This post originally appeared in April, 2016. For more information on institutional pricing, visit our Investment Management page.
A 60-second read by Anthony Benante: Baron Financial Group is an institutional investor. As an independent RIA (Registered Investment Advisor) with no allegiance to any investment company, we seek the most attractively-priced investments for our clients. We look at every situation, and when we have the opportunity to invest in institutionally-priced mutual funds that make sense for our clients, we take advantage of the opportunity. The result of this is a direct benefit to the clients’ bottom line. And here’s why:
In the world of mutual funds (which are pools of assets such as stocks and/or bonds), there can be different pricing for the same underlying investments. For simplification, you could think about these different pricing levels as institutional and retail. Whether you buy institutional-class shares or retail-priced shares from a mutual fund, the investment itself will be exactly the same. The major difference between the two is their fees and this can directly impact investor performance. For example, retail-priced shares can have higher expense ratios, while institutional-class shares have ongoing lower expense ratios (an expense ratio is a measurement of what an investment company charges to run a mutual fund). Retail customers may experience the effects of higher expense ratios because they typically have lower purchasing power. Retail investors may also be subjected to upfront fees (fees when you purchase shares) as well as back-end fees (fees when you decide to sell your shares). There can also be yearly marketing fees called “12b-1” fees that you might have to pay. Finally, there may be a minimum to what you have to buy.
Institutional-class shares, on the other hand, tend to offer 25 to 50 basis points (a basis point is 1/100th of 1%) of pricing advantage because of their lower fees. There are no initial upfront percentage fees (note that there can be a small nominal transactional fee to purchase these funds) and no maximum sales fees are allowed. With lower expense ratios, more of your money is actually being invested. The result of this can be better performance and better returns for longer periods.
Ask an advisor at Baron Financial Group to find out if institutional-class mutual funds are right for you.