Financial services giant Charles Schwab is a brokerage, bank, wealth manager and capital markets services provider. Without a traditional institutional investment banking unit, it did not have to deal with investor concerns about a possible slowdown in dealmaking that was the talk of bank earnings week.

Schwab had to face a different, AI-driven anxiety when it reported third-quarter results on Thursday. So far, analysts at Morningstar said, it’s passing the test with flying colors.

Disrupting the Disruption Narrative

Shares in Schwab and other major US brokers have been weighed down this year by the thesis that AI agents and tools will majorly disrupt traditional advisor services by automating financial planning. Customers could appoint agents to automatically shift idle money from brokers to higher-yielding options. That would directly impact Schwab, where net interest revenue rely heavily on the massive pool of low-yielding, so-called sweep cash that it’s able to invest in higher-yielding assets like US Treasuries.

When Meta launched its AI agent Muse last month, it prompted a brief sell-off that also hit rivals like LPL Financial and Raymond James. Wall Street is already taking action. JPMorgan announced earlier this week that it’s blocking AI agents like Muse and Instinct from directly accessing accounts. It’s also piloting its own AI tool called Smart Cash. Schwab, which moved to block agents as well on Thursday, is one step ahead: The company began rolling out an AI-powered assistant called Charley this month.

Schwab’s latest earnings showed no wear from the disruption. Its $3 billion in net income, up 23% year over year, beat analysts’ expectations. It posted a modest revenue miss, but the $7.2 billion top-line figure, up 17%, was still a record. “Schwab’s core business is extremely healthy, exhibiting no signs of intensifying competitive pressure that would support the artificial intelligence disruption narrative,” wrote Morningstar analysts Thursday. Results proved robust in key areas:

• Schwab continued to benefit from the ongoing surge in American retail investors. Its daily trade count rose 44% and trading revenue climbed 16% to $1.1 billion.
• Attracting customer money, be it cash, stocks, bonds or mutual funds, remained no problem, as Schwab reported $192.4 billion in net new assets, better than expected and 43% more than last year’s third quarter.

Good Debt: Schwab shares fell 2.7% on Thursday. Morningstar said this was a result of investors reacting to Schwab’s “modest” revenue miss and that its quarterly net interest margin came in short of expectations at 3.04%, with executives saying they expect the margin to come in at the low end of expectations by year’s end. However, they noted that the net margin was impacted by a “prudent” decision by Schwab to add $5.5 billion in “more expensive short-term borrowing and long-term debt” due to “concerns about the impact of unrealized securities losses as long-term interest rates push higher.” The average $121.26 price target of 26 analysts polled by Zacks Investment Research implies Schwab’s stock has a 28% upside.

Investors are hunting for portfolio protection and diversification in a pot at the end of the rainbow.

Inflows into gold-backed exchange-traded funds (ETFs) recently hit a four-year high, according to Bloomberg. The World Gold Council, meanwhile, reported that global gold ETFs brought in $10 billion in September, boosting third-quarter inflows to a record $31 billion. The US alone added $3.8 billion last month.

Typically, investors sell gold, a nonyielding asset, when interest rates rise, in order to take advantage of interest-bearing assets. When rates climb, the US dollar also tends to get stronger and gold becomes more expensive (and less appealing) to foreign investors. But while gold’s price has risen in recent years, much of September’s inflows took place as the precious metal’s price was falling and interest rates moved higher.

“That suggests investors are looking beyond the next Federal Reserve decision or short-term market fluctuations,” said Matthew Smart, chief investment officer at WWM Investments. “Investors are looking for ways to preserve wealth and diversify against risks that may persist well beyond the current economic cycle.”

Leprechaun-Style Diversification

The recent move back into gold was part investors reengaging, following the tactical low from over the summer, but also part diversification need as long-duration Treasurys remain challenged, said Todd Sohn, chief ETF strategist at Baird Strategas.

Gold has long been a safe-haven asset thanks to its scarcity, liquidity and historical ability to preserve purchasing power. Recently, that appeal has grown:

• Investors and portfolio managers are increasingly interested in assets that offer diversification beyond traditional stocks and bonds, particularly those whose performance is driven by different economic factors, Smart said.
• Gold has delivered impressive returns over the past several years, and that performance has brought renewed attention to an asset class that was historically viewed primarily as a defensive holding, he added.

But near-term inflows for ETFs linked to the precious metal aren’t necessarily shiny.

“Gold has competition in the form of higher real rates now and a recent USD rally too. So, I am curious how sticky the recent inflows will be,” Sohn says. “It’s a two-part equation with this, one being how gold performs going forward, and two, what rates do.”

Not Always Lucky: Even though gold has enjoyed an “extraordinary run” over the past several years, the price fall in September was a good reminder that even strong investor demand doesn’t guarantee higher prices, Smart said. “Like any investment, the price you pay matters, and investors should be careful not to let recent performance dictate their long-term decisions.”

More money, more problems?

The Social Security Administration announced its 2027 cost-of-living adjustment on Wednesday, setting a 3.6% benefit boost that will raise the average monthly payment from $2,071 to $2,146, or by about $75 per month.

“A 3.6% COLA increase is both good news and bad news for beneficiaries,” said Martha Shedden, founder of the National Association of Registered Social Security Analysts. “It’s good news in the sense that beneficiaries will receive a larger monthly payment. It’s bad news because higher COLAs are generally a reflection of higher inflation.”

Most retirees would probably prefer lower inflation and a smaller COLA, sources told Retirement Upside. Still, they agreed, treading water is better than sinking.

COLA Wars

Data on average inflation from the third quarter is used each year to set the Social Security COLA. This year, energy costs proved to be the biggest factor behind rising prices in Q3, especially in August and September, per data from the Bureau of Labor Statistics:

• The index for gasoline rose 9.1% in September alone, accounting for over half of the monthly all-items increase.
• The broader energy index increased 5.2% over the month, following a 2.1% increase in August and a 1.5% decline in July.

For context, the 3.8% COLA will be above the roughly 2.6% average adjustment over the past 20 years, but it’s well below the most recent high of 8.7% in 2023, when supply chain shocks caused by the pandemic caused sky-high inflation.

“Seniors won’t see any changes to their benefit checks until January, but the inflation the COLA is supposed to account for has already occurred,” said Shannon Benton, executive director of the Senior Citizens League. “In years like 2026, when lots of inflation happens in the first half of the year, it means seniors have to endure elevated prices for months without any financial recourse.”

COLA in Context. The annual COLA gets the headlines, but advisors should pay attention to all the annual Social Security changes. These include the taxable wage base, earnings-test limits, maximum benefits, primary insurance amounts, Supplemental Social Security Insurance amounts and more.

For Medicare beneficiaries, Part B premiums can also absorb a portion of the COLA. In its latest annual report, the Medicare Board of Trustees projected the standard monthly premium for Part B will increase by $6.60, reaching $209.50 per month in 2027. The actual figure is expected to be published soon.

“All these factors can affect planning decisions for workers and retirees alike,” Shedden said. “The number retirees really care about isn’t just the gross COLA. It’s how much of that increase ultimately remains in their pocket.”