct investments
NOTE: Using wrap accounts and master trusts imposes an extra layer of fees compared to investing directly. The extra fees are to cover the costs involved in administering your portfolio.
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Disclaimer: This information has been produced by Australian Unity Personal Financial Services Ltd (‘AUPFS’) ABN 26 098 725 145, of 114 Albert Road, South Melbourne, VIC 3205, AFSL & Australian Credit Licence 234459. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making investment decisions. AUPFS is a registered tax (financial) adviser and any reference to tax advice contained in this document is incidental to the general financial advice it may contain. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Nothing in this document represents an offer or solicitation in relation to securities or investments in any jurisdiction. Where a particular financial product is mentioned, you should consider the Product Disclosure Statement before making any decisions in relation to the product and we make no guarantees regarding future performance or in relation to any particular outcome. Whilst every care has been taken in the preparation of this information, it may not remain current after the date of publication and AUPFS and its related bodies corporate make no representation as to its accuracy or completeness. Published: February 2017 © Copyright 2017