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Institutional vs. Retail

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At Grace Capital Management Group, we discuss your income needs and put together an income plan that you can use to monitor your financial well-being.

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What is Institutional vs. Retail Investing?

Retail Investing

The retail securities industry heavily distributes its products and advice through a broker. The broker’s job is make recommendations to clients, and then close the transaction between his or her client and the market. For managing this transaction, brokers generally get paid a commission based upon how much product they transact.

Retail products, such as mutual funds, are designed to give the general public easy access to financial markets. Distribution and marketing costs, together with the internal trading commissions, are built into these retail products to compensate the broker and the retail brokerage firms.

Institutional Investing

Institutional investments are usually handled by institutional financial advisors. Their job is to act as fiduciary providers of advice for which they normally receive a flat fee or regular on-going fee based on the value of the client’s assets being managed.

Do you know what you are paying in charges and fees?

Are your life savings subject to unnecessary risks?

As a sophisticated investor with considerable investable assets, you’re likely to be looking for investment opportunities that can give you an added level of confidence in volatile markets. A “separately managed account” that provides active portfolio management — tailored to your needs — from institutional managers, could be a solution.

Through a separately managed account, you work with your investment advisor or consultant to select an institutional manager that may help you meet your investment objectives with greater tax efficiency, competitive fees and more control over the selection of your investments.

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What are Separately Managed Accounts (SMAs)?

Separately managed accounts are known by many names, the most well-known of which are managed accounts, separate accounts, wrap accounts, private accounts, privately managed accounts and individually managed accounts. Regardless of the name, they all provide relatively the same function.

Separately managed accounts are portfolios of individual securities that are managed independently by one or more independent money managers using an asset-based fee structure. The account is managed on your behalf to achieve a specific objective, such as long-term growth. This professional will purchase a customized selection of securities for your portfolio, in accordance with your stated investment objectives. These securities are registered in your name and traded on your behalf. Based on your input, your advisor will select the appropriate investment strategy to help meet your needs, and then choose the institutional investment manager that you and your advisor think will help you achieve your objectives. You may have more than one institutional investment manager, choosing specialists in different styles or sectors.

How do separately managed accounts compare to mutual funds?

Like mutual funds, separately managed accounts offer the benefits of professional money management and diversification. Unlike mutual funds, however, using a separately managed account provides the following features:

Access to institutional investment managers

Your advisor has access to a broad selection of institutional investment managers with whom you might not normally be able to do business with directly.

Portfolio customization and control

Greater choice and flexibility to customize a tailored portfolio to suit your particular needs, such as choosing not to invest in certain types of companies or sectors of the market. In addition, you and your advisor can decide which securities should be liquidated as well as the timing of those sales.

More efficient tax management

Individual securities that comprise your portfolio are purchased at the time you open your account, which means a cost basis is established at the time of purchase. Your institutional manager can use this information to help manage the amount and timing of the realization of capital gains and losses, which may help you more effectively manage the overall tax impact of securities transactions on your personal financial situation. You will, of course, have to consult with your tax advisor for information pertaining to your particular situation.

All of these services are wrapped together into a comprehensive investment program. Rather than paying separately for each of these services, investors pay a single fee.

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The Managed Account Consulting and Investment Process

In order to provide the sophisticated level of service characterized in a managed account, financial advisors must analyze each client’s financial needs, determine appropriate investment objectives and select and monitor the independent institutional manager(s) who will manage the client’s funds. The selection of the manager(s) also considers the specific disciplines and styles the manager uses to reach a client’s financial objective.

This highly customized consulting process generally entails the following:

Step 1: Client Financial Profile and Investment Policy Statement (IPS)

  • Create a financial profile by gathering information about the client, including long-term goals, risk tolerance, time horizon, income needs, age and tax status
  • Develop an investment policy statement based upon the profile that will serve as a blueprint for the investment manager to follow

Step 2: Asset Allocation

  • Strategically diversify the portfolio(s) among different asset classes

Step 3: Manager Search and Selection

  • Search for a skilled and experienced institutional manager(s) to manage the client’s portfolio(s) consistent with the criteria in the IPS

Step 4: Ongoing Manager Monitoring and Evaluation

  • Diligently and actively review the performance of the client’s portfolio manager(s)
  • Systematically monitor and evaluate the client’s progress toward goals

Step 5: Client Review

  • Review the total portfolio and the individual manager(s) with the client
  • Compare current asset allocation to the ranges established in the IPS
  • Determine whether to rebalance or shift assets among other managers
  • Determine whether to retain or terminate the manager(s)
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Email: service@gracecmg.com

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Fort Myers, FL 33912

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