Institutional vs. Retail Investors: What's the Difference?

Institutional vs. Retail Investors: What’s the Difference?

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Institutional vs. Retail Investors: An Overview

All types of investors are not the same, and there are a number of differences between those who are considered institutional investors and those who are seen as non-institutional, or retail, investors. Understanding the difference is worthwhile. If you are considering an investment in a particular stock or mutual fund that you have seen publicized in the financial press, there is a good chance you do not qualify as an institutional investor. In fact, if you are even wondering what an institutional investor is, you are probably not an institutional investor. Let us take this opportunity to lay out some of the differences.


  • An institutional investor is a person or organization that trades securities in large enough quantities that it qualifies for preferential treatment and lower fees.
  • A retail investor is an individual or non-professional investor who buys and sells securities through brokerage firms or savings accounts like 401(k)s.
  • Institutional investors do not use their own money, but rather invest other people’s money on their behalf.
  • Retail investors are investing for themselves, often in brokerage or retirement accounts.

Institutional Investors

Institutional investors are the big guys on the block—the elephants. They are the pension funds, mutual funds, money managers, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds, and also some private equity 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 are considered sophisticated investors who are knowledgeable and, therefore, less likely to make uneducated investments, institutional investors are subject to fewer of the protective regulations that the Securities and Exchange Commission (SEC) provides to your average, everyday investor.

The money that institutional investors use is not actually money that the institutions own 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.

Because of their size, institutional investors can often negotiate better fees on their investments. They also have the ability to gain access to investments normal investors do not, such as investment opportunities with large minimum buy-ins.

Retail, or Non-Institutional, Investors

Retail, or non-institutional, investors are, by definition, any investors that are not institutional investors. That is 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 are not investing on someone else’s behalf, they are managing their own money. Non-institutional investors are usually driven by personal goals, such as planning for retirement, saving up for their children’s education, or financing a large purchase.

Because of their small purchasing power, retail investors often have to pay higher fees on their trades, as well as marketing, commission, and other related fees. By definition, the SEC considers retail investors unsophisticated investors, who are afforded certain protections and barred from making certain risky, complex investments.


Wyatt Moerdyk, AIF®
Evidence Advisors Investment Management, Boerne, TX

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.

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