Financial institutions, whether retail or institutional, vary widely in their size and complexity. The term “institution” itself is broad and can refer to any type of financial organization that is large enough to have its own specialized set of needs. As a result, there are many differences between the two types of clients. In this career advice, we'll take a look at some of these differences so that you can better understand who your customers are!
As you can imagine, the retail client is more likely to be influenced by social media and family members than their institutional counterpart. This is because they are generally less educated about investing and are thus more vulnerable to making less-informed decisions when it comes to their money. Institutional clients have a larger amount of money at play and may have more experience investing, but they still rely on advisors (often called “brokers”) for advice.
Your retail clients are your typical folks. They have some money that they want to invest and they're looking for a place to put it. Maybe they just want to invest in a CD or two, maybe they want diversification for their retirement account, maybe it's their rainy day fund whatever the reason, the end result is that these clients are investing small amounts of money at a time.
Institutional clients are different because they have large amounts of money that they need to invest. Institutions like pension funds or university endowments have huge pools of capital available for investment purposes and will often hire outside firms (like yours) to help them make decisions about where best to use those funds.
Institutions as a Sector
For Institutional Clients
- Institutions are a large part of the financial market, including banks, investment funds, pension funds, insurance companies, and hedge funds. They comprise about 90% of all trading volume.
- Institutions provide a source of revenue for the financial market as well as risk management services such as clearing and settlement (through clearing houses), information services (through information providers), and advisory services (through broker/dealers).
Types of Institutions
There are a number of types of institutions that invest in ETFs and mutual funds. In addition to banks, insurance companies, mutual funds, and hedge funds, these include pension funds (which manage money for governments and corporations), endowments, family offices (individuals with large fortunes), and sovereign wealth funds (comprised of government-owned assets).
There are big differences between institutional and retail clients
Institutional clients are typically large institutions such as pension funds, endowments, and sovereign wealth funds. They tend to be long-term investors who are interested in investing in illiquid assets.
- Institutional clients have a fiduciary duty. As an advisor, you need to know if your client is an institutional investor with a fiduciary duty or not (if they are this will affect how you should act).
- You need to feel comfortable with the concept of working with institutional investors.
The retail and institutional financial services markets are very different. Retail clients tend to be smaller and individual investors, while institutional investors are large
institutions with much more capital. There are also many different types of institutions
that operate in these markets, some for profit and others not-for-profit. Institutional
clients have very specific needs when it comes to investing because their investment goals may not always align with their personal financial situation. In short, understanding which type of client you’re dealing with can make all the difference in
how successful your relationship will be!