Over the past several years, retail investors have played an increasingly important role in US equity markets. A recent Goldman Sachs report estimated that 38% of US stocks are now held directly by retail investors. And a recent study by the World Economic Forum (WEF Report) projects a 20% CAGR in stock trading app annual users from 2016 to 2025.
These trends have been driven by lockdowns, the surge in household savings and the meme stock phenomenon during Covid; the proliferation of commission-free brokerage platforms; fractional share ownership; social media activity, particularly the rise of financial influencers and growing online investment communities; a greater focus on retirement saving by Gen Z; and the Great Wealth Transfer from Baby Boomers to subsequent generations. Given these secular trends, there is every reason to believe retail shareholders will be an increasingly important constituency.
Still, most investor relations teams focus on engaging with institutional shareholders, given resource constraints and the historical influence of institutions. They generally pay attention to retail shareholders only when they face a disruptive event like a contested proxy vote. But in doing so, they’re underestimating the power retail shareholders can wield. Retail shareholders are more likely to support the company in difficult times as well as to be vocal advocates for the company in all times. Further, recent developments in proxy voting are giving retail shareholders even more of a voice; with pass-through proxy voting, some institutions that have historically voted proxies on behalf of retail shareholders are giving these shareholders the ability to vote directly or are polling them regarding certain issues on the proxy.
Understanding your retail shareholders
As retail shareholders continue to play a larger role in ownership and trading, IR teams need to understand them better to engage in a more proactive, deliberate manner.
Many IR teams do periodic institutional investor perception studies, but few companies do analogous studies of retail shareholders, which can be done relatively easily and inexpensively. Research will offer insight into who a company’s retail shareholders are, what matters most to them, how well they understand the company’s strategy and other details that help shape ongoing targeted communications.
IR teams also need to understand how and where retail shareholders obtain information and to meet them where they show up most - online. For example, younger investors use a wider variety of information sources, including peer networks and social media, than other cohorts. According to a recent report by J.P Morgan Wealth Management, most Gen Zers look to TikTok and Instagram for financial information, while Millennials mostly use Facebook.
Engaging with retail shareholders
Engagement begins with consistent, targeted storytelling, reworking traditionally dense financial content for easy consumption in digital environments. Storytelling can highlight a new product or geographic market, a new state-of-the art facility and so on. The goal is to provide engaging content in easy-to-find online spaces, guided by research findings that help create a two-way dialogue.
Some companies are hosting retail-tailored investor days with product demos and Q&A sessions. Podcasts, “finfluencers” and AI-driven platforms are becoming credible, even preferred sources of information for individual investors versus traditional earnings calls.
Retail shareholder engagement is particularly important in times of uncertainty, when shareholders are susceptible to the voices of influencers with limited investment knowledge. Research has shown that investors who are heavy social media users are more likely than light users to trust and follow what other investors are recommending and doing.
Artificial intelligence
The rapid adoption of Artificial Intelligence has important implications for retail shareholder engagement as well. According to the WEF Report mentioned above, 41% of Gen Zers and Millennials would allow an AI bot to manage their portfolio. This means companies must adapt investor content to fit Large Language Models (LLMs).
Investors are increasingly using generative tools rather than links to get answers to questions about investments. As a result, Generative Engine Optimization (GEO) is becoming as important as, or more important than, Search Engine Optimization (SEO) for IR teams. GEO is increasingly shaping how LLMs interpret and summarize disclosures. For example, instead of reading your earnings release, a retail investor may look for an AI-generated summary.
As retail shareholders continue to become an important stakeholder, continuing to evolve communications through research, a two-way dialogue and new channels can help build a more loyal base of informed, supportive shareholders.
