Altruists new Tax Advisor AI smashes stockbroker and wealth manager stocks

An Artificial Intelligence (AI) tool from Altruist aimed at helping individuals and companies creating tax strategies sparked a mass panic and sell off in wealth-management stocks Tuesday as investors fear organisations in the industry could be at risk from automated advice.

The innovation puts the wealth-management industry in the crosshairs of AI competition, the way it did for software stocks and private credit firms last week and insurance brokerage shares on Monday. Investors responded precisely the way they did before — by unloading the stocks. Raymond James Financial dropped 8.8% for its worst day since March 2020, while Charles Schwab sank 7.4% and LPL Financial Holdings lost 8.3%, their worst sessions since April.

The move appeared to catch Wall Street off guard, as Charles Schwab is the only stock with a sell rating, and it has just one among the 24 analysts tracking the company.

“Uncertainty is really high and it’s very hard to kind of disprove a negative,” UBS analyst Michael Brown said in an interview. “We’re in this moment where we don’t really know what the next 12 months or 24 months brings within those companies.”

The new tool, unveiled this week helps financial advisers personalize strategies for clients and create pay stubs, account statements and other documents, the company said in a statement.

Altruist’s founder and Chief Executive Officer Jason Wenk started his career at Morgan Stanley and Chief Operating Officer Mazi Bahadori worked at Pimco Investment Management, so the firm’s leadership has experience with how Wall Street and the investment community operate.

“The selloff appears tied to broader concerns about AI disrupting the financial advice and wealth-management model,” said Neil Sipes, an analyst with Bloomberg Intelligence. Investor focus is “likely centering on concerns around efficiencies being competed away, fee compression long-term and potential market-share shifts.”

Top executives from asset managers including Blackstone, Apollo Global Management and Ares Management have spent recent days trying to convince their equity investors as well as the top backers of their funds that their fears about AI wiping out large swaths of their business are overblown. Still, investors have continued to sour on the industry, which has sunk billions into software and other technology businesses in recent years.

“The first question we’ve asked ourselves across everything in our portfolio for the last five-plus years has been, what is the opportunity and risk from AI?” Ares Chief Executive Officer Michael Arougheti told investors at a conference on Tuesday. “It is quite odd to us that the public markets have woken up to AI disruption as a theme.”

Fear of AI-powered applications threatening traditional business models is rippling across the economy and hitting various corners of the stock market. The jitters erupted last week after Anthropic released tools aimed at automating work tasks in areas ranging from legal services to financial research, triggering selloffs in those stocks.

At the same time, analysts and investors broadly warn that some of this steep selling reflects a knee-jerk reaction and could be overestimating the actual risk from the various AI uses and tools.

“Completely overblown,” Wilma Burdis, an analyst at Raymond James Financial said of the selloff. “I think at the end of the day people just want to trust their money with somebody, a person.”

In fact, many of the groups hit recently by AI-related fears have already started to rebound.

The Monday meltdown in insurance brokers came after Insurify’s new rate-comparison AI tool raised concerns about those companies’ businesses. The S&P 500 insurance index sank 3.9% on Monday, its worst session since October. The group rose 0.8% on Tuesday.

“I think people are looking at the insurance brokers as potentially being disintermediated,” said UBS insurance analyst Brian Meredith. “Are the insurance brokers going away? Is ChatGPT or OpenAI going to take the place of an insurance broker?”

Meanwhile, the shares of private equity firms and alternative asset managers such as KKR & Co, Ares, Apollo Global Management and Carlyle Group have clawed back all of their losses from last week. And a widely followed exchange-traded fund tracking the software industry that tumbled 15% during an eight-session losing streak that ended on Thursday is now up 7.2% over the past three days.

Altruist is part of a growing crop of upstarts trying to bring AI advances to financial services. Rogo Technologies is building software that helps investment bankers with certain tasks and eventually aims to create the AI equivalent of a banking analyst. And Hebbia, another startup, bills itself as an “AI platform for finance,” helping businesses parse through data faster.

Some of the leading AI developers are expanding into the sector, too. Beyond Anthropic, OpenAI struck a deal late last year with Intuit to offer applications inside ChatGPT that let users access and interact with financial data stored within Intuit’s platform.