Wrap accounts have become a hot product in recent months, giving bankers the ability to combine mutual funds with traditional banking services.

But, like any new product, these accounts are proving to be a compliance headache. Bankers are now grappling with what disclosures they must make.

"What you get is a situation that could cause confusion for bankers and customers," said James Rockett, a lawyer at McCutchen, Doyle, Brown & Enersen, a San Francisco-based firm. "There's a question as to what is and what is not insured. It's absolutely critical that the customer understand when something is insured and when its not."

Mr. Rockett said many wrap accounts combine mutual funds, an uninsured investment product, and deposit accounts, which are protected by the government. Within the account, funds can move back and forth between the two, causing disclosure problems throughout the life of the account.

Specific items wrapped in the package can vary by company. Most banks charge a flat fee for the product. Among those offering these accounts: Chemical Banking Corp., KeyCorp, and Wells Fargo & Co.

Bankers must proceed with caution, he said, carefully separating the information on the account statement to represent which funds came from which account. Otherwise, customers could get an inaccurate idea of how much of their holdings are insured.

Catherine Hanks, president of Compliance Group in Washington, said bankers must also be careful to keep the activities between the bank and its affiliate separate. The danger exists, Ms. Hanks said, of a bank using its affiliate's expertise for its own investment gains. This could happen if a bank's affiliate, after researching a mutual fund for a client, relays information to a bank about an attractive investment.

"There has to be a sort of Chinese wall there," Ms. Hanks said.

There is some good compliance news. Lynda Striegel, a partner with the Washington law firm Groom & Nordberg, said a proposal from the Securities and Exchange Commission, would eliminate the need for a bank to register each wrap account with the agency. The SEC had previously argued that registration was needed because the accounts were a "fund of funds," fitting the definition of an investment company.

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