Shares of Charles Schwab Corp. rose approximately 0.3% to $99.53 in premarket activity on Wednesday, showing tentative signs of recovery. This followed a steep 7.4% drop on Tuesday, which closed at $99.25, as the broader brokerage sector faced significant selling pressure.
AI Tools Spark Fee Compression Fears
The downturn was triggered by wealth-tech startup Altruist's launch of artificial intelligence-driven tax-planning software. The tool, which automatically analyzes client documents to generate tailored tax strategies, stoked investor fears that such automation could erode the lucrative fee-based advisory models of traditional brokerages. This sentiment sparked a sector-wide rout, with peers LPL Financial and Raymond James each falling more than 8%, and Ameriprise dropping 6.2%.
Market analysts highlighted the uncertainty. "Traders sell first and ask questions later," noted Dennis Dick, a chief market strategist. UBS analyst Michael Brown pointed to the difficulty in assessing the potential impact, while Bloomberg Intelligence's Neil Sipes cited worries over "fee compression" and possible market share shifts. However, some, like Raymond James's Wilma Burdis, called the reaction "completely overblown," emphasizing the enduring client preference for human advisors.
Volatility and Insider Selling
Schwab's session on Tuesday was highly volatile. The stock opened at $107.00, briefly touched $107.50, then plunged to a low of $97.01 before settling at $99.25. Trading volume exceeded 40 million shares. The drop marked a sharp reversal from a recent rally that had pushed the stock to a 52-week high of $107.21.
Adding to the narrative, a regulatory filing revealed that Schwab Co-Chairman Walter Bettinger sold approximately 67,514 shares on February 6 at an average price near $104.25, a transaction valued at roughly $7 million.
The market has yet to reach a consensus on the long-term impact of AI on financial advisory services. Should the perception of ongoing fee pressure solidify, brokerages may face further headwinds regardless of immediate financial results.
Investors are now watching to see if Schwab can hold its ground in the regular session or if concerns over AI disruption lead to renewed selling. Separately, the company is scheduled to pay a quarterly dividend of $0.32 per share on February 27, with a record date of February 13.
