There are more than 660,000 brokers registered with the National Association of Securities Dealers (NASD). Maintaining contact with each of these brokers over a long period of time is not always cost-effective, given the relatively small volume of share purchases that each one may generate. Given this problem, the best way to maintain broker relations is to determine which ones are considered opinion leaders by their peers, and ply these key individuals with a continuing stream of information about the company. If the opinion leaders are convinced, they will pass along their opinions to their broker networks, which in turn can create a significant amount of share purchase volume.
An excellent approach for meeting brokers is to sponsor a gathering at a public venue shortly after the markets close. Alternatively, consider sponsoring a luncheon at a brokerage firm (where participation rates are usually very high), or at a popular local restaurant. In either case, the company pays for all food and drinks provided. The presentation should be short, certainly no more than 30 minutes, and should give brokers an overview of the company’s operations and prospects. The emphasis in this type of presentation is much less on numerical performance, and more on a company’s story. Have written materials available for any brokers interested in additional information. Broker meetings usually include many participants, who are free to informally arrive or leave during presentations. The better brokers who will be of the most assistance in creating new stock sales may be difficult to identify or chat with, since they are so busy that they are likely to arrive late and leave early.
If a company has a low level of market capitalization (a “micro-cap”), it will have a difficult time attracting brokers, because most of them are told which stocks to pitch to their clients, and those stocks almost always involve companies with larger capitalizations. To avoid this problem, do not waste time contacting brokers with conservative clients (usually those approaching retirement age), since these clients are unlikely to put their money into a higher-risk investment. Also, only deal with brokers having at least 10 years of experience with the same firm, since these individuals are more likely to have been given some leeway in making stock recommendations. These more senior brokers are also more likely to have high net-worth individuals as clients, who are more likely to make investments in micro-cap companies if there is a significant level of perceived reward.
Another alternative for locating brokers willing to recommend micro-cap stocks is to call local brokerage firms after trading hours, and ask the branch manager if any of their brokers specialize in companies with lower market capitalizations. Another option is to hire an investor relations firm that already knows these brokers, and who can arrange introductions with the investor relations officer.
A broker does not need as detailed a set of information as would be required by an analyst. Instead, they require information about only a few key issues, which they will pass along to their clients. They are looking for stock that is actively traded, so their clients can easily buy and sell without any liquidity problems. Also, a company should have a solid performance record, in the form of multiple quarters of gradually increasing profitability. Finally, a company should have excellent visibility in the marketplace, in the form of active public relations and investor relations programs. If these three factors are in place, a company has the capability to attract the attention of a large number of brokers.
Brokers are especially appreciative if the company creates for them a pre-packaged set of sales pitches and supporting information that they can use to pitch the company to their clients. There can be several variations on the sales pitch, which the company can create based on conversations with key brokers. In addition to the sales pitches, consider issuing reprints of articles about the company, which brokers can pass along to their clients.