In what’s becoming an increasingly common occurrence, the share prices of publicly traded financial advice and wealth management companies took a hit on Tuesday due to anxieties of artificial intelligence eating away at the future earnings of such firms, whose financial advisors charge clients annual fees in the neighborhood of 1% of assets for their work.
It is widely feared that financial planning functions based on AI will erode that fee and thus the earnings of companies – think behemoths like LPL Financial Holdings Inc. and Ameriprise Financial Inc. - who rely on advisors right now to generate commissions and fees.
According to multiple new reports, the new Muse application, via Facebook and its parent company Meta, and its quick adoption by consumers helped contribute to a sell-off in wealth management and other financial service firms.
Shares of LPL Financial Holdings (Ticker: LPLA) on Tuesday were down more than 6%, as were shares of the Charles Schwab Corp. (Ticker: SCHW). The S&P 500 financial’s sector dropped 2%.
It’s the second tech-triggered sell-off in financial advice and wealth management firms this year, the Wall Street Journal and others noted. Brokerage stocks like LPL Financial and Charles Schwab are particularly volatile for a number of reasons, and right now technology risk is a part of the equation.
“The tremors mimicked a similar selloff earlier this year when financial-technology firm Altruist unveiled a tool that aimed to create personalized tax strategies,” the Journal reported. “But analysts say Muse, which has already partnered with the likes of PayPal and fintech firm Plaid, has a broader potential to change many basic aspects of consumer payments, financial planning, insurance coverage and more.”
The financial advice technology is clearly in demand. Vanguard, the biggest fund manager in the industry, said last month it was buying Altruist for $4 billion.
As the Journal noted, Anthropic last week rolled out a suite of Claude workflow tools that hook up to platforms run by the likes of Schwab and Vanguard.
“It isn’t that any individual AI agent is upending the sector overnight, said Devin Ryan, head of financial services and fintech research at Citizens,” according to the Journal. “But a series of such product launches in recent months has ‘allowed a narrative to run that the world is changing and there’s more uncertainty as the world changes.’”
“The threat to financial firms extends beyond the potential that robots will cut out some human advisers and their fees,” according to the Journal. “In Ryan’s eyes, agents could ultimately help move client money for tax-loss harvesting and other goals more efficiently, leaving less cash sitting around for companies like brokerages to turn into their own profits.”
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