You can’t spell “advisor” without “A” and “I.” For that matter, you can’t spell “fiduciary” without them, either.

Today, that statement might seem preposterous. But recent surveys show that over half of advisors see generative artificial intelligence as having a place in investment decision-making, and many also expect their jobs to change because of it. A prominent economist who studies AI, MIT’s Andrew Lo, also told Bloomberg earlier this month that the technology will likely be capable of running money in a fiduciary capacity within five years. That, he told the publication, would be “agent AI where we have agents that are working on our behalf and making decisions on our behalf in an automated fashion.”

Generative Generation

Just under half (48%) of 113 advisors surveyed in April by Interactive Brokers agreed with the statement “generative AI will redefine the job of financial advisors within five years.” Another 25% were neutral, with 27% disagreeing, according to the report, which was published last month. More widely, advisors have been using AI for tasks like meeting notes, and 62% of those in the survey said that AI will make them more efficient (only 8% disagreed). And when it comes to advising clients, 51% said AI has a role (40% were neutral and 9% disagreed).

The CFP Board published an ethics guide on AI for advisors earlier this year, noting that advisors “must account for AI limitations and risks, including inaccuracies or ‘hallucinations.’” The technology has a lot of potential for investment-related research, such as aggregating information or pulling in data sources that an advisor wasn’t aware of, said Sara Cortes, assistant general counsel at the CFP Board. “The main consideration for advisors using it for investment research and selection specifically is to really understand what assumptions and estimates might be going into that AI and what the data set is, how the machine learns,” she said. “The thing they really need to keep in mind … is that they’re ultimately responsible for the investment selection in the client’s best interest.”

Most investors are leery of AI, but there are demographic differences, data published in July by FINRA show:

• Only 20% of investors said they would be interested in getting financial advice from AI, while 21% weren’t sure, and 59% would not want such advice.
• Men were more receptive to that than women (25% versus 14%), as were younger investors and non-white investors.

Trust the Smart Robots, but Verify. Just as there are risks associated with AI, there are risks with not using the technology and becoming aware of its benefits and limitations. “We want advisors to feel empowered to use this as a tool,” Cortes said. “The risks are relying a little too much on the AI and not listening to that voice inside your head saying ‘there’s something a little bit off about this,’ and trusting that.”

The Securities and Exchange Commission just leveled the playing field between crypto ETFs and other exchange-traded products.

The regulator is allowing in-kind creations and redemptions, something that has been table stakes for most ETPs but hasn’t been permitted for spot Bitcoin, Ether and other crypto funds. The Securities and Exchange Commission approved requests Tuesday, allowing so-called authorized participants – key players in the primary ETF market – to create and redeem shares on an in-kind basis. Until now, such funds had creations and redemptions limited to cash exchanges. The big players in crypto ETFs, including BlackRock and Fidelity, have been waiting for this.

“This SEC approval is more than a procedural update — it’s a normalization milestone for crypto ETFs,” said Aisha Hunt, principal at law firm Kelley Hunt. “The in-kind restriction had been the last structural wall separating crypto ETFs from their equity and bond counterparts. By lifting it, the SEC effectively gave digital asset ETPs their final passport to full institutional legitimacy.”

At the End of the Delay

The SEC took its time before issuing Tuesday’s order, delaying the decision in part due to caution around crypto as a whole, but also because of concerns about protecting investors against fraud and market manipulation. The approval is the latest step the Republican-led SEC has taken in its overall friendlier approach to crypto than that of former chair Gary Gensler.

“The commission’s order eliminates the market asymmetries and inefficiencies created by cash-only redemption,” Commissioner Mark Uyeda said in a statement. “In-kind redemptions will enable crypto-asset ETPs to access the tools for managing exposure more cheaply, more transparently, and with better alignment to how asset managers and investors use ETPs in other markets.”

Along with the approval of in-kind creation and redemption, the SEC this week also voted in favor of other changes affecting crypto ETPs:

• It approved listing and trading of at least one product that would include a mix of spot Bitcoin and spot Ether, as well as an increased use of options on spot Bitcoin ETPs.
• The commission is also soliciting comments on whether an exchange should be able to list and trade two large-cap crypto ETPs.

A long time coming: The changes were long overdue for investors, Hunt said. “The in-kind approval may lay groundwork for future consideration of other digitally native asset structures and fund formats,” she said. “It also signals something deeper: The SEC is incrementally aligning legacy regulation with modern market infrastructure.”

The stock market is starting to look a little like a double almond milk espresso: extra strong, with just a bit of froth on top. Or maybe a lot of froth, depending on your perspective.

On Tuesday, the S&P 500 closed down 0.3%, snapping a remarkable streak of six straight closing highs through Monday — an unmatched stretch since 2021. The index is up nearly 28% since sinking to a low on April 8, as Liberation Day tariffs sparked widespread fears that a recession would soon follow. Clearly, that hasn’t happened … yet, with summer bringing not just resilience, but exuberance, to the market. Has it been too much, though?

Retail Renaissance

First: the warning signs, of which there are many. Meme stocks are back in full force, as evidenced by recent share price surges among the likes of Kohl’s, Opendoor, and Krispy Kreme. Meanwhile, the so-called “Buffett indicator” is blinking red, with the ratio of the market cap of all US publicly traded companies to the total US gross domestic product recently notching an all-time high at 212%. Also concerning: Investors are valuing stocks in the S&P 500 at more than 3.3 times their current sales, per Bloomberg data, also an all-time high. In fact, “price to sales, price to cash flow, price to book, price to dividends, they’re all near record levels,” Rob Arnott, founder of asset management group Research Affiliates, recently told the Financial Times. For more signs of market euphoria, look no further than — where else? — Barclays’ “equity euphoria” indicator, which is about double its typical levels.

“You’re beginning to see, perhaps, some very early parallels to what you saw back with the internet boom in the late 90s, early 2000s,” Pimco Chief Investment Officer Dan Ivascyn told the FT.

Optimists, on the other hand, say today’s market can’t be compared to the dot-com-era market, or any pre-pandemic market, thanks to the unstoppable rise of the retail investor, a crowd that may no longer operate like a bunch of Johnny-come-latelys:

• In fact, according to a Barclays note recently seen by Reuters, retail investors have been the “primary” driver of the current rally, investing more than $50 billion into equities in the past month. In fact, retail investors now account for about 20% of total trading volume in the US, about twice as high as pre-pandemic levels.
• Noting a possible retail-led structural change to the market, Scott Rubner, the head of equity and equity derivatives strategy at Citadel Securities, recently wrote in a note to clients seen by Bloomberg that he expects solid performance on the S&P 500 through Labor Day. A recent Goldman Sachs note, meanwhile, highlighted how spikes in speculative trading actually precede abnormally high returns on a one-year horizon.

Data Dump: Still ahead this week is an absolute flood of possibly market-moving data. Today, the Fed will announce whether it’s slashing interest rates (Investors aren’t betting on it; CME’s FedWatch tool calculates a 97% chance of rates going unchanged). Today also brings the latest earnings report from Microsoft and Meta, followed by Apple and Amazon tomorrow, providing the Magnificent 7 another chance to dictate the market’s momentum. Friday will bring another crucial jobs report. Looming over everything: a possible trade deal with China. US and Chinese officials concluded their third round of negotiations Tuesday, with no agreement yet. The current trade truce is set to expire on August 12.