The new administration in Washington is bringing a lot of potential change. Preparing for what’s coming can help RIA owners navigate the new economic environment and position themselves for growth. To help RIAs stay a step ahead, it’s important to consider what’s on the horizon under Trump 2.0, including tariffs, interest rates, taxes and antitrust policies, and how this could impact short- and long-term business decisions.
Tariffs – What Will Be the Effects?
During his campaign, Donald Trump made sweeping calls for tariffs on imported goods, especially those from China, Mexico and Canada, some of which he had already made good on. As part of his overall economic plan, tariffs would serve as a source of government revenue to offset the reduction in taxes under his efforts to renew or make permanent elements of the 2017 Tax Cut and Jobs Act.
When tariffs are enacted, companies that import goods and services from certain countries outside the United States pay the costs. Those will likely be passed on to their customers—either businesses or individuals. Financial advisors may see that their clients have less to invest because of these pass-through price increases. They may also see higher prices for their business equipment and other big-ticket office items. And that’s before considering the market chaos that accompanies a trade war.
What Is the Interest Rate Outlook?
In September, Federal Reserve Board members were predicting a drop of 100 basis points over the course of 2025. By December, they had cut that number in half, predicting only a 50-point reduction. After the release of a white-hot jobs report in January, it’s possible that they may adjust that prediction even lower.
While interest rates are not falling as fast as some borrowers would like, they are still considerably lower than their high in September 2024. Borrowers who don’t want to play the “when will the prime drop again” game may want to work with a lender who pegs their fixed interest rates to the yield on treasury notes.
What’s the Trajectory for Taxes?
During Trump’s first term, the 2017 Tax Cut and Jobs Act was passed. It had provisions that directly lowered taxes (e.g., reduced personal and corporate income tax rates) and some that provided greater tax deductions (e.g., the 100% bonus deduction, rapid expensing of research and development costs, etc.). Most of those provisions have expired or are set to expire in 2025 or 2026.
In his second term, Trump plans to reset some of those provisions and make some of them permanent. He may face some resistance from fiscal conservatives in the House and Senate, but it is likely that at least some of the provisions will be enacted. With reduced corporate and individual taxes, RIA clients may find they have more money to invest, which could balance out the effect of tariffs. Businesses with lower corporate taxes may be more willing to invest in expansion plans.
How Will Policy Changes Influence M&A?
Trump has signaled support for loosening antitrust policy, including what qualifies as unfair competition and how policy is enforced. KPMG conducted an annual year-end survey of corporate and private equity dealmakers and found 76% of respondents said the election results would increase M&A activity, while 80% said it increased their own appetite for deals.
Another potential change that bodes well for M&A activity is a possible reduction in the capital gains tax. Trump hinted at pushing for a lower top long-term capital gains tax rate during the campaign; whether it happens or not remains to be seen. If it does, some sellers who have been fence-sitting may decide to put their businesses on the market to take advantage of lower taxes on their capital gains.
Is Now the Time to Make a Deal?
As any savvy investor knows, there’s never a wrong time to make a good deal. For RIAs considering buying another practice, this could be a good time to take advantage of opportunities to expand. Sellers hoping to pay lower capital gains taxes may be ready to put their businesses on the market. Savings from more favorable tax rates may free up more cash to help fund an acquisition.
Whenever it’s time to make a deal, start working with a team of advisors, including an attorney, an acquisitions consultant and a trusted lender. They will help prevent problems and improve the likelihood of success of the deal. It’s never too early to start talking with lenders about future plans for expansion. Laying the groundwork today makes it possible to seize opportunities tomorrow.