It’s 2 a.m. and, half-awake, I’m shopping on Overstock. I see a cute pair of strappy sandals on the online retailer’s website. “These will look nice with the dress I just bought,” I say to myself as I add them to my cart. “Wow, look at that lamp on clearance. It’s so reasonably priced; I have to buy it.” Also added to cart. As I scroll to the bottom of the homepage, the words “FinanceHub” catch my eye.
At first, I think I must be mistaken. It is 2 a.m., after all. I decide to click the tab to learn more and soon I’m answering a quiz on my investment needs. The next thing I know, I’ve been matched with the IQ Large Cap Growth ADP. I click to buy it. Fast forward to the next morning when I wake up. I somewhat remember my Overstock buying spree. Was it all a dream, I wonder? Did I really buy stocks on Overstock?
Although the above scenario didn’t really happen to me, it very easily could one day. Overstock has launched a robo advice service that charges $9.95 a month for automated portfolios that are made up of company stocks, not ETFs. The robo advisor makes recommendations based on answers to how someone answers a quick questionnaire. For example, the IQ Large Cap Growth ADP that I was, in fact, matched with on Overstock’s robo advising site is marked as moderately risky and contains stocks ranging from a medical devices company to semiconductors.
Based on my age (don’t ask!) and the way I answered the quiz, this matching makes sense. My age would usually demand a more conservative investment style, yet my responses suggested that I was comfortable taking on risk. Combine the two and you have someone whose needs call for moderately risky investments.
Quite frankly, I wasn’t surprised by the news that Overstock is offering robo advice. In fact, the move calls attention to two key issues that I’ve been talking about for years: The wealth management industry needs to address female investors and it needs to use technology to market to potential and existing clients in ways that accommodate their communication preferences.
First, let’s talk about female investors. Financial advisors tend to ignore the investment needs of women — for example, they often only address the husband in a husband-wife pair. In a 2013 blog, I contended advisors can’t just treat women as a niche market. Well, it’s five years later and the situation hasn’t improved. The State of Advice and Guidance 2017, a study conducted by the data and consulting firm Hearts & Wallets, found that only about half of advisors give retirement age recommendations to the non-breadwinning spouse. True, some men are the non-breadwinners, but more often than not, it’s still women who are staying home in couples where one spouse doesn’t work.
Through its new offering, Overstock is capturing the market of middle- and upper-middle-income females that brick-and-mortar wealth managers have ignored. Moneyed female shoppers reportedly make up around two-thirds of the site’s shoppers. These women come to Overstock wanting to buy — or at least browse. So when investing is just as easy as buying new shoes, electronics or houseware, even the biggest robo skeptic can’t ignore that Overstock can reach potential female clients who would otherwise be unlikely to go to a traditional financial adviser to invest their assets.
Now let’s talk technology. Robo advice isn’t new and there have been plenty of options available to investors before Overstock’s offering came along in early February. What makes this one different, of course, is the fact that an online retailer is offering it. We all saw this day coming. However, industry executives thought that Google or Amazon would launch the initiative first.
So why Overstock and why now? Again, it all comes down to the moneyed female shoppers who make up the site’s clientele. Overstock’s CEO Patrick Byrne had the insight to look at his clientele and the wealth management industry and notice a disconnect between the two. The people who shop Overstock looking for a bargain aren’t necessarily the same people who would feel comfortable walking into a financial advisor’s office and talking about their retirement plans. Even wealth managers’ websites might give them pause simply because these shoppers may not feel like the type of people who go to a wealth manager, even online.
That is what makes Overstock’s robo offering so unique: It’s familiar. This familiarity — the memory of everything that a shopper has bought on the site and been pleased with — builds trust that future purchases, whether they be of stocks or shoes, will also be high quality.
Could Google or Amazon have offered retail robo advice? Sure, but they didn’t. Does Overstock’s robo advice service pose a threat to traditional wealth managers? No, but as Byrne said in an interview, that’s by design: Overstock is going after a different target investor. Yet that is exactly the problem. Traditional financial advisors should be targeting middle- and upper-middle-income females — not as a niche, but as people.
For the wealth management industry, Overstock’s move into robo advice should be the wake-up call: Financial advisors can’t afford to ignore women.