Companies are turning to social media to connect with growing numbers of retail investors. But some remain wary, questioning the return on investment for time-strapped IROs and the risk of losing control of their message. Hemma Visavadia reports
Company relationships with retail investors are shifting, moving away from traditional strategies that looked to prioritize large shareholders and instead focusing on retail investors, who are growing in number.
How companies are handling the growth of retail investors varies, with many wanting to find better methods of engagement and communication with them. One way is through social media.
Valmet, a Finnish developer and supplier of technologies and automation for the pulp, paper and energy industries, took its first step in engaging with retail investors last year when it launched on Instagram.
‘We’ve been trying to innovate and build new things that stand out,’ says Pekka Rouhiainen, director of IR at Valmet. He explains that the main reason for joining the social media platform was the company’s large retail following: it has more than 57,000 Finnish retail holders who own roughly 14 percent of the business.
Meeting investors in their worldDr Eloy Barrantes, managing director and CEO at nexxar, which specializes in the conception and implementation of online reports, says in many European markets the number of retail shareholders is ‘growing strongly now’. In Germany, for example, he says there have ‘never been so many’ private investors, especially among the under-30s, who make up the fastest-growing group of investors today. Yet in his opinion, despite the large numbers, IROs are not prepared for this new investor generation.
He questions the effectiveness of standard communication methods, such as annual meetings, printed annual reports, ad hoc announcements and analyst calls, which date back to the last millennium. ‘I don't think IROs can reach the new generation of stakeholders with these old forms of financial communication,’ Barrantes says.
Many young investors already use social media as their favorite source for research on investment ideas, he explains. This growing generation will soon become IR stakeholders in professional contexts, as analysts, investors, journalists and bloggers, bringing their digital approach to media and communications to the business space.
Looking at how social media can connect IROs with retail investors, Barrantes says companies spend hundreds of hours on the preparation of their IR content through presentations, news and quarterly statements ‘but very little time on the proactive communication of this content’. Social media can offer a ‘perfect outlet’ to share existing IR content and reach more stakeholders, especially retail investors, he says.
IROs need to understand the mechanics of social media and apply them, however. They need to become ‘financial content’ creators. ‘There are a lot of IR topics to create content around: important company news, earnings releases, AGM information or ESG topics,’ Barrantes notes.
But the attention span of the average user is particularly short on social media. To combat this, digital IR content must be ‘snackable and simple’. Barrantes says IROs can learn a lot from finfluencers – digital opinion leaders on social media who can influence the investment decisions of their followers – who dominate financial information on social media.
‘Besides the professional finfluencers, there are of course also many black sheep,’ he points out. ‘And many finfluencers do not comply with the rules of financial communication. I see the biggest danger when retail investors put too much trust in dubious finfluencers.’
Duncan Leslie, vice president of product at Tumelo, questions the impact on authenticity that using a finfluencer will have on a company. ‘I think that will be a challenge – does it represent your brand in an authentic way?’ he asks. ‘In my experience, it’s a dangerous game to get into because that finfluencer isn’t on the hook in the same way you are as the company.’
The real danger is companies that may get into difficulties because of something their finfluencer says or does, Leslie warns: ‘The company can get into trouble because it’s essentially advertising through an intermediary, but it doesn’t escape the responsibility for what that intermediary is doing.’
Transparency is keySo how can IROs balance the need to use social channels to build a brand voice against being a corporate black box and ultimately grow trust? According to Leslie, transparency is key and should be protected. As social media is a broadcast medium in which everyone has a ‘potentially very loud voice’, however, it’s difficult to tailor messages to the right audience, which risks alienating or even antagonizing some segments.
While the advent of online trading platforms and mobile apps has made it easier for retail investors to access and analyze company information, it is crucial that firms use social media and other online platforms in a responsible manner, says Maxim Manturov, head of investment research at Freedom Finance Europe, an online broker.
He suggests social media can also be a useful tool for companies to build and maintain relationships with their investors by providing a more personal and direct way to communicate with them. It is important to note, however, that social media is not a ‘one-size-fits-all solution,’ he points out.
Its effectiveness may vary depending on the company and its target audience so, before using social media, IROs must develop a ‘clear and consistent’ message that fits their overall communication strategy. Manturov says this message should be consistently communicated
across all social media platforms. ‘Companies need to develop a social media policy with guidelines for how employees use social media and how they should interact with customers and the public,' he explains.
‘They should also train employees on how to use social media effectively, how to respond to negative feedback and how to handle sensitive information.’
Regulating the spaceThe question of whether there should be more regulation governing how retail investors access financial information online is a complex one, according to Manturov.
He explains that while increased regulation could help ensure retail investors are provided with accurate and reliable information to help protect them from misinformation and fraud, it could also ‘stifle innovation’ and make it difficult for new and emerging companies to engage with retail investors.
One possible solution, he suggests, is to introduce rules aimed at ensuring the accuracy of the information provided to retail investors, rather than limiting the channels through which it is provided. This could include measures such as requiring companies to disclose their sources of information and verify the accuracy of the information they provide. Social media platforms could also be required to take measures to prevent the spread of misinformation and fraud, and to monitor and remove any content that violates the rules.
I don't think IROs can reach the new generationof stakeholders with these old forms of financial communication
The rise of retail investing has brought with it a host of new challenges and considerations, says Alyssa Barry, principal and co-founder of irlabs. One of the most pressing issues she highlights is how to regulate the access of retail investors to financial information online. One of the key benefits of increased retail investment is that it leads to more information in the market, which helps to establish more efficient prices, she says, while more capital invested by retail investors helps to fund the growth of the economy.
She argues, however, that some new investors may be easily influenced by ‘poor-quality information’ and therefore additional regulation is needed to protect them. Overall, striking a balance between promoting accessibility to the markets and ensuring appropriate protections for retail investors is crucial.
New investors are not easily categorized as ‘dumb money,’ Barry continues. The narrative that retail investors are making systematically poor investment decisions ‘is not supported by research, so it is important for regulators to take a nuanced approach to the issue of retail investment, taking into account the benefits and potential risks.’
The biggest danger [is] when retail investors put too much trust in dubious finfluencers
'Necessary precautions’Maintaining control over the main message IR professionals are trying to get out there is tricky. Social media is a public platform, which can make it difficult for a company to control the message and ensure the accuracy and consistency of the information communicated, Manturov says.
Social media platforms can become a breeding ground for negative comments and criticism, he adds.
‘One comment taken the wrong way can spiral into something much larger, so managing this response to negative feedback professionally and effectively will be key,’ he says. Firms should also be aware of the risks associated with sharing information on social media and take the ‘necessary precautions’ to protect confidential information.
The storytelling element is also an ‘extremely important’ part of what hooks interest, Barry says. As social media is considered a newer space to engage investors, posts may need to be thought of a little differently and created for a range of audiences to engage a multitude of investors.
With updates, for example, retail investors have typically browsed IR pages historically; with social media, however, the focus is on the present. ‘Don’t just tell your story once. You need to tell it repeatedly in varying ways to maintain interest and engagement,’ Barry says.
Retail investors might also ask for financial guidance on social media, she adds, warning that IR professionals need to be very careful in their engagement with the online community, making sure to answer questions with accurate and appropriate information, while being ever-mindful of any potential regulatory violations.
This requires a ‘thorough understanding’ of the legal and compliance requirements surrounding social media engagement, she says, and the ability to navigate these challenges while still effectively communicating with investors carefully. Social media is an important space and trying to avoid it at this point is ‘losing a significant opportunity,’ she concludes.
