Shares of US brokerages fall as AI worries extend to financials

By Ateev Bhandari

Feb 10 (Reuters) - Shares of U.S. brokerages fell on Tuesday after wealth management startup Altruist introduced AI-enabled tax planning features, as the still-nascent technology continues to fuel disruption fears for the incumbents.

The selloff reflects growing investor anxiety toward legacy financial and tech firms as AI-first startups automate complex tasks that were long the exclusive domain of expensive human advisers.

Shares of LPL Financial LPLA.O and Raymond James Financial RJF.N each dropped more than 8%. Charles Schwab's stock SCHW.N tumbled more than 7%, while that of Ameriprise Financial AMP.N lost 6.2%.

Stifel Financial's shares SF.N shed 3.8% and those of Morgan Stanley MS.N fell more than 2%.

Financial markets, juiced for months with investor enthusiasm about the artificial intelligence trade, were jolted last week as global software stocks sank on worries of disruption by AI tools.

"When you get just one little thing, traders sell first and ask questions later. Every time we get one of these headlines, another sector bites the dust," said Dennis Dick, chief market strategist at Stock Trader Network.

FEARS OF AI TAX PLANNING

Founded in 2018, Altruist acts as a self-clearing brokerage for investment advisers, offering a unified platform for account opening, trading, reporting and billing.

Integrated into its Hazel AI platform, its latest feature automates the creation of personalized tax strategies by instantly analyzing client documents like 1040s, pay stubs and meeting notes.

Tax strategies and estate planning have been key functions historically entrusted to wealth managers. Given the trust and complexity involved, they also provide a ton of pricing power to wealth managers.

"While certain components of advice can be disintermediated or automated by technology, the advisor's role has always required earning the fee through judgment, behavioral coaching, and personalization," analysts at Citizens wrote in a note.

Analysts believe that greater AI-integration should allow advisers to expand their services, as opposed to pricing compression.

"AI fits squarely into that pattern versus in competition, at least for the foreseeable future over the next handful of years, in our view," Citizens analysts said.

SELLOFF OVERDONE

Insurgent brokerages, including Robinhood HOOD.O and rival Public, have been making headway into the sector via their low-cost and tech-enabled offerings.

In November, Public launched an AI-powered brokerage that lets users build their own exchange-traded funds to invest in. Robinhood offers its Gold subscribers an AI-powered investing assistant that allows users to chat through trading ideas and enact orders.

However, analysts remain confident in longstanding moats built by legacy advisers.

"Our current expectation is that some of the safer businesses in the space are those that are relationship-driven, require significant amounts of capital like lending, or benefit from network effects and/or truly differentiated proprietary data," Sean Dunlop, director of equity research at Morningstar, told Reuters.

"We believe that many of these companies now trade at prices below our intrinsic valuations. So, if our long-term outlook is approximately correct, the selloff is already overdone to varying degrees."