After years of hype, mutual fund wrap accounts are finally poised to take off.

So say fund marketers, who are hoping that July's stock market correction has made wrap accounts - which promise investment diversification in a simple package - attractive to skittish fund investors.

"It's difficult to sell asset allocation in a market like we had last year," said David J. Schulman, national sales manager for Great Western Financial Corp.'s wrap account. "How do you compete with a fund that was up 40%?" he asked. "You can't."

But this summer, thanks to the stock market's hiccup, wrap sales have improved.

Sales of Great Western's Sierra Asset Manager account are now averaging $25 million a month, Mr. Schulman said, double the rate of a year ago. He made his remarks during a speech at a wrap conference here sponsored by Global Business Research.

Mutual fund wrap accounts, which typically don't carry a separate sales charge, spread a customers' assets among an assortment of mutual funds. In exchange for an annual fee that usually runs 1% to 1.5% of assets, a broker uses a set of funds from a preselected menu to match a particular investment objective. The fund assets are periodically rebalanced to stay in line with the original portfolio allocation.

While wrap funds minimize risk through diversification, they also limit the chance to hit a home run with a hot fund. Their popularity waned during last year's torrid market.

But as inflows into most mutual funds complexes stalled during last month's market correction, the biggest wrap programs in the business kept rolling along.

"In July, we saw people actually putting money in Trak," said John Pratt, first vice president at Smith Barney.

Smith Barney's Trak program, the first wrap program, has already increased assets this year to $5.8 billion from $4.8 billion at the end of last year, he said.

Another reason wrap accounts may be catching on now is that many investors are suffering from information overload, even as they resist paying loads for individual fund sales, several speakers said.

"There's a public out there that's desperate for advice that's credible and trustworthy," said Porter Morgan, president of Liberty Financial's bank group.

More than a dozen banks, including Sumitomo Bank of California, San Francisco, and Waterbury,-Conn.-based Webster Bank, sell Liberty's wrap product, Mr. Morgan said. Negotiations are under way to double the number of bank clients over the next few months.

So far, Liberty's product has used only its Stein Roe mutual funds as investment choices. But Mr. Morgan said the company is working with a regional bank to include its proprietary funds alongside the Stein Roe options.

Selling wrap products is still no easy matter. Brokers used to being paid on commission have to make the transition to fee-based compensation.

Even the benefits of portfolio diversification may not be enough to persuade bank customers to sign on for wrap accounts.

James Eads, president of Signet Financial Services, joked that aggressive investing to many bank patrons still means "I got the three-year instead of the six-month CD."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.