Wrap music for your portfolio.

Program combines stock selection with investor control

Stock market investors often find themselves between a rock and a hard place. Investing in individual stocks means that you must take the time to research companies and continually monitor your portfolio. If you invest in mutual funds instead, then you cede control of your investments to the fund's manager while you risk exposure to unanticipated tax bills. (See "Fund Focus" in this month's Moneywise.)

Your friendly broker has a solution to this dilemma. Many firms offer "consultant wrap" programs that combine professional stock selection with investor control over their portfolios. "These programs are usually available to investors with portfolios of $250,000 and up," says Christopher Davis, executive director of the Money Management Institute in Washington, D.C. "Minimums are going down so that investors with even smaller amounts may have access to high-quality money managers."

According to Cerulli Associates, a consulting firm in Boston, assets in consultant wrap programs grew from $74 billion in 1994 to $241 billion in 1999, with the total projected to reach $580 billion by 2004.

Whether known as consultant wrap programs or separately managed accounts or managed accounts, these arrangements are offered by most large brokerage firms and some financial planners. Generally, they begin with a face-to-face interview between you and a financial advisor, who'll help you develop an asset allocation plan. Your advisor will then help you pick out an independent money manager with an excellent record in each area.

"The managers at that level ordinarily won't handle accounts smaller than $500,000," says Davis, "and some require $1 million or more. Managed account programs, though, generally require minimum accounts of $100,000, so more investors can get access to these managers. At a number of firms, minimums are now $50,000 per account, and they may go even lower, as advances in technology make it easier for managers to track multiple accounts"

For accounts that meet the minimum, a top-rated money manager will pick a portfolio of stocks for you. You'll know exactly what's in that segment of your portfolio and you'll be able to request changes. "Investors with a few hundred thousand dollars in these accounts can't expect a completely customized portfolio, but they probably will receive some personal attention," says Jerry Wade, a financial planner and president of Wade Financial Group in Minneapolis.

That is, you'll probably start off with a model portfolio consisting of several promising stocks in a given category. You can depart from the model, though, if you choose not to be in certain categories: you might want to exclude "sin stocks" in the tobacco and liquor industries, for example. You can also avoid companies where you have a conflict of interest or where you already have sizable holdings.

The Rap On Wraps

You should consider the following before you invest in a consultant wrap program:

* Programs are usually designed with investors with portfolios of $250,000 or more.

* Money managers of these accounts generally require minimum accounts of roughly $100,000. At some firms, minimums are dropping to $50,000 per account.

* Although a top-rated manager will pick a portfolio of stocks for you, you can choose to be excluded from certain categories of stocks.

* You can choose to hold on to your stocks for long-term so you won't face annual tax bills for capital gains.