Wealth management firms across the Atlantic and, increasingly, in the UK, experienced a sharp sell-off on Wednesday as investors reacted to the unveiling of an artificial intelligence-powered tax planning tool by US fintech firm Altruist. The market’s response signals growing anxiety about the potential for AI to disrupt traditional financial advisory services and compress fee structures.
St James’s Place, the UK’s largest wealth group, saw its shares fall as much as 13 percent on Wednesday, extending a trend that began in the US on Tuesday. Raymond James Financial Inc. Dropped 8.7 percent, its largest single-day decline since March 2020, while Charles Schwab Corp. Fell 7.4 percent and LPL Financial Holdings Inc. Lost 8.3 percent, marking their worst sessions since April. Across the broader UK market, AJ Bell declined 7 percent, Quilter was down over 5 percent and Aberdeen Group saw a 4 percent decrease.
The catalyst for the market turbulence was Altruist’s announcement on Tuesday of its new AI-driven tax planning feature within its Hazel platform. The tool is designed to automatically analyze client documents – including tax returns, pay stubs, and account statements – and generate personalized tax strategies for financial advisors. According to Altruist founder and chief executive Jason Wenk, the tool “expands what a single adviser can handle, raises the bar on outcomes and makes average advice a lot harder to justify.”
While Altruist primarily serves registered investment advisors (RIAs) and remains significantly smaller than established industry giants like Schwab or Fidelity, investors interpreted the announcement as a harbinger of broader disruption. The concern centers on the potential for AI to automate higher-value advisory functions – such as tax optimization, financial planning, and client servicing – that have historically been the domain of human expertise and a key source of revenue for wealth managers.
The sell-off echoes a similar pattern observed last week in the software, data, and analytics sectors, triggered by fears surrounding disruption from Anthropic’s new coding plug-in tools. This suggests a growing sensitivity among investors to the potential for AI to rapidly reshape various industries. As Emmanuel Cau, head of European equities strategy at Barclays, noted, “The pace of AI innovation is so fast that basically every week there’s a new tool being launched — the market is looking for the next AI loser.”
The immediate impact has been a reassessment of valuations within the wealth management sector. Analysts suggest the market’s reaction reflects a “sell first, see later” mentality, driven by uncertainty about the long-term implications of AI. UBS analyst Michael Brown highlighted the difficulty in “disproving a negative” in the current environment, emphasizing the lack of clarity surrounding the future trajectory of these companies.
The core anxiety revolves around the potential for fee compression. If AI tools can effectively automate tax planning and other advisory services, it could reduce the need for large advisory teams and erode the competitive advantages that large firms have traditionally built around personalized service. This, in turn, could lead to downward pressure on fees, impacting profitability.
However, some analysts caution that the market’s reaction may be overdone. While acknowledging the potential for disruption, they argue that established wealth management firms possess significant advantages – including brand recognition, client relationships, and a broader suite of services – that will be difficult for smaller, AI-focused companies to replicate. These firms also have the resources to invest in their own AI capabilities, potentially mitigating the threat from competitors like Altruist.
The current situation underscores the increasing importance of technological innovation in the financial services industry. Wealth management firms are now facing pressure to adapt to a rapidly changing landscape, where AI is poised to play an increasingly prominent role. The extent to which they can successfully integrate AI into their operations – and demonstrate its value to clients – will likely determine their long-term success.
The market’s response to Altruist’s announcement serves as a stark reminder of the potential for AI to disrupt even well-established industries. As AI technology continues to evolve, investors will likely remain vigilant for signs of disruption and reassess valuations accordingly. The wealth management sector, once considered relatively insulated from technological upheaval, is now firmly in the crosshairs of the AI revolution.
