2.5. Investors

There are many different categories of investors. Some types of investors tend to focus on specific types of investments; others have their fingers in many different pies, figuratively speaking. Having an understanding of the universe of investor types, and of which types of investors are most interested in specific investment types, is valuable—and testable—knowledge.

There is some overlap between the following categories; a qualified institutional buyer, for example, will also meet the criteria to be an institutional investor, and an individual investor may or may not be an accredited investor.

A concept from the SIE worth recalling as you read this section, as well as the following one on organizational structures, is that of a fiduciary duty. A fiduciary duty is a legal duty to place another party’s interests ahead of one’s own. Many of the types of investors and organizational structures described below involve fiduciary duties in one way or another. For example, a retail investor is owed a fiduciary duty by his investment adviser, and a corporation’s shareholders are owed a fiduciary duty by the corporation’s board of directors. If a FINRA member firm obtains information about the ownership of securities while acting in a fiduciary capacity, it may not use this information to solicit transactions in the security other than at the request and on behalf of the issuer.

FINRA Rule 2060

Individual. Individual investors are basically another name for retail investors. As opposed to individuals who manage the portfolios of others, individual investors invest on their own behalf. There are many more individual investors in the world than there are institutional investors: every employee with a 401(k), every grandma with a savings bond, and every CNBC viewer, Money reader, and Motley Fool browser who dabbles with stock picks swells their ranks.

Most individual investors invest in securities through conduits such as mutual f