Investor Relations Business

Consistent Retail Outreach Pays Off: As Individual Investors Return to the Market, Will IROs Be Waiting_

Howard Stock

November 24, 2003

While many companies are focusing their IR efforts on institutional investors, retail investors are now starting to return to the market, and their collective portfolio worth combined with their long-term outlook makes them an attractive target.

"Companies still need to do institutional outreach, but some are now seeing a lot of reasons to focus on retail investors. Targeting retail investors calls for a less scientific approach, but those companies that do so now could clean up," FRB/Weber Shandwick Executive VP Moira Conlon said.

BankAtlantic Bancorp VP of IR and Corporate Communications Leo Hinkley agreed, adding, "Individual investors are probably the most ignored demographic-companies typically court analysts at primaries and institutional investors. But the buying power of retail investors is as strong, if not stronger."

Retail investors maintain portfolios averaging $62,000 in value, although the range of portfolio sizes varies greatly. While 12% of retail investors have more than $100,000 invested in stocks, some 37% have portfolios worth less than $5,000, according to recent figures.

Regardless of portfolio size, retail investors tend to be long-term holders, staying in stocks for an average eight years, found a Harris poll conducted by the National Association of Investors Corp. (NAIC), which polled over 1,000 individual investors nationwide.

Figures for NAIC's 275,000 members are even higher. Average member portfolios total $301,300, with organization-wide monthly reinvestments of $190 million. Total portfolio value of all NAIC members is $125 billion.

Market Timing

Three-quarters of individual investors said they had spent some time researching investment ideas online over the past three months. While only about half of individual investors are confident the market will pick up soon, over three-quarters of retail investors expect the market to be back on its feet within five years, well within their eight-year horizon.

"They're certainly not jumping back into the market, but they realize they need to be there and that the current market presents a price advantage that will be gone in a couple of years. Their confidence has been damaged, but those that do solid research will do well. Individual investors are still buying stocks," NAIC Director of Corporate Development Martha Stephens said.

Only one-fifth of respondents had bought or sold stocks online in the past three months. Instead, they seem to be turning more to investment professionals. Some 57% said they had used a financial professional-such as a planner or advisor-in the past year. As such, contacting retail brokers is a sound strategy, Conlon said.

"Companies should look at which firms' retail analysts cover their stocks. The low-hanging fruit is the easiest to harvest, so a bank's retail sales force is key. I'd advise approaching branch managers directly and asking to meet with their brokers, doing breakfast with some and lunch with others," she said.

Before a company goes on the road, its story must be repackaged for the retail audience, with a fact sheet and a presentation that speaks to brokers.

They're typically interested, but 20 minutes is about their limit. Direct mail campaigns also work, but bear in mind that it will take at least five or six broker interactions to get them on board, Conlon said.

"Companies need to be consistent with their outreach. Institutions will commit a lot of money to a stock after one meeting if they like it, but brokers are only able to put it into their clients' accounts as the money becomes available, so IROs need to look at results over time," she said.

However, while companies could once rely on banks' retail broker force to get the word out, the shrinking population of sell-side analysts means that many smaller companies are having to start the initial outreach themselves.

Grassroots Campaign

Small and micro caps without coverage should work with regional firms, and network with brokers who are already in their stock to find out who they know. Companies can also mail their individual investors through their transfer agents to ask them who their broker is, Conlon said.

"The biggest challenge of retail targeting is reaching those 84 million people for the least amount of effort. If a company can get brokers on board, that can be very effective. Using the media is also a great way to reach out to retail investors, but follow-up is key," she said.

Hinkley uses such a technique to reach his retail audience.

"First, we distribute press releases through a database of brokers. Plus, we use a voluntary-registration e-mail broadcast. We also built up relationships with analysts who produce reports for retail investors. We also built up relationships with the press-TV, radio and newspaper-to run support articles," he said.

This last strategy-media outreach-is key to reaching the retail audience, which tends to put more stock in a company featured in a newspaper or a magazine.

However, this is easier said than done for smaller companies, especially those without a consumer brand name. As such, IROs have to get creative, Broadgate Consultants Managing Director Alan Oshiki said.

"I'd target the trade publications for analysts and general finance publications for retail investors. But you have to have an angle, something with news value and something that isn't negative. Is there something interesting about management's position on an individual issue_ Is the product innovative_" he said.

Besides the media, there are other classic routes, such as working with broker societies and analyst societies, especially in second-tier cities. While these events tend to get mixed audiences, they seem to be receptive, Oshiki said.

Paid research is always an option, but companies have to be careful; they should follow National Investor Relations Institute guidelines, with a clear disclosure that it is a paid piece, without a recommendation-basically, a fact sheet, he said.

Patience Is a Virtue

Above all, companies embarking on retail outreach programs have to be patient. While institutions are able commit capital in the short term, retail outreach programs can take six months to a year or more to show meaningful results.

In the long run, a retail outreach program can pay off, as it did for BankAtlantic. Hinkley began a retail outreach program two-and-a-half years ago, which has proved productive despite the bear market. In fact, growing its retail base has encouraged greater institutional interest, he said.

Institutional investment in BankAtlantic is now 50%, up from 30% when it started its retail program, and volume is up from 78,000 to between 300,000 and 400,000. Additionally, the bank, which was trading at 83 cents per share, is now up to $17.90 per share.

"A lot of that success is down to retail investment," Hinkley said.

Companies may not like that marketing to retail investors is based on impressions, not a scientific process, as it is with institutions, but it's a gradual process based on identifying position builders and working them, Conlon said.

"There is still a fair chunk of change on the sidelines," she said.

Moreover, individual investors tend to be long-term holders, and they tend to vote with management.

"Institutions may be easier to target and manage, but they can hurt a company's stock real bad. Companies need a retail base to fall back on when something happens," Stephens said.