Captive Value Added (CVA)

Finance allah shmoop what is a rap account Okay yeah

yeah inserted joke about eminem here a rap account with

a w wraps into one annual fee All of the

services you'd normally pay for ala carte at a given

brokerage that is a broker might charge you a one

percent rap account fee to manage all the assets you

have with her in return for things like quote no

fee unquote access to their proprietary mutual funds you get

toe by the mutual funds no load and the quotes

air there because there is a fee annually to manage

the fund But at least this way there is no

fee to buy into the fund or no load their

god it see how that works The rap account can

also include unlimited trading at quote no fee unquote as

well like quotes or there again because there's usually a

spread on each trade like you buy a twenty eight

dollars and twenty seven cents and you sell a twenty

eight dollars in nineteen cents So there's a seat since

spread they're they're still making money on each trade There

just isn't an incremental fee tacked on top of all

That so your broker khun get that second home in

the hamptons and that one percent feet Well that's based

on the total amount invested with the broker got it

So if you have a million dollars invested with them

it's ten grand a year for that rap account fi

system we'll wrap accounts often come with minimum investment levels

well above those of a mutual fund like twenty five

fifty grand or more But in having a one feet

covers all approach a broker is not incentivized to churn

the account or do really anything to generate commissions for

themselves because there ain't any The only thing they're incentivized

to dio is gather more of your assets or make

your assets be worth more so they can keep going

on the whole one percent dance Yeah the notion goes

in theory anyway that if the broker helps client invest

well over time the client will remain a loyal one

and stay with that broker for a very long high

margin to the brokers Time for many large brokerages rap

accounts allowed their clients to be able to buy various

flavors of funds mutual hedge or index at quote wholesale

Prices unquote That is if the fund is a captive

fund maintained by the brokerage The rap account allows the

client to buy with no commissioner upfront charges which is

kind of a nice nice deal for him Yeah quick

example If jay z gives his broker one hundred million

dollars under a rap account that charges one percent the

broker will charge a million bucks a year in return

for handling all of jay z's trading wiring and a

whole bunch of other services got it One percent on

the hundred million broker makes million bucks a year and

if jay z also has a rap account you know

with no w there Well there's always a chance Queen 00:02:45.555 --> [endTime] bee well pop in for a cameo