Meta’s latest consumer AI product is sending such big shockwaves through the market that it’s even inflaming a long-time rivalry in the brokerage business between 55-year old investing giant Charles Schwab, and Robinhood, an icon of the post-Covid trading boom among young investors.
Shares of Schwab fell 6% Tuesday, touching the lowest since early July and the stock is now down more than 8% since Meta announced Muse. Meanwhile, Robinhood’s stock was higher, notching anotheryear-to-date high. In May, the company launched AI agents that can now trade and manage portfolios on behalf of users.
Shares of sprawling wealth management business LPL Financial Holdings dropped 7% Tuesday, financial services firm Raymond James Financial shed 3.5 percent, and Interactive Brokers slipped 1% as the State Street Financial Select Sector SPDR ETF (XLF) lost 2% and is now down 6 percent from highs made earlier this month. Higher interest rates may not be helping.
It’s not the first time an AI product has jostled the group – in February, the same group of stocks dropped when tech platform Altruist said its platform `Hazel’ can create tax-planning strategies for individuals and advisors. Schwab stock recovered some in the months after – LPL has not.
“Schwab’s an interesting animal,” said Jimmy Lee, founder and CEO of The Wealth Consulting Group, a Las Vegas-based advisor that oversees $8 billion in assets. “To us in the advisor space they’re kind of neutral and figuring out how best to protect their market share. I don’t think Meta brings a lot of competition from the custodian perspective because it’s not like Altruist’s platform, but there is a lot of disruption that’s going to happen among financial middle-men that charge fees for billing, reporting, trading, etc.”
Meta’s AI assistant says it won’t trade for users or give financial advice, but when queried with how it might mimic the work of a financial advisor or broker, lists abilities including tracking investments and progress towards goals, as well as analyzing how portfolio holdings fit together.
Charles Schwab corp, YTD
Last week, Schwab Advisor Services, the company’s platform for registered investment advisors, announced it is working with Anthropic to create Claude for Financial Advisors. In May, the company launched an AI tool that includes tailored analysis from the company’s research arm. Representatives from Schwab did not respond to a request for comment. Robinhood reps declined to add to this story.
Robinhood’s bounce on Tuesday brings its stock to a 10% rally on the year after dropping more than 40% in the first three months. The retail-focused brokerage, which also offers digital banking and advisory services, is up 1200 percent the past three years. Schwab stock is up 83 percent and the XLF is up 65 percent.
“AI and tokenization threaten to dismantle the frictions that legacy financial intermediaries have historically monetized,” Piper Sandler analyst Patrick Moley wrote in a note in April. “Schwab’s reliance on low-yielding sweep cash puts it squarely in the crosshairs.”
Bets increase against Schwab
Judging by options-market flows around the stocks on Tuesday, the threat to Schwab may be a lasting one.
Options volume in Schwab was more than five times the average, with nearly twice as many puts bought vs. calls, Cboe LiveVol data show. The most popular contract to buy was the 90-strike put expiring mid-January, a bet the stock drops another 13% the next three months. To be sure, there was one big counter-trade sale of the Oct. 16 95-strike puts.
Robinhood, YTD
What’s arguably most notable is in Robinhood options, sentiment was the opposite – traders bought twice as many calls as puts with more than 80 percent of the $95 million in premium traded tied to calls. The most heavily traded contract was the 125-strike call expiring on Friday.
“Gen Z and millennials gravitate towards platforms like Robinhood and Public which is why those platforms ship products so quickly,” Gav Blaxburg, founder of Wolf Financial, a popular online trader enclave, said in a call. “Robinhood has built enough trust rebuilding its brand since Gamestop and they’re allowing agents to trade literally everything.”
