There is plenty of ink devoted to mutual fund wraps these days. Wraps are investment products that package a number of mutual funds together to provide individuals with one simple solution to their investment needs. Firms that sell these products typically have a number of versions so investors can find the one that fits their particular situation.

The banks all offer wraps. And a lot of the big fund firms and mutual fund distributors have their own versions.

The point of this posting isn’t to review the positive features of wraps (diversification, professional oversight, regular re-balancing) or the negatives (high fees, over-diversification).

Rather, as I’ve been reading more about wraps, it struck me as odd that investors are paying their advisors or brokers on-going fees for advice on these products. It’s odd because after the initial purchase is made, there is often nothing for the advisor to do. The wraps are built so that everything is taken care of - the money managers are monitored by a professional firm like Russell or SEI and re-balancing is done automatically. The advisor couldn’t do anything even if he or she wanted to.

It is only when an investor’s objectives or needs change that the advisor is required to step in and recommend an asset mix change. Personal circumstances change over time, but the advisor shouldn’t be called upon too often to help make a change.

And yet, wraps are priced such that the advisor receives a trailer fee every year, as long as their client stays invested.

Mutual fund wraps are terrific products for advisors who want to focus their time and energy on building their business (and not managing their clients’ money). They can be assured that their client is in good hands, they receive an on-going servicing fee (trailer) and they have little or nothing to do after the client signed up.

For investors, however, the fee structure makes a lot less sense. The fee they’re paying reflects on-going advice from their advisor, but with a wrap, they don’t really need it. It seems to me that wraps are products that are well suited to a one-time commission or advice fee at time of purchase.

Investors with the time and experience would be well advised to build their own wrap (you can even give it a creative name) using individual funds and ETFs (exchange-traded funds). By doing that, they can save between 0.5% and 1.5% in fees per year. That is a meaningful amount.