Grand Illusion

Like motherhood and apple pie, everyone extols the individual (retail) investor.  Business leaders, regulators and institutional investors feel a strong fiduciary responsibility to growing and protecting the value of the investment everyday people have in the financial markets.

People bandy about big numbers like 43 million U.S. households have a retirement or brokerage account[1]; U.S. retail investors have discretion over approximately $9.8 trillion in equity capital[2]; or $812 billion of hedge fund assets belong to retail investors[3] to impress upon others the importance of individual investors.

So, with all that potential equity capital out there, why aren’t more companies actively trying to recruit them?  Well, from an investor relations perspective, the significance of individual investors is something of a grand illusion.  Let’s unpack this and go beyond the headlines by analyzing retail investor data in the Federal Reserve’s 2016 Survey of Consumer Finance.  This survey, repeated every three years, was what I relied on for individual investor data when I directed a retail investor program many years ago.


First, the most common reason the average person invests is to save for a long-term goal, like retirement.  Data backs this up, with more than 52% of U.S. households having retirement accounts.  Most often such retirement accounts are 401(K)s, where the account holder chooses among the various funds available through the 401(K).  In such cases, the account holder is not choosing specific companies to invest in, that’s the fund manager’s job.  Consequently, from an investor relations perspective, it’s the fund’s portfolio manager or analyst, not the retail investor, who IROs interact with.

Retirement accounts


Next, I suspect that the vast majority of retail investors have day jobs.  They only have so much time to spend researching and making investment decisions or monitoring the markets.  So, retail investors do the smart thing – they invest in vehicles like mutual or exchange traded funds to benefit from professional management and the resources fund managers bring to the table.  As you can see below, about 10% of U.S. families have pooled investment accounts, representing a median investment value of $114 thousand.  Again, the individual chooses the fund, not specific companies, so the IRO’s focus is on the portfolio manager or analyst, not the retail investor.

Pooled Investments


Now, where engagement with individual investors makes sense is when stock is owned directly.  Nearly 14% of U.S. families hold stock directly, which translates to roughly 17.5 million households.  However, with a median investment value of $25 thousand, likely split between a handful of companies, I’m hard pressed to see companies prioritize retail investors as a source of new or sustaining capital. What’s surprising is that these numbers aren’t higher and have, in fact, declined since 2001 despite the ease, low cost and ready access to information today’s brokerage industry provides retail investors through online and full‑service offerings.

Direct ownership


In my view, targeting retail investors shouldn’t be a priority for IROs.  However, I caution against disregarding them altogether.  For well-known or consumer-facing companies, retail investors may be customers and can be arbitrators of corporate reputation.  Further, retail investor ownership can have a stabilizing effect on a stock, as retail investors have long investment horizons and rarely act in herds.  Finally, the importance of retail investor support during proxy contests is well documented.  To that end, companies should:

  • Have an easy to use investor relations website with retail investor-focused information and FAQs
  • Leverage social media channels to cost-effectively keep retail investors informed and engaged
  • Offer a direct stock purchase plan (DSPP) if the company is a dividend payer or has significant employee stock ownership.

As for actively recruiting individual investors, there may be a few circumstances where this makes sense.  In such cases, I recommend IROs carefully consider the significant difference between the mean (average) and median investment values included in the tables above to help decide how to allocate time and resources.  For example, based on the data, you may decide you want to reach a high net worth audience via the wealth management and family offices that serve them, so consider opportunities like Three Part Advisors’ Ideas Conference or the Advisor Access newsletter.  Alternately, a more broad brush approach may have you look into forums like the Money Show.

Bottomline for IROs:  don’t let the big numbers associated with retail investors distract you.  The majority of retail investors invest via professionally managed funds at the institutions you already interact with.  But do treat retail investors with respect by ensuring access to information, quality services and updating them on important matters.

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

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[1] The Evolving Market for Retail Investment Services, Remarks by Jay Clayton at Temple University, May 2, 2018

[2] Retail Investors:  How to develop a Strategy for Reaching These Sophisticated Investors, Money Show White Paper, June 2018

[3] Retail Investors Hold 38% of U.S. Equities, Vikas Shukla, ValueWalk, March 6, 2013

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