Don’t treat small investors like they’re dumb

By Dominic Jones

I WROTE recently about why treating retail investors as if they’re less sophisticated undermines their confidence and trust in companies and the capital markets.

One thing I touched on, but didn’t go into detail about, is just how angry it makes retail investors when investor relations departments, regulators and other market participants treat them like lesser investors.

This story — SEC hears an earful on hedge fund change — in the San Francisco Chronicle demonstrates that point better than I ever could.

One part of the article that drove the message home for me was this (emphasis mine):

Seth Stafford, a software manager from San Carlos, told the SEC, “There is no intrinsic reason to deny access to major investment opportunities at an arbitrary dollar net worth threshold as the world has its share of poor-but-smart or wealthy-but-dumb investors who are ill-served by such distinctions.”

Stafford says he has no investments that would be affected by the rule, but submitted a comment on principle.

People react strongly when they perceive that they or others like them are being discriminated against. So it goes without saying that IR departments should avoid practices that discriminate against retail investors or that treat them as if they’re stupid.

Yet IR departments do it all the time, sometimes without realizing it. Perhaps the worst practice of all is setting up separate websites for retail investors and industry professionals, something companies in France like doing.

You might think you’re earning Brownie points with individual investors, but all you’re really doing is calling attention to the fact that you treat different investors differently. Consultants who tell companies to do this clearly have no idea what they’re doing.

Besides which you’re just wasting your money because retail investors are going to use the institutional investor version anyway.

There are exceptions to this rule. Some practices targeted specifically at individual investors can be good. Usually, though, these involve providing retail investors with access that they otherwise wouldn’t have.

More tips below the fold of this article.

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3. SEC unveils IDEA — and that’s all it is for now
4. Cox to announce IDEA will replace EDGAR
5. SEC greenlights "notice-and-access" news releases

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