As banks, wealth managers and fintech startups have all squared off in the robo-adviser space, one player has been conspicuously absent — a tech giant.
A number of industry executives long expected that initiative would be headed by either Google or Amazon, the latter particularly because of its retail distribution and ever-growing ambition.
Most then could be forgiven for overlooking the first online retailer to crash wealth management.
Overstock.com — the same dot-com you might check out when you’re looking for affordable furniture, a coffee maker or a new handbag; the same dot-com that had the actress on TV telling you why "it’s all about the O" — announced last week it was launching a robo-adviser driven by “unbiased artificial intelligence."
Rather than be threatened, the financial advice industry was amused. Registered investment advisers investors mocked the new venture on social media.
But Overstock.com CEO Patrick Byrne defended his robo-adviser, which he said looks to exploit ongoing investor mistrust in Wall Street and also capitalize on a traditional blind spot for financial services.
“Sneer as they may, I would love to compare alphas,” Byrne said in an interview by email late last week. “What they are missing is that we have as many as 40 million unique visitors per month, and they trust us."
Overstock.com's robo-adviser offers automated stock portfolios for $9.95 a month, and users are sorted into a range of three investor profiles: conservative, moderate and aggressive. Or, they can mix and match and make their own portfolio. It’s a simple, two-step questionnaire to get in. The portfolios are made up of company stocks, not the exchange-traded funds that other robos usually offer. Byrne called the portfolio “a personalized ETF.”
Overstock’s robo doesn't currently support employer retirement plans, but that integration is coming soon, the company promised. There’s no adviser-staffed call center waiting to take portfolio questions right now either; all the investments are handled via AI and algorithms, courtesy of FusionIQ, an analytics shop based in Wellesley, Mass.
It's no challenger to traditional wealth managers, but Byrne said that's by design. “Swanky financial advisers serving the wealthy are not our natural target," he said. "We intend to serve the mass of middle- and upper-middle-income females who shop on our site.”
These are the very women to whom wealth management only pays lip service, if you believe the industry’s critics, even though such women control much of the $14 trillion in assets that the industry likes to cite in promotional material. Byrne, by contrast, has long touted the buying power of women, and Overstock was a pioneer in catering to their specific shopping habits and needs.
So without having to pink it and shrink it, or post inspirational blogs on LinkedIn, Overstock’s robo at launch already has access to a moneyed female clientele — an estimated two-thirds of the retail site’s shoppers. The robo plugs into Overstock’s existing financial services hub, touted as “a one-stop source for brokerage and advising products, lending products, credit card products and insurance products presented by various financial institutions.” The logic is that if they trust Overstock to save them money on purchases, they might trust the company to help them save money for retirement, too.
“We are turning our relationship with our customers from being about selling them a sofa, to being a trusted financial relationship where we can help them plan and manage their financial lives better,” Byrne said.
Will such a pitch work? The market will wait and see. The robo's quick questionnaire will be open to scrutiny from critics who worry such portfolio allocation does more harm than good by failing to provide thorough and appropriate risk management. Also, in the past, retailers selling wealth management was a concept that didn’t take off — some may still remember Sears and Dean Witter’s much-mocked "Socks and Stocks."
But even if Overstock doesn’t get far in its robo venture, it certainly provides a model for other nontraditional players to try their hand at offering automated wealth management to the masses they serve.
Digital advice platforms have yet to dominate the investment market. They are expected collectively to reach up to $4 trillion in AUM by 2022 but that will still be a drop in the overall investment assets pool. Let’s not forget, too, that for most investors robo advice is still an unknown concept. Industry study after industry study demonstrates that most Americans aren’t saving enough for retirement, if they are saving at all. But they are shopping online — two-thirds of all Americans, actually, and they spent $2 trillion online just last year.
How far can a discount retailer that raked in $1.8 billion in 2016 get in trying to bring wealth advice to the public? Byrne is optimistic about his chances.
If there was a wealthy tech CEO who’s got something to prove to Wall Street, it’s Byrne. There’s a long history there with its own wiki to peruse. But it is noteworthy that tZERO Advisors, which will power Overstock’s robo, is a branch of tZERO, the majority-owned subsidiary of Overstock that serves as an alternative trading system. TZERO wants to create a new kind of market, powered by blockchain technology.
In a previous interview with American Banker, Byrne explained that tZERO is building out a number of ventures. “We are right at the crossroads,” he said. “People don't see our business plan yet. You'll see some crazy stuff unfold over the next few months.”
When asked about the financial regulations and scrutiny that have scared other retailers away from wealth management, Byrne was clear, if brief. “We are doing our work through regulated entities and are super-cognizant of our obligations there,” he says. You can review the tZERO robo’s Form ADV here; it is registered in Massachusetts, the one state whose securities regulator is taking a hard line on automated advice.
As with any development in digital advice, this new wave is not about the first company to catch it; it’s about what comes next. It has long been speculated that Silicon Valley tech giants might try to dip their toes into wealth management. But surprisingly, instead of Google and Amazon it’s PayPal and now Overstock that have launched robo advice offerings.
The opportunity to bring financial advice to the masses is wide open, said Byrne, who pointed out that Overstock is the first major online retailer to enter the space.
“I do not see anyone else making these moves,” he said. “But if you look at recent announcements, you will notice a pattern: We are buying and integrating different parts of Wall Street to create an ecosystem with reduced fees and better and less expensive wealth management than anything we see in the market.”