Harnessing the power of retail investors

Retail investors play a major role in stock markets today, propelled by a surge in investor activity that has continued to accelerate in a post-pandemic market. For public companies, this constituency group is a powerful, and necessary, force to harness.

According to data from the World Economic Forum, retail investors accounted for 52 percent of all global investments in 2021, which is expected to grow to over 61 percent by 2030. Further data from Visual Capitalist revealed that peak net retail flows in 2023 were 84 percent higher than in 2019, and the highest in-flow of retail capital in history on a single day exceeded $1.5 bn in the United States.

Retail investors not only affect stock prices due to their massive buying powers but also have become a major force in the outcome of many key corporate votes, especially proxy battles. Public companies, especially large public companies, that know how to engage and communicate with retail investors effectively can mean the difference between gaining the votes necessary to support their corporate agendas or losing a critical battle.

What’s important for public companies to realize is that there are a wide variety of retail investor groups, each with their own investment goals and interests. Messaging that appeals to one constituency might not appeal to another. This speaks to how critical it is to tailor engagement with each investor group appropriately, depending upon the company’s agenda or type of industry.  

At Alliance Advisors we believe successfully communicating and engaging with retail investors begins with understanding their unique profiles, identifying under which constituency group the company or industry’s retail investors fall, and then catering to that constituency group’s specific investment goals and interests.

Communication channels

In the digital age, communication channels also have changed, including ways of engaging with shareholders. The traditional route of the chairman or CEO writing a lengthy “to our shareholders” letter to investors to remind them to vote has little to no impact anymore. It’s akin to burning money in the trash can, where these letters often go.

Oftentimes, letters to shareholders fail because they contain the same boilerplate language sent to all investors. There is no customization.

One of the best ways for a public company to effectively get its message across to compel retail investors to act is to better understand the demographics of its shareholder base by obtaining and researching shareholder lists periodically. This is quite important, as it allows management to formulate the necessary public relations strategy in advance of a possible proxy campaign and even possibly predict the voting outcome of their retail base.

Another effective way to appeal to retail investors is to approach it much like a political campaign by seeking to more clearly understand which constituencies the company seeks to target, how this targeting campaign needs to happen, and what key messages the company is looking to get across.

It’s also very important that public companies get very creative with the messaging channels they use to reach out to these constituency groups. To effectively engage with today’s retail investors, it’s important to utilize communication channels like social media, email and text messaging.

Lastly, because large-scale retail engagement campaigns are costly, especially to retail investors imbedded in “street” name, performing a cost-benefit analysis and tracking the outcome is another important step. Gone are the days of just droping a drab message to “street” name shareholders, its simply too expensive and produces no measurable result

Keep in mind that the biggest issue many public companies face isn’t “against” votes by shareholders, but that many often do not vote at all. Public companies often will not even pull shareholder lists until they need a vote. Ongoing communication with shareholders is severely lacking, and there is no real call to action. This is a missed opportunity.

Companies should not fear communicating with retail investors but rather think critically and deliberately about how to harness the power of this silent majority.