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How employers can help avert an investor confidence crisis


EQ’s 2022 Shareholder Voice survey has revealed a growing wave of retail investors who lack confidence and control over their investments – and risk developing a phobia of equity ownership.

Investors who said they understand little about their portfolio and feel they are making uninformed decisions increased from 7% in last year’s survey to a worrying 26% this year. Only 4% of this cohort were employee shareholders, who tend to be more confident.

The uninformed cohort are most likely aged 41 to 56, and 59% are female. They are more likely to have bought shares on advice from others but have been shocked by manic price swings over the last 12 months. Some have had to sell shares due to the cost-of-living crisis, and many invested in small companies.


Weirdest time ever

Brian Feroldi, investment educator, Motley Fool writer and YouTuber, says it’s not surprising some new shareholders feel traumatised because the period since the start of Covid has been the weirdest investing time ever.

“During Covid lockdowns, millions of people tried investing for the first time,” he says. “This coincided with the rise of crypto investing, Reddit campaigns, meme investing, and tools like Robinhood that made it incredibly easy to get exposure to the stock market. Unfortunately, the first lesson many of them learnt was ‘whatever you buy, you will be quickly rewarded with up to 100% gains.’ Then they learned the exact opposite. As volatility, inflation and the Ukraine war hit, however you invested, you lost.

“So, millions of people had a horrible introduction, and it’s a tragedy because the stock market remains the best way for investors to build long-term wealth.”

But how should issuers respond? Zally Ahmadi, senior vice president, corporate governance, ESG and executive compensation, EQ & D.F. King, says: “If a Robinhood investor loses money on your stock in the short-term, it’s not your job to soothe them. But if there is global market disruption, you should increase disclosures, so all investors understand the impact and your prospects.

“You can reassure them by communicating how you are ensuring stability, strength and long-term returns. Shareholders have rightly been asking for much more information over the last 30 months and many companies have improved their engagement well to help soothe investor nerves.”

Of course, not all investors are nervous. Despite the recent wild ride, about two-thirds of US retail investors held on to their investments, according to a July survey conducted by financial services firm eToro.

Shareholders increasingly likely to describe themselves as understanding ‘very little’ about their portfolios

Shareholders who would describe themselves as:

Shareholder Voice 2022

A wider education?

Many of these new shareholders who are feeling jittery have not been trained about the need to hold equities long-term and ride out the frequent peaks and troughs, says Feroldi. He says many have accessed “financial education” on social media – some high quality, but much of it not.

Feroldi says he would love issuers to offer more quality education to their new individual shareholders. “The best companies do a good job educating their shareholder base – the textbook example being investment firm Berkshire Hathaway,” he says. “But many others explain the case well for investing in their business but don’t emphasise the risks or provide more general education. To attract high-quality retail investors, they should also provide this more general education and make it as easy to understand as possible.”

Cliff Weight, director at the UK Individual Shareholders Society (Sharesoc), agrees there has been a lack of good financial education available for individual shareholders. One of Sharesoc’s aims is to address this, including with some upcoming videos aimed at younger investors.

“People blindsided by falling stock markets would not be so surprised if they had education,” he says. “Socially responsible employers will provide such education. We’ve also talked to the FCA about providing it at point-of-sale when people buy shares – although at present they say they prefer to nudge platforms, rather than grandstand on the issue.”

Thera Prins, CEO of Equiniti Financial Services UK, says many companies offer vast e-learning modules to their employees and could use similar solutions to inform and educate their retail investor base. This education could be part of a more front-footed strategy to engage with your shareholders, she adds. Greater engagement and better financial education would lead to more investing by individual shareholders. A recent study by BNY Mellon and the World Economic Forum found 75% of current retail investors would invest more if they had greater access to investing education.

Company Communications Under Fire

Shareholder satisfaction with communications from companies they invest in has plunged this year – down to 46% from 62% in 2021. The fall is expected given investors’ tendency to question what went wrong after they’ve lost money. But Richard Pearson, CEO at EQ Financial Services, says companies should still respond with a laser focus on continuous communication.

“When markets are rising, it’s easy to forget the need to communicate well because people feel good anyway,” he says. “The survey highlights that if you forget the communications, people will be left floundering when things get tougher.”

He adds that companies can also help struggling shareholders by developing their support for vulnerable investors – something EQ has invested much in recently. This investment has included vulnerable customer courses for over 600 staff; software with speech analytics to identify and record vulnerable customers’ needs; Dementia Friend training for 700 staff; an accessibility and inclusion hub; and charity partnerships.

An example of how this investment helps was a scheme member in crisis who called EQ wanting to support their family if they were no longer around. Thanks to their training, the colleague who took the call was able to identify vulnerability trigger words and act immediately, while also dealing with the member sensitively.