Master trusts & wraps
Wrapping up your investments
Master trusts and wraps allow you to 'wrap' your investments
into one package or portfolio of investments. They are generally
recommended by financial advisers.
There are important differences between the two. We explain how
each of these structures work, their benefits and things you should
know before going down this path.
A master trust is an investment structure that allows an
investor to hold a portfolio of managed funds under the one umbrella. It
provides centralised reporting and is often used by financial
advisers as an easy way to manage their client's portfolio.
Master trusts typically have the following features:
- 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
- The underlying wholesale funds are usually specific to that
master trust which means they are not portable. If you want to
change to a different master trust you will need to sell your
current investment and buy a new one, which may result in a capital gain, which will be taxed at your
marginal tax rate.
A wrap is similar to a master trust but it allows an investor to
hold investments, such as managed funds and direct shares, under
the one umbrella. It is also used by financial advisers to provide
centralised reporting and flexibility which may allow the investor
to save costs.
Wraps typically have the following features:
- 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
- A wrap service uses a cash account for each member that income
and expenses are passed through
- All fees and taxes are unbundled from the unit price and
- Any income from the underlying investments is paid into a
member's cash account
- Franking credits are distributed to individual investors
through the cash account
- Members' assets are portable, making it easy for an investor to
change wrap services
Pros and cons
Watch out for up-front fees when moving an existing investment
to a wrap or master trust. Ask your adviser if any fees can be
reduced or rebated to you.
Although master trusts and wraps have different structures, most
of these pros and cons are common to both.
- Access to wholesale funds - You can access a
wide range of wholesale funds that you may not be able to access
- Cost - Having all your investments under the
one umbrella may reduce your investment costs and financial advice
costs as the administration service makes buying, selling, and
reporting much simpler.
- Online access - You can usually check
your investments online at any time. A master trust or wrap may
offer you statements every 3, 6 or 12 months but make sure you are
not paying for more frequent statements than you need.
- Portability - With a wrap service you own the
underlying investments which gives you the flexibility to move them
into or out of a wrap service.
- Suitability - If you are only invested in one
or two diversified multi-manager funds, for example growth funds, you may be incurring
additional costs for an administration structure you don't
- Cost - Fees may include administration fees,
fees for moving money in and out, management fees for investment
options and service fees from your financial
adviser. Fees reduce the money you can invest and will impact
the value of your investment over time so make sure you are only
paying for services and features you need.
- Lack of portability - A master trust
usually consists of investments in managed funds that are specific
to that master trust, which means that if you want to change
advisers you may have to sell your investment, which could result
in a capital gain. Ask your adviser how many advice firms use this
brand of master trust. A 'unique' offering may be a
Master trusts and wraps are good for those who
have a large sum of money to invest and want the convenience of one
report for multiple investments. A wrap or master trust may be a
convenient way to reduce costs and simplify reporting but make sure
it is for your benefit and not just convenient for your
Last updated: 24 Apr 2014
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