Buyside Breakdown Part 1: Retail Investors

Part 1: Retail Investors

Retail investors are expected to account for over 61% of global assets¹ under management by 2030. As the face of the retail investor changes due to demographics, and as new technologies and platforms emerge, public company executives will need to adapt their approach to engaging with this important investor class.

Why Retail Investors Matter

Significant (and Growing) Buying Power

Retail investors are expected to account for over 61% of global assets under management by 2030⁷. In addition, retail investors include the Gen Z population, who are reputed to hold considerable consumer power through "The Great Wealth Transfer".⁸ According to a McKinsey & Company study⁹, this generation searches for the truth, a signal to companies to ensure they are transparent in their communications and deliver on their promises.

Impact

The retail investor segment has also driven an increase in impact investing¹⁰, especially by younger investors. This reinforces the need for companies to illustrate a connection between corporate profits and corporate purpose to appeal to this investing philosophy.

Influence

Social media forums allow individuals to deepen networking and wield influence among other retail investors. As witnessed in the recent past, some forums were used by retail investors to discuss trading strategies in order to create trade momentum in select securities. Single stock retail activism through trading has introduced the concept of a "meme" stock, one that has "gained viral popularity due to heightened social sentiment"¹¹.

In addition to forums, there is growing viewership of TikTok videos using #fintok and #stocktok that is used to relay messages about stock picking experiences to investment education¹².

Growing Accessibility

Retail investors primarily use online brokers, however the market has witnessed significant growth in the adoption of robo-advisor accounts and mobile trading applications by this segment. These newer platforms and accounts allow retail investors to take advantage of lower (or commission-free) transactions fees, easier payment methods, real time data access, gamification, and access to fractional ownership of securities. Greater accessibility and competitive fees have lowered the barriers for young investors to trade in the equity markets.

How to Identify Retail Shareholders

Companies often find it difficult to identify the actual retail holders of their stock. In rare cases where a retail shareholder elects to be a"non-objecting beneficial owner" (NOBO), a company can access information about such shareholder by requesting a NOBO list from the company's transfer agent. Unfortunately, most retail investors instead elect to be "objecting beneficial owners" (OBO) which prohibits a financial intermediary from sharing information with the issuer.

To help address this challenge, the TMX Investor Solutions team recommends that issuers build relationships with key brokers, financial counsellors, and private equity firms that recommend investment in their stock. These relationships can be used by the issuer to indirectly build influence among OBO shareholders on voting matters, or to better understand retail holdings.

How to Engage and Target Retail Investors

Building A Target and Pick the Right Channels.

With the decline of sell-side research, companies have increased direct targeting of retail investors via tactics such as organizing non-deal roadshows or participating in retail investor events. Conducting retail earnings calls or hosting online ask-me-anything (AMA) sessions with executives may be additional ways to provide these shareholders with a better understanding of a company and for the company to understand the concerns from retail investors.

Social media is a key channel for corporations to broadly reach potential retail investors. The various social media platforms have different benefits as well as limitations, so it is wise to create a social media policy that aligns with relevant exchange disclosure policies and consult with media experts before engaging through these channels.

Through these direct activities, it is essential that companies build a list of existing or potential retail investors - social media followers, influencers and retweeters, and contacts from conferences and roadshows.

Another source is website visitors: gating access to investor relations material through a contact form, or collecting subscription details for corporate news are two common tactics for generating retail lead sources.

Words (and Truth) Matter.

It is important for companies to connect with retail investors by using language that is not misleading but approachable and simple for non-industry experts. Corporate content should be easy to digest for retail investors (e.g., make use of infographics, pictures, and videos) and should be shared across key channels (e.g., website, traditional media, social media) that retail investors access.

In addition, artificial intelligence and machine learning used by robo-investing highlight the importance of ensuring the accuracy of news, online/social media sentiment, and the signals being produced by a company's trading patterns. It is therefore critical for companies to keep a pulse on what is being said on investment forums (and by whom) and possibly adjust communications or respond to incorrect information in accordance with internal and external disclosure policies.

Who Are You?

A corporate identity is critical. While your brand is your product, your identity tells the audience more about the company and your corporate purpose explains the role of the company in a grander sense. These elements are important to retail investors who seek transparency and truth. Reporting on environmental, social and governance topics are also becoming table stakes for corporations to help connect with potential investors, customers, employees and other stakeholders.

Footnotes:

1. The Institutional Share of Global Capital is Shrinking. What Does This Mean for Managers?, Institutional Investor LLC, Jessica Hamlin, March 10, 2022, https://www.institutionalinvestor.com/article/2bstmxkxtc18sjq0b0zr4/portfolio/the-institutional-share-of-global-capital-is-shrinking-what-does-this-mean-for-managers.

2. Ibid

3. McKenzie, John (February 9, 2021). TMX Group Limited Q4 2020 Results Conference Call [Speech transcript].
   https://seekingalpha.com/article/4404668-tmx-group-limited-tmxxf-ceo-john-mckenzie-on-q4-2020-results-earnings-call-transcript.

4. Canada Wealth Management – Market Sizing and Opportunities to 2025, GlobalData, July 30, 2021,
   https://www.globaldata.com/store/report/canada-wealth-management-market-analysis/#:~:text=The%20Canadian%20resident%20retail%20savings,the%20forecast%20period%202021%2D2025.

5. More than half of Canadians plan to own shares by year-end, Wealth Professional, Steve Randall, September 3, 2021,
   https://www.wealthprofessional.ca/news/industry-news/more-than-half-of-canadians-plan-to-own-shares-by-year-end/359479#:~:text=The%20figures%20from%20Finder's%20Global,%2C%20South%20Africa%2C%20and%20Mexico.

6. Canada Wealth Management – Market Sizing and Opportunities to 2025, GlobalData, July 30, 2021,
   https://www.globaldata.com/store/report/canada-wealth-management-market-analysis/#:~:text=The%20Canadian%20resident%20retail%20savings,the%20forecast%20period%202021%2D2025.

7. The Institutional Share of Global Capital is Shrinking. What Does This Mean for Managers?, Institutional Investor LLC, Jessica Hamlin, March 10, 2022, https://www.institutionalinvestor.com/article/2bstmxkxtc18sjq0b0zr4/portfolio/the-institutional-share-of-global-capital-is-shrinking-what-does-this-mean-for-managers.

8. Unravelling the Great Wealth Transfer, Wealth Professional, Jasmina Hazuria, August 21, 2023,
   https://www.wealthprofessional.ca/news/opinion/unravelling-the-great-wealth-transfer/378896.

9. Excerpted from "'True Gen': Generation Z and its implications for companies", November, 2018, McKinsey & Company,
   www.mckinsey.com.
   Copyright (c) 2023 McKinsey & Company. All rights reserved. Reprinted by permission.

10. Advisors must collaborate with clients on impact investing, finds survey, Wealth Professional, Leo Almazora, June 26, 2019, https://www.wealthprofessional.ca/investments/socially-responsible-investing/advisors-must-collaborate-with-clients-on-impact-investing-finds-survey/266752.

11. What Are Meme Stocks, and Are They Real Investments?, Investopedia, Paige McLaughlin, September 12, 2022,
    https://www.investopedia.com/meme-stock-5206762.

12. Welcome to FinTok, Where Day Trading, Options Investing, and Misinformation Reign, Institutional Investor LLC, Alicia McElhaney, September 25, 2020, https://www.institutionalinvestor.com/article/2bswzjicuhf5oapu1o074/culture/welcome-to-fintok-where-day-trading-options-investing-and-misinformation-reign.

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