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Individual Investors Should Worry Professionals

Mike Lipper, CFA profile picture
Mike Lipper, CFA


When I became a professional securities analyst in the 1960s, there was a trend to have two separate research and marketing efforts of brokerage firms. A traditional effort to serve individual investors was joined by a second and higher paid effort to serve institutional investors. Around the cyclical movements of the stock market, individual and institutions invested differently and each fed off the others’ transactions. Institutions were able to buy what they thought was cheap stocks from supposedly unsophisticated individual owners and sell into them when individuals were not well enough informed. Interestingly, this dichotomy did not work to the disadvantage of the individual investors as much as it may have seemed. Individual investors were not only net buyers, but for the most part, long-term investors that often facilitated the more rapid turnover of the so-called professional investors.

This relationship is no longer the case. Because of the decision of the US government to introduce price competition in brokerage commissions (which led to a price war), the profitability of directly serving the individual long-term investor declined meaningfully. Today, try to get a “full service” retail brokerage representative to be interested in opening an account to handle the sporadic purchase of a hundred shares of a NYSE traded securities. If the broker can’t get the customer to open a margin account, buy new issues, trade over-the-counter securities or place decision making judgment in a managed account or a packaged product or possibly an automated relationship with a call center, chances are he/she will not be interested in the relationship with the prospective customer. Only the alternatives just suggested are profitable for the firm and the individual broker. Thus, relatively few individuals are directly active in today’s stock market. They are investors through their employers’ defined contribution plans and stock purchase plans, or mutual funds/variable annuities or in some cases, stock options.

This article was written by

Mike Lipper, CFA profile picture
A. Michael Lipper is a CFA charterholder and the president of Lipper Advisory Services, Inc., a firm providing money management services for wealthy families, retirement plans and charitable organizations. A former president of the New York Society of Security Analysts, Mike Lipper created the Lipper Growth Fund Index, the first of today’s global array of Lipper Indexes, Averages and performance analyses for mutual funds. After selling his company to Reuters in 1998, Mike has focused his energies on managing the investments of his clients and his family. His first book, MONEY WISE: How to Create, Grow and Preserve Your Wealth (St. Martin's Press) was published in September, 2008. Mike’s unique perspectives on world markets and their implications have been posted weekly at Mike Lipper’s Blog since August, 2008.

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