Shares of companies like Charles Schwab and LPL Financial are tanking on fears that AI will replace its stock brokers – but the humans aren’t panicking like the headlines would have you believe, On The Money has learned.
Indeed, reports of the demise of the stock broker in your Rolodex are being greatly exaggerated by these recent – and admittedly large and lucrative – market bets against them, based on my chats with the actual humans who perform this vital market function.
Let’s start with what’s happening on the ground as AI disruption crushes shares of Schwab, down 13% in just a few days before bouncing back a bit; Ditto for LPL another brokerage firm that links investors up with its stable independent financial advisers.
Raymond James, a traditional “wire house” that employs around 8,000 brokers has seen similar declines in the share price, all on the bet that people with money to invest will give up their broker because artificial intelligence can find value cheaper and faster.
That’s the market bet; the reality on the ground is far different. My sources tell me they haven’t lost a single customer during the AI inspired broker-stock rout. In fact, they’ve seen more engagement with their clients about figuring out how to trade through the AI tumult.
“I’ve had zero people leave,” said one broker who asked not to be named. “My clients are pretty wealthy so I can’t imagine they’re just going to trust AI with tens, maybe hundreds of millions of dollars.”
Good point. Maybe someday AI might run the world, but for now established wealth isn’t taking any chances with an algo. And established wealth — people with many millions to invest – are now the key customers of the brokerage business.
You can’t get into the door of a big brokerage firm without dangling $1 million in cash since most of the wealth advisers work on a fee-only basis; the more money you give them to throw around, the more money they make.
These people are not just going to hand their investments to AI. When millions are at stake, you want a human picking up the phone – not some algorithmic bot telling you why you just lost a boatload of money.
Plus, brokers themselves are using AI to get a feel of markets and investing trends. “This will definitely help my guys,” said the CEO of one large brokerage firm. “We see AI as a plus.”
History also tells you that AI won’t be replacing traditional wealth management. Its precursor, for those of us old enough to remember, emerged during the mid to late 1990s internet boom when the online brokerage portal was supposed to revolutionize investing.
Companies like E*Trade, Ameritrade and Schwab’s site were destined to put the Merrill Lynch, and its “thundering herd” of stock brokers out of business. We framed it as the end of an era, a “Watershed on Wall Street” where humans were going to be replaced by dot-com.
And guess what? It never happened. Merrill responded by creating its own online brokerage, a story I broke in the Wall Street Journal. Like the rest of the brokerage houses, it used the technology to its advantage; brokers could focus on big-money clients while pushing average joes to the online trading venue and a call center.
The reason the internet never replaced the human is probably the same reason why AI won’t either; artificial intelligence might be great for writing a form letter, or finding a Chinese restaurant near your condo. But rich people aren’t going to trust it with their life savings.
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