All types of investors are not the same and there are a number of differences between those who are considered to be institutional investors and those who are seen as non-institutional investors. Understanding the difference is worthwhile. If you are considering an investment in a particular stock or mutual fund 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.

Who Are the Institutional Investors?

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 also some hedge fund investors. Institutional investors account for about three quarters of the volume of trades on the New York Stock Exchange. They move large blocks of shares and have a 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.

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 any kind of insurance, then you are actually benefiting from the expertise of institutional investors.

Who Are the Non-Institutional Investors?

Non-institutional investors are, by definition, any investors that aren't institutional. That's pretty much every person who buys and sells debt, equity or other investments through a broker, bank, real estate agent and so on. These people or organizations aren't investing on someone else's behalf, they're managing their own money. Non-institutional investors are usually driven by personal goals, such as planning for retirement or saving up for their children's education or financing a large purchase.

The Advisor Insight

The difference is that a non-institutional investor is an individual person, and an institutional investor is some type of entity: a pension fund, mutual fund company, bank, insurance company or 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 mutual funds share classes. Individual investors are sometimes told by fee-based advisors that they can purchase "institutional" share classes of a mutual fund instead of the fund’s Class A, B or C shares. Designated with an I, Y or Z, these shares do not incorporate sales charges and have smaller expense ratios. It’s like a discount for institutional investors because they buy in bulk. The shares’ lower cost translates into a higher rate of return.


Wyatt Moerdyk
Evidence Advisors Investment Management
Boerne, TX