Open the business section of any newspaper, tune into CNBC or Cheddar, or visit your favorite financial market website and you’ll feel like just about everyone is currently opining about ‘the rise of the retail investor’. Even The Economist this month warns: ‘Beware the power of the retail investor.’
Joe Mecane, formerly of the NYSE and now with Citadel Securities, recently shared on Bloomberg TV that retail investors currently account for 20 percent of stock-market activity on average and nearly one quarter of trades on peak days, up from 10 percent of the market’s trades in 2019.
Retail ownership may be larger than you think
While all the hype recently has been over younger investors flooding into the market due to brokerages including E*Trade, TD Ameritrade and Charles Schwab removing their commission fees and next-gen-centric sites such as Robinhood, Acorns and Stash redefining the trading experience, in reality, over the past five years the percent of shares held by retail investors in US companies has remained relatively unchanged at a meaningful and material 30 percent (approx) of the shareholder base.
And if this is the case, why have the investor relations teams not found there to be significant ROI in dealing with these important stakeholders?
Shareholder ownership composition
Source: Broadridge ProxyPulse
There are many brand name companies featuring consistently high levels of retail ownership:
Source: Institutional ownership from Nasdaq.com and insider/exec from proxy filings
The benefits of retail investors
Our research shows that the investor relations and marketing departments of major publicly traded companies are beginning to recognize that the value equation is tipping in favor of direct and proactive retail shareholder interaction.
According to Nicole Maselli, head of sales at Stockperks, the first platform that connects retail shareholders and corporates: ‘There is significant purchasing power behind retail investors.’
A November 2019 McKinsey report notes that global assets under management in North America exceeded $43 tn in 2019, with estimates indicating that retail investors comprise $15 tn (35 percent) of that total. ‘Yet corporates traditionally have had minimal direct interaction with their retail shareholders and are missing out on countless opportunities to engage directly,’ comments Maselli.
For investor relations officers, the upside to be gained from engaging with these stakeholders cannot be discounted:
- Liquidity – Retail investors are said to have cash levels in their accounts at all-time highs. Retail shareholders broaden the depth and breadth of a company’s shareholder base and can make investment purchases with fewer decision-layers than an institution
- Stability – Retail investors tend to buy and hold their stocks for a longer period than institutional investors, providing a long-term stable capital base
- Voting support – Their votes count. Retail investors are known to historically vote in favor of management. Given their potential large representation of the shareholder base, the retail vote can help you meet requirements to pass impactful actions at proxy time
- Company support – In times of volatility (such as the Covid-19 pandemic impact), there are many buying opportunities as many stocks continue to trade at discounts. Retail investors could show their support for the companies they know and believe in during difficult times
- Brand loyalty – Although ‘building and maintaining’ the brand doesn’t necessarily fall within the remit of an IR officer, there is a strong correlation between retail shareholding and purchasing habits. Shareholders are much more likely to purchase from you repeatedly if they are ‘owners’.
Recommendations about engagement with retail investors
There appears to be a misconception that retail investors will bog down investor relations teams with mundane and irrelevant questions. There have certainly been times when retail shareholders would call or email and be directed to the company website’s investor FAQs, but that is not what we are talking about today. What we are talking about today is communicating in a bi-directional manner with shareholders via a free app that enables sentiment surveys, investor messaging and marketing campaigns.
Stockperks was founded in 2019 based on the premise of making communication with retail shareholders simple, seamless and cost-effective. The new investor relations and marketing solution allows corporates to reward retail shareholders for their loyalty with exciting perks, including exclusive product offerings, discounts, free items and special experiences. In return, the IR, marketing and corporate governance teams gain aggregated insight into the demographics, sentiment and investment characteristics of their retail shareholder base. Investor relations teams can use the insights gained from Stockperks to craft more effective retail investor programs.
Interestingly, the concept of offering shareholder perks is far from new. In Japan, shareholder perks (called yuutai) are a common practice and remain a key part of Japanese investment culture. There are more than 1,500 companies offering perks to shareholders in Japan today.
While the greatest generation of American retail investors is beginning to age, it appears there may be a new highly engaged generation of investors being ushered in by technological innovations, low barriers to entry and significant purchasing power. We believe it may be time to (re)consider focusing on the retail investor.
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