Up, up and away.

A new Social Security cost-of-living adjustment projection based on this week’s hotter-than-expected Consumer Price Index numbers suggests benefits are likely to increase by a non-trivial amount next year. The CPI rose 3.8% in April from a year earlier, the Bureau of Labor Statistics reported Tuesday, driven in large part by higher oil prices caused by the Iran war. The more rapid inflation could help widen the Social Security adjustment to 3.9% in 2027, or 1.1 percentage points more than this year’s near-average boost of 2.8%. The actual increase, set to be announced in October, will be calculated by taking the average annual inflation rate as reported for July, August and September.

“Many seniors are telling us the same thing,” said Shannon Benton, executive director of the Senior Citizens League, which published the COLA projection. “As inflation picks back up, life still does not feel affordable.”

An Affordability Crisis

If the average annual inflation rate lands at 3.9%, the average benefits check for retired workers would increase by $81.17, from $2,081.16 to $2,162.33. While that’s good news for retirees living on fixed incomes, the costs that matter most (especially healthcare, housing, utilities and insurance) continue to rise faster than prices in the rest of the economy.

With inflation rising back toward the highs of the early 2020s, many seniors have already started cutting back on essentials to make ends meet. For example, more than 57% have skipped one or more medical products or services in the past year due to cost. Higher oil prices have historically coincided with both higher food prices and broader consumer inflation, Benton warned. In other words, when gas prices go up, other things tend to follow. “[Higher costs] are silently wrenching seniors dry,” Benton said.

Overall, healthcare remains the biggest financial pressure facing seniors. Even modest increases in Medicare premiums, prescription drug costs or insurance expenses can significantly reduce the real value of annual COLA increases. Housing affordability also remains a growing concern, particularly for retirees living in high-cost metropolitan areas:

• Compared with 2016, Social Security benefits are only worth about 86.3 cents on the dollar, having lost nearly 14% of their buying power due to COLAs that do not keep up with real-world inflation.
• Payments would need to rise by 15.7%, or $295.85 per month for the average beneficiary, to recover the lost value.

Use the Right Gauge. The Senior Citizens League estimates that seniors experience more inflation than measured by the CPI-W, the index focusing on hourly wage-earners that’s used to calculate the COLA. The group’s senior-specific index, which sourced the most affordable prices possible for all items not reported as national averages, measured 10-year inflation at 43.55%, while the CPI-W measured it at 37.6%.

How would you like that cooked?

Ritholtz Wealth Management and Franklin Templeton have partnered to launch Porterhouse, a separately managed account built around stocks with momentum characteristics, including strong earnings growth and cash flow. The launch comes as much of the wealth management industry has shifted away from investment selection and toward financial planning. But Ritholtz CEO Josh Brown argues the pendulum is about to swing back, partly because artificial intelligence could make planning services table stakes (pun intended).

“There’s a flip coming, and nobody sees it,” Brown told Advisor Upside. “The next 15 years is going to be about which firms can package a comprehensive financial planning experience with portfolios that are unique and speak directly to the clients they’re attracting. And the list is going to be short.”

Fire Up the Grill

The Porterhouse SMA reflects Brown’s long-running “best stocks in the market” philosophy, a concept familiar to viewers of his recurring CNBC segments. While that approach might suggest a heavy concentration in the Magnificent Seven, Brown said exposure to those names has declined over the past year as other companies increasingly fit the strategy’s criteria. “It’s not that we don’t own any of those stocks,” he said. “It’s that there are so many other stocks in the market exhibiting more of the qualities we’re selecting for.”

• The account selectively targets market leaders in the top half of the Russell 1000 index, then moves into cash when opportunities dwindle.
• Right now, the portfolio consists largely of semiconductor, memory chip and AI buildout companies like Ciena and Amphenol.

“These stocks are part of one big theme, but that doesn’t keep them in the strategy permanently,” Brown said. “In a rising market, we’re going to end up owning more stocks, and in a choppy market, we’ll have fewer positions.”

Pass the Steak Sauce. Brown also sees media visibility and personality-driven investing as increasingly important to gathering assets. The Porterhouse SMA is the culmination of years spent building an audience through writing, podcasts, television and social media. “It’s really hard to condition an audience to buy into your investment philosophy,” he said. “A lot of firms can’t do that. In five years, people are going to be saying, ‘It’s the portfolio. It’s the portfolio’”

We’re just getting started.

Advisors already use artificial intelligence to draft emails, prepare for client meetings and organize documents. But that’s just scratching the surface of what the tech can do in financial planning, according to industry executives at a Goldman Sachs event this week. The technology is rapidly evolving beyond back-office support, and could fundamentally reshape how wealth management firms hire, scale and communicate. In a world increasingly shaped by AI systems, advisors are also going to have to lean into their emotional intelligence, said Larry Restieri, CEO of Hightower Advisors.

“We used to live in a world where an advisor was a stock-picker,” he said. “The rep-as-PM model is dead.”

Age of Avatars

Just last month, Citi released its AI client assistant, Sky, and it’s certainly not going to be the last of its kind. “We’re going to eventually have hundreds of digital employees,” said Shirl Penney, Dynasty Financial Partners founder. Dynasty is a few months away from launching a virtual version of Penney that introduces wealth managers to the company and explains the independent advisor model. “Virtual Shirl has already reviewed the last five years of my emails, read hundreds of my speeches and white papers, understands my voice and cadence,” he said. “I think it will be a mass accelerator to get people educated about Dynasty on the front end.”

Penney said Dynasty’s other avatar, Archie, is currently in beta form and will provide clients with market commentary, as opposed to advisors having to call each of their clients to give them updates. “It’s scaled communication,” he said.

The Hiring Question? Most wealth managers don’t think AI is going to replace human advisors. But what about junior advisors who’ve traditionally handled many of the tasks that AI systems are now taking over?

• Firms that aren’t hiring from campuses and training new advisors are making a mistake because it’s those younger professionals who are leading AI innovation, said George Lee, co-head of Goldman Sachs Global Institute.
• “Over time, the far more exposed population are middle managers,” he said.

AI won’t necessarily make jobs obsolete, but it will change hiring dynamics. “It doesn’t mean we fire people,” said Rob Sechan, CEO at NewEdge Wealth. “It probably means we hire more slowly because the productivity that comes from leveraging these tools is critically important.” Sechan added that firm leaders need to be encouraging AI use. “I think there’s some embarrassment when you see the [em] dash in an email,” he said. I want to see the [em] dash. I don’t care. Don’t be embarrassed. Be embarrassed if you’re not using it.”