Excerpted from Bogle on Mutual Funds by John C. Bogle, page 54

The closest proxy for a mutual fund is a wrap account. For a single fee, you obtain the services of a professional money manager, who then invests your assets in a diversified portfolio of stocks and bonds. The brokerage commissions and advisory fees are wrapped in the overall fee. It sounds like a mutual fund, but it is not. It carries some significant baggage since it is difficult to ascertain the validity of past performance data. The choice of a manager is left to your stockbroker and, depending on the relationship between the adviser and the broker, may involve a potential conflict of interest. Most importantly, the costs involved in wrap accounts are very high. Maximum annual fees typically total 3% of assets, with reduced fees available to investors with assets of $1 million (2.5%) or $5 million (2%). Hidden execution costs may add another 0.5% or more to the fee. The original wrap account concept has now been extended by the creation of mutual fund wrap accounts. Here, the broker or adviser selects a mutual fund portfolio for the client, charging an annual fee of 1% to 1.5%. When the fund expense ratio of, say, 1% to 1.5% is added, total annual costs may be as high as 3% (excluding the transaction costs incurred by the funds themselves). The payment of any sales charges would raise the cost more. It is difficult to see how, in either kind of wrap account, you can incur such costs without eliminating any realistic chance of outperforming the market averages over the long term. In either case, you should beware of taking the wrap.