What Is an Institutional Client?
Institutional clients, as defined by most financial services firms, consist of large non-financial corporations, as well as other financial services firms of any size. The definition of large normally encompasses at least the Fortune 500, and probably beyond.
Points of Contact
In a Wall Street securities firm, the primary relationship manager for a non-financial institutional client is likely to be a senior investment banker, especially one with expertise in securities underwriting or mergers and acquisitions. Alternatively, if the client is using the securities firm primarily to execute trades, an institutional salesperson or account executive may manage the relationship. In a commercial bank, that relationship manager is bound to be a senior lending officer, in the case of a client utilizing loans from that bank.
The principal representative of a non-financial institutional client in its dealings with securities firms or commercial banks probably will be a manager in its corporate treasury department. In relationships with investment management firms that are handling employee pension and 401(k) accounts, a manager in the human resources department is apt to be the corporation’s representative.
Small Business Clients
Small businesses, especially those that do not have publicly traded debt or equity, normally are treated as retail clients. Their accounts generally will be serviced by financial advisors in securities firms or by small business lending officers in commercial banks.
Financial Services Industry Clients
There is a large amount of dealing with firms in the financial services industry, even among large, integrated, diversified firms. In particular, securities firms that act as market makers are bound to have large volumes of daily trading among themselves, to manage their respective securities inventories and to fill client orders for securities that they do not currently possess.
Additionally, securities underwriting often requires the organization of ad hoc partnerships (called syndicates) between a number of firms to spread underwriting risks and to find buyers for the securities now on offer. The larger the securities issue, the larger the underwriting and selling syndicates are bound to be.
Very Wealthy Individuals
Extraordinarily high net worth individuals (for example, those with over $100 million in assets) may be served through institutional sales channels, rather than through the financial advisor channels that serve retail clients. This is particularly true if these individuals have their own financial advisors (or family offices) apart from the firm in question, and instead use that firm strictly to execute trades and to obtain investment products.
Institutional Lines of Business
Note that certain departments and lines of business within the financial services industry are typically defined as institutional in nature. Investment banking is one example, based on the nature of the clients.
Securities trading is another example; although this function serves both retail and institutional clients, the preponderance of the trading volume tends to be on behalf of institutions. Also, the trading function tends to have close ties with the investment banking function, which creates securities that subsequently will be traded on the secondary market.
Although the reports and analyses developed by in-house securities research departments tend to be targeted towards retail financial advisors and retail clients, these groups probably will be organized in the institutional half of a diversified firm.