AI Shockwave: SCHW, LPLA & Others Slide on Disruption Fear

Artificial intelligence (AI) has moved from being a growth driver for technology stocks to becoming a potential disruptor in traditional financial services, rattling investors and reshaping market expectations for wealth management firms globally. Major wealth management and brokerage stocks have slumped sharply in recent trading days as markets digest the implications of new AI tools that promise to automate specialist tasks once performed by human advisors.

Since Monday, The Charles Schwab Corp. SCHW sank 10.9% and LPL Financial Holdings Inc. LPLA lost 13.8%, while Raymond James Financial Inc. RJF dropped 8.8%. Other firms also felt the pressure. Lazard dropped nearly 4%, while Stifel Financial fell 4.9%. Banks with significant wealth-management exposure, including JPMorgan Chase JPM, Bank of America BAC and Wells Fargo, have declined more than 4% over the same period.

What Triggered Stock Selloff?

The stock market reaction was triggered by the launch of an AI-powered tax planning tool from U.S. fintech startup Altruist, integrated into its Hazel platform. This tool is designed to ingest client data such as tax returns, pay stubs and account statements, and instantly generate personalized tax strategies and financial insights that traditionally required hours of manual work from advisers. 

Investors interpreted the move as a potential threat to traditional revenue streams in wealth advisory, especially in fee-based services like tax planning and portfolio strategy. The capability to commoditize and rapidly scale complex financial advice raised fears that existing firms’ fee margins and business models could be eroded by lower-cost, AI-driven platforms.

Why Investors Are Reacting So Strongly

AI’s disruptive potential has been an ongoing discussion since the launch of OpenAI’s ChatGPT in late 2022, but until recently, the market conversation was overwhelmingly one-sided. Investors focused almost exclusively on the beneficiaries of the AI boom, companies supplying the computing power, infrastructure and energy required to build the technology. As hundreds of billions of dollars flowed into expanding data-center capacity, shares of chipmakers, networking firms, utilities and materials producers surged.

Over the past weeks, however, the market’s attention has begun to shift from who benefits from AI to who might be displaced by it. The unease has spread from software companies into the asset-management and private-capital world, including Schwab, LPL Financial and Raymond James. Executives at companies, including Blackstone, Apollo Global Management and Ares Management, have spent recent days reassuring both shareholders and fund investors that AI is unlikely to hollow out their businesses. Yet markets remain unconvinced. Shares across the sector continued to slide, reflecting scepticism toward firms that have poured billions into software and technology investments, precisely the areas now perceived as most vulnerable to AI-driven disruption.

What began as a rally built on AI optimism is increasingly morphing into a reassessment of risks, as investors grapple with the possibility that the same technology powering years of growth could now compress margins, upend business models and redraw the competitive landscape.

Final Words on AI-Led Disruption

The recent selloff in wealth management stocks highlights a turning point in how investors perceive AI risk across financial services. Declines in shares of Schwab, LPL Financial and Raymond James, alongside weakness in bank-affiliated wealth platforms at JPMorgan, Bank of America and Wells Fargo, reflect the growing concern that AI could pressure advisory fees and disrupt established operating models.

While it is premature to declare AI an existential threat to human-led wealth advice, the speed at which tools like Altruist’s Hazel platform are advancing has forced a reassessment of what parts of the value chain are defensible. For incumbents, success will likely depend on how effectively AI is integrated into client service, compliance and portfolio construction,  areas where trust and judgment remain critical.

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This article originally published on Zacks Investment Research (zacks.com).

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