Wealth management and financial stocks dropped sharply this week after fintech platform Altruist announced expanded AI capabilities, which ignited investor concerns about potential disruption to traditional advisory firms' business models.

Altruist announced Wednesday that they will be rolling out enhanced features within its AI platform, Haley, including the ability to produce personalized tax planning and financial strategy tools for advisors. This technology will be able analyze client documents such as 1099 filings, pay stubs, and other statements, to generate analysis and recommendations within minutes. These processes are meant to streamline and improve efficiency for projects that are typically time consuming for advisors. While these developments are positioned as a productivity upgrade, the markets viewed this announcement as a potential threat to services like tax strategy and financial planning, which remain key revenue drivers for wealth management firms.

The sell-off that has taken place this week has been widespread and significant. Major U.S. firms including Charles Schwab, LPL Financial, and Raymond James declined sharply, each dropping over 7% this past week, as investors feared traditional wealth management companies may be most susceptible to the development of automation tools. This downtrend has been a significant reversal from how these companies were performing year to date. LPL Financial, for example, was up over 8% this year prior to this week, before seeing those gains wiped out over the past three days.

At the center of the concern for these Wealth Management companies is the impact AI will have on their fee-based businesses. AI tools can replicate important parts of traditional advisory work at lower cost and much greater efficiency, meaning the traditional pricing models that exist could become outdated. At the same time, startup fintech competitors such as Altruist, are using newer technology, and could deploy AI more aggressively than older firms. This technological shift will likely accelerate the competition within the Wealth Management industry, and force changes among established firms.

Executives across the industry have fought back on the theory that AI will replace human advisors, instead emphasizing that the technology will only enhance productivity and client service for these advisors. There are some components of advisory service that AI cannot entirely replace. Among those components are relationship management, advisor/client trust, and personally tailored financial guidance. For as long as those advisory service components are still relevant, the future of wealth management may be more hybrid instead of fully AI reliant.

What's Next

Ultimately, this week's volatility signals a shift in investor mindset, while also forcing companies to re-evaluate their existing models in this new technological world. AI is no longer viewed solely as a benefit for innovation, it is also now being viewed as a competitive tool that will reshape how companies think of their existing business models, and what they need to do to evolve with the times. Whether this week's sell off proves to be short or long term for Wealth Management firms will depend partly on how effectively these firms are able to integrate AI into their business, primarily being able to demonstrate that it strengthens their advisory platforms for advisors and clients, thus lessening the advantage of AI driven fintech startups, like Altruist.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.