A 60-second read by Anthony Benante, CFA: Baron Financial Group is an institutional investor. As an independent RIA (Registered Investment Advisor) with no allegiance to any investment company, we use a process to identify investments for both our clients, as well as our own investment portfolios. One of the filters in the process is cost. This comes in to play mostly with mutual funds and exchange-traded funds. When institutionally-priced mutual funds make sense, we take advantage of the opportunity.
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 basically be the same, except for at least one factor. 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 can 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 a pricing advantage because of their lower fees. There are typically no initial upfront percentage fees (note that there can be a small nominal transaction fee to purchase these funds) and no maximum sales fees are allowed. With lower expense ratios, more of your money is actually being invested.
Ask an advisor at Baron Financial Group to find out if institutional class mutual funds are right for you.
Disclosure: This material is not intended to be relied upon as a forecast, research, tax or investment advice. Please consult your financial planning and tax professional for personal advice.