What's the difference between institutional and non-institutional investors?
There are a number of differences between institutional investors and non-institutional investors. If you are considering an investment in a particular stock that you've seen publicized in the financial press, there's a good chance you don't qualify as an institutional investor. In fact, if you're wondering what an institutional investor is, you're probably not an institutional investor.
Institutional investors are the big guys on the block - the elephants. They're the pension funds, mutual funds, money managers, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds, and some hedge fund investors. Institutional investors account for half of the volume of trades on the New York Stock Exchange. They move large blocks of shares and have tremendous influence on the stock market's movements. Because they're considered to be knowledgeable and, therefore, less likely to make uneducated investments, institutional investors are subject to few of the protective regulations that the Securities and Exchange Commission provides to your average, everyday investor. (See Policing The Securities Market: An Overview Of The SEC.)
The money that institutional investors use isn't actually money that the institutions have raised themselves. Institutional investors generally invest for other people. If you have a pension plan at work, a mutual fund or insurance, then you are actually benefiting from the expertise of institutional investors.
Non-institutional investors are, by definition, any investors that aren't institutional. That's pretty much everyone who buys and sells debt, equity or other investments through a broker, bank, real estate agent and so on. These are the people or organizations that manage their own money, usually to plan for retirement or to save for a large purchase.
To find out more, read Institutional Investors And Fundamentals: What's The Link?
The difference is that a non-institutional investor is an individual person, and an institutional investor is some type of entity. For example, a pension fund, mutual fund company, banks, insurance companies, and any other large institution.
If you are an individual investor, and I am guessing that you are, I think your question is probably more related to share classes. Individual investors are sometimes told by fee-based advisors that they can purchase "institutional" share classes of mutual funds instead of A, B, or C shares. What they are referring to is the ability to purchase lower cost share classes that do not incorporate sales charges.
There are actually many types of mutual fund share classes, and I would encourage you to read a well written article by Christine Benz of Morningstar called "Making Sense of Share-Class Alphabet Soup". Here is the link to the article. http://news.morningstar.com/articlenet/article.aspx?id=346727
I hope that helps with your decisions. Happy investing!
Wyatt A. Moerdyk, AIF®
Chief Compliance Officer
Accredited Investment Fiduciary®
10004 Johns Road
Boerne, TX 78006
Investment Advisory Services offered through Evidence Advisors, LLC, a registered investment advisor. Investopedia LLC and Evidence Advisors, LLC are not affiliated.
Very good question! The main difference between the two is the cost. Yes, the institutional shares are much cheaper than the traditional share classes. However, you have to meet the minimum asset requirement to be qualified for the institutional share class, and it varies from one financial institution to another. Some may require $50K to get you to the institutional class; whereas others need at least $500K. Thus, you have to do some due diligence to learn and compare. Best!