It’s the diverse group of shareholders on everyone’s lips, emerging from the pandemic as confident, nimble and empowered. But what are the factors driving today’s retail investor, and how are IROs responding? Sarah Welsh finds out more
It could be argued that today’s retail investors have the best of most worlds: they can invest for little or no fees, have access to the same information as their institutional investor peers, enjoy a plethora of new technology at their fingertips and can shift between day trading and long-term investing to suit their portfolio ambitions.
This new sense of freedom is not only driving retail investors’ enthusiasm to invest, according to Jason Rechel, head of IR and corporate development at Chicago-based Sprout Social, but is also fundamentally blurring the lines between retail and institutional investors as never before.
‘Retail investment has been democratized,’ he says. ‘The barriers to stock ownership are minimal – trading fees have come down, many brokerages have opened up the ability for investors to own fractions of shares, and changing workplace dynamics mean retail investors have a greater ability to trade during market hours.
‘Couple this with the spread of information on social media and the market has changed dramatically. In many cases, individual investors have the same access to information as institutional investors, and no barriers to share ownership. This is fundamentally different from any other time in the history of the market.’
Young blood As outlined by Rechel, the growth of commission-free trading apps, such as Robinhood or Fidelity’s retail offering, has removed a great number of obstacles to investing and introduced an entirely new generation of investors to the market.
Previously most often the domain of wealthy and older investors, retail share ownership today is just as likely to be populated by young investors of average income, accessing wealth-building opportunities on the go, regardless of location or time zone.
A Deutsche Bank survey in February 2021 revealed that nearly half of its respondents said they were investing for the first time, with 61 percent being under the age of 34. The same survey also found that half of all 25-to-34-year-olds were planning to spend 50 percent of their stimulus checks – their state-provided economic aid payments in the wake of the pandemic – on stocks, far more than the 16 percent of those aged over 55.
Around half of the shareholders at Vancouver-based entertainment company Thunderbird Entertainment Group are retail investors. The company’s shareholder base reflects the predisposition of many retail investors to invest with emotion, in brands that they like and identify with.
Captive audiences created by the pandemic have also worked in the company’s favor, as Jennifer McCarron, Thunderbird’s CEO, notes.
‘There is a parallel between the recent surge in retail investors and my industry, and it involves a confluence of elements that creates an environment to enable growth,' she says. 'In many respects, the pandemic served as a lightning rod for both. This is because the world was under lockdown and people had more time to simply consume information and content – whether for work, interest, entertainment, escape or investments.
Jennifer McCarron, Thunderbird Entertainment
In many cases, individual investors have the same access to information as institutional investors, and no barriers to share ownership
‘Our business model as a media company has vast distribution into the general population, which of course also attracts new retail investors. Those investors who love and follow our shows typically become shareholders of the company.’
Social status IROs looking to engage effectively with the retail investor certainly shouldn’t neglect their social media. Figures indicate that the appetite from potential investors to research and obtain financial information and tips online shows little sign of dwindling since the Reddit GameStop phenomenon seen last year.
Take TikTok as an example. With more than 1 bn users worldwide, it is most often perceived as a channel for lifestyle, humor and dance routines, but is fast becoming a mecca for financial advice. Videos tagged with the hashtag #moneytok have had 10.6 bn views on the platform – more than #tacotuesday or #gossip.
And according to a survey conducted last year by financial advice website MagnifyMoney, nearly a quarter of investors aged 18 to 40 – and 41 percent of those aged 18 to 24 – have looked for financial advice on the platform.
Newcore Gold is a mining exploration company based in Vancouver with a retail investor base of around 30 percent. Speaking about the importance of social media for the company, Mal Karwowska, vice president of corporate development and investor relations, says: ‘I think digital and social media have grown in importance as a forum for connecting with retail investors. This was especially true during Covid-19: as more people spent more time in front of their screens, digital media was an increasingly effective tool for building brand awareness.
‘We may not be able to measure the immediate impact of one tweet on a company’s value, but we have seen improved brand visibility, which aligns with the longer-term goal of being focused on building an engaged community of followers.’
Sprout Social is also embracing the retail investors’ appetite for social media. ‘We take it as fact that the vast majority of retail investors seek out information on companies on social media and, given the volatility that has occurred over the past several years, institutional investors now do so as well,’ Rechel says.
‘We want to make sure our investor messaging is consistent across all channels, especially social, and ensure that investors can access all the information they need about us in the way that best suits them.’
Mal Karwowska, Newcore Gold
We take it as fact that the vast majority of retail investors seek out information on companies on social
Conscious investing In today’s market, ESG credentials are a given key driver and metric for success for companies of all sizes. People want to work for, buy from and invest in firms that put their money where their mouth is when it comes to being socially and environmentally responsible.
Research from GlobeScan carried out in 2021 found that 39 percent of retail investors around the world say they have invested with ESG in mind, and that half (51 percent) of US retail investors have done so. ‘I think retail investors first and foremost want outsized returns,’ says McCarron. ‘That being said, they also want to support a company with a team they feel engaged with and one that has strong ESG measures in place.’
Marty Palka, chief intelligence analyst for investor relations at technology giant Cisco Systems, agrees. With a 28 percent retail shareholder base, the large cap has recently repositioned its ESG communications to include its purpose work.
‘Retail investors want to profit from their investments but they are also driven by the desire to invest in socially responsible companies that can make the world a better place,’ Palka explains. ‘This year, we changed the name of our CSR Impact Report to the Cisco Purpose Report. This is bringing together our CSR reporting and the purpose work we are mapping and putting into operation across the firm.’
Marty Palka, Cisco Systems
Retail investors want to profit from their investments but they are also driven by the desire to invest in socially responsible companies
Talking tactics So how should IROs adapt to engage with the retail investor, if they haven’t already done so? For Karwowska, traditional methods can be mixed with more modern approaches to satisfy retail investors’ appetite for information.
‘I still think the ‘historical’ ways of marketing – in-person conferences, phone calls, releases, and so on – are very important tools when it comes to increasing retail investor ownership but it is important to adapt and be innovative,’ she says.
‘Social media and providing investors a way to connect with a management team virtually – for example, via Zoom – is a growing aspect of marketing that can improve a company’s retail shareholder base.’
Thunderbird’s communication tactic is to target both investor groups, as McCarron explains: ‘We make ourselves available and communicate to everyone through conference calls, regular news updates and participation in investor conferences that attract both retail and institutional investors.’
It’s worth remembering, however, that despite the recent growth in retail and all of the new options available to these investors, retail investing is not a new concept. Many long-established companies have a loyal retail investor base that has stood the test of time and has been ground-breaking in its own right – something Palka points out.
‘Many of our individual shareholders are long-term investors who have held the stock for decades,’ he says. ‘As a group, retail shareholders were among the first to request Cisco to issue dividends years ago. Now, at our most recent financial results, we announced increasing our dividend pay-out for the 12th time.’
Perhaps the final word on what drives retail investors is best summed up by McCarron as she comments on the freedom and independence that this group of shareholders seems to thrive on: ‘Today, more than ever, people want to make their own decisions in life, and this is no different for investors. Many people want to manage their own assets rather than having third parties manage investments for them.
‘The average retail investor is more sophisticated and has access to more information, allowing him or her to do his or her own due diligence at a faster pace – and allowing for swifter decision-making regarding investments.’
Reports of spiraling costs have been rife as brokerages charge companies for the proxy engagement of massive increases in investor numbers. Critics of the system point to the fact that many retail investors now hold very small numbers of shares, or even fractions of shares that ultimately add up to one or more whole shares. This, in theory, means a company could pay four lots of proxy distribution costs for just one share if four people owned a quarter-share each. Furthermore, brokerages might even give away shares as promotional rewards, so companies could be paying to send proxy information to those with no demonstrable interest in the company.
To tackle the problem, the NYSE submitted a proposal to the SEC to end proxy fees for managed accounts with small numbers, or fractional ownership, of shares. The new rule, Rule 451A, ‘prohibits member organizations from seeking reimbursement, in certain circumstances, from issuers for forwarding proxy and other materials to beneficial owners'. Additionally, the ruling bans fees for five or fewer shares, as well as fractional shares, for managed accounts.
In a letter to the SEC last year supporting the NYSE proposal, Marathon Oil Corporation said its proxy fee bill for one brokerage in 2020 was 2,402 percent higher than in 2019, representing distribution to 3,051 percent more stockholders than just a year earlier.
Another letter to the SEC, this time from Catalyst Pharmaceuticals, reports that from 2019 to 2020, the number of its shareholders with one of its retail brokers grew by more than 2,000 percent. Incredibly, Catalyst said its proxy distribution bill increased from around $12,500 to approximately $234,000 – something the company attributed directly to the retail broker’s promotional activities.
