Institutional investors employ several professionals from different areas related to investment management. Economists and macro analysts can discover investment opportunities worldwide while a retail investor has neither the knowledge nor the data or resources to do so. Equity analysts can find sectors, industries and individual stocks that are very likely to outperform. Portfolio strategists and portfolio managers can form optimal portfolios with very efficient risk return profiles. The average retail investor does not diversify her portfolio at all! Risk managers and financial engineers can mitigate risk and design exotic products to hedge specific kinds of risks.
It is true that institutional investor have the resources to gather and analyze proprietary data that costs several thousand dollars. Thus, investment managers have superior information and most of the times are several steps ahead. They also deal with lower transaction costs compared to retail investors. Their trading volume worth billions of dollars and thus they have privileges when dealing with stock brokerage firms. Furthermore, assets under management suffice to achieve diversified portfolios. On the contrary retail investors have limited capital and cannot diversify beyond a handful of stocks.
The decision of whether to manage your money on your own or trust a professional wealth manager is not trivial. The investment management industry has its own disadvantages as well. There is a lot of research to be done before making such a decision. You have to think about the challenges of managing your money on your own as well as whether you have the resources and knowledge to do so.
