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An artificial intelligence tool aimed at creating tax strategies sparked a selloff in U.S. wealth management stocks on Tuesday as investors feared the company was threatened by automated advice.
The innovation puts the wealth management industry in the crosshairs of AI competition, as it did for software stocks and private credit companies last week and for insurance brokerage stocks on Monday. Investors reacted exactly as they had before: by unloading stocks. Raymonde James Financial Inc. fell 8.8% for its worst day since March 2020, while Charles Schwab Corp. fell by 7.4% and LPL Financial Holdings Inc. lost 8.3%, its worst session since April.
The move seemed to catch Wall Street off guard, as Charles Schwab is the only stock with a sell rating, and it only has one among the 24 analysts who follow the company.
“The uncertainty is really high and it’s very difficult to refute a negative,” Michael Brown, an analyst at UBS, said in an interview. “We’re at a point where we don’t really know what the next 12 or 24 months will bring for these businesses.”
BloombergThe new tool, unveiled Tuesday by tech startup Altruist Corp., helps financial advisors personalize client strategies and create pay stubs, account statements and other documents, the company said in a statement. Altruist founder and CEO Jason Wenk began his career at Morgan Stanley and COO Mazi Bahadori worked at Pimco Investment Management. The company’s managers therefore have experience in the functioning of Wall Street and the investment community.
“The sell-off appears linked to broader concerns about AI’s disruption of the financial advice and wealth management model,” said Neil Sipes, an analyst at Bloomberg Intelligence. Investor attention “is likely focused on concerns about competitive efficiencies, long-term fee compression and potential market share shifts.”
Top executives at asset managers including Blackstone Inc., Apollo Global Management Inc. and Ares Management Corp. have spent recent days trying to convince their equity investors as well as their funds’ biggest backers that their fears about AI wiping out large swathes of their business are overblown. Yet investors continued to sour against the sector, which has invested billions in software and other technology companies in recent years.
“The first question we asked ourselves across all of our portfolio over the past five years was: What are the opportunities and risks in AI? Ares CEO Michael Arougheti told investors at a conference Tuesday. “It seems quite strange to us that the public markets have woken up AI disruption as a theme. »
The fear that AI-based applications threaten traditional business models is reverberating throughout the economy and affecting various segments of the stock market. Nervousness flared last week after Anthropic released tools aimed at automating work tasks in areas ranging from legal services to financial research, triggering massive sell-offs in those stocks.
At the same time, analysts and investors widely caution that some of this strong selling reflects a knee-jerk reaction and could overestimate the real risk associated with AI’s various uses and tools.
“Completely overblown,” Wilma Burdis, an analyst at Raymond James Financial Inc., said of the sale. “I think at the end of the day, people just want to trust someone, one person, with their money.”
In fact, many of the groups recently hit by AI fears have already begun to rebound.
Monday’s insurance broker collapse came after Insurify’s new price comparison AI tool raised concerns about the companies’ operations. The S&P 500 insurance index fell 3.9% on Monday, its worst session since October. The group rose 0.8% on Tuesday.
“I think people view insurance brokers as potentially disintermediated,” said Brian Meredith, an insurance analyst at UBS. “Are insurance brokers disappearing? Will ChatGPT or OpenAI replace an insurance broker?”
Meanwhile, shares of private equity firms and alternative asset managers such as KKR & Co Inc., Ares, Apollo Global Management and Carlyle Group Inc. have recovered all of their losses from last week. And a widely followed exchange-traded fund that tracks the software industry, which fell 15% during an eight-session losing streak that ended Thursday, is now up 7.2% over the past three days.
Altruist is part of a growing group of newcomers trying to bring advances in AI to financial services. Rogo Technologies Inc. develops software that helps investment bankers with certain tasks and ultimately aims to create the AI equivalent of a banking analyst. And Hebbia, another startup, bills itself as an “AI platform for finance,” helping businesses analyze data faster.
Some of the leading AI developers are also expanding into this sector. Beyond Anthropic, OpenAI struck a deal late last year with Intuit Inc. to offer applications within ChatGPT that allow users to access and interact with financial data stored on Intuit’s platform.
