One, two, three, four…Trump declares a trade war.

The Trump administration’s aggressive tariff strategy is sending shockwaves through the global economy and has wiped out almost all stock gains since Election Day for the S&P 500. The levies of 25% went into effect on Mexican and Canadian goods on Tuesday, with additional 10% duties imposed on Chinese imports. Now, it’s up to advisors to parse out the rhetoric, and focus on what the actual impacts of the tariffs will be on clients’ portfolios.

“After 30 years in this business, I’ve learned between Brexit, Covid, and tech busts, that reacting to market events in the near-term is usually not the best course of action,” said Stephen Kolano, CIO of Integrated Partners.

Put Your Guard Up

One of the most widely expected consequences of Trump’s tariffs is rising prices, and that’s forcing advisors to add more defensive positions. For Kolano, that includes buying gold and Treasury Inflation-Protected Securities, known as TIPS. While no one likes the dreaded R-word, advisors are bracing for potential trouble ahead.

“It’s never too early to consider a recession,” Kolano said, adding that drops in consumer confidence and an increase in jobless claims, are signs of a looming slowdown. This week, advisors saw the impacts start to unfold:

• On Monday, the Dow fell roughly 650 points, the Nasdaq about 500 points, and the S&P 500 experienced its biggest single-day drop of the year in anticipation of the tariffs.
• All major indexes are mixed year to date with just the Dow in the green, up just 1.5% by market close Wednesday.

Recession Incoming? Only a few short months ago, Frontier Wealth Strategies co-founder Michael Hansen didn’t imagine the US would be heading toward a possible pullback, but now he’s fearing the worst. “Most recessions are caused by bottlenecks in the economy,” he told Advisor Upside. “Not this one. Trump 100% owns this.”

While advisors should stay nimble to navigate tariffs and a changing economy, they shouldn’t become impulsive. Keep in mind, Trump is also known for being fairly fickle, said Patrick Marcinko, Bogart Wealth advisor. “You can’t just throw out a financial plan after a few days of bad trading,” he told Advisor Upside. Sure, Mexico and Canada may be America’s trade frenemies today, but that could all change tomorrow.

“Trump is very serious about pushing policy through tariffs…but it wouldn’t be a surprise if the current outlay of tariffs changes not too long from now,” he said.

Wait…you launched what now?

The Securities and Exchange Commission fired off a sternly worded letter to State Street about its much-anticipated private credit ETF — which packages both private and public credit into an indexed product — just hours after the fund started trading last week. The agency listed a number of concerns about the first-of-its-kind product surrounding liquidity, valuations, and even its name, in the letter posted to its website last Thursday. State Street said it addressed the issues in a filing just a day later. It’s a bizarre, and exceedingly rare, if not unprecedented, case of a fund undergoing regulator scrutiny after its official debut.

“There are several nuances with this fund structure,” said Aniket Ullal, head of ETF research and analytics at CFRA. “There will be more clarity on these issues, but only after it has been operational for days or weeks.”

What’s in a Name?

The underlying issue is an SEC mandate that allows just 15% of an ETF’s assets to be held in illiquid securities, like private investments. State Street sidestepped the rule by pulling in Apollo to act as a guaranteed buyer or seller of the private loans. It’s a framework that could present some pretty obvious conflicts of interest. Namely, Ullal said, what type of pricing will the fund offer to investors if Apollo is the primary counterparty for both buying and selling the holdings? Or what happens if trading volume exceeds what Apollo can provide?

While the agency is not expected to pull the plug on the fund, the review highlights the difficulty in bringing private assets into traditional public fund structures. Other areas of concern included:

• Fairly pricing the underlying assets inside the ETF on a regular-enough basis for investors to redeem securities throughout the trading day.
• Using Apollo in the name of the ETF, which the SEC said might mislead investors into thinking the alternative asset manager is actually the issuer.

State Street said it addressed the concerns, will amend the name of the fund, and that SEC lawyers were happy with its responses, according to Bloomberg.

Turn Me Private. Private credit has become one of the fastest-growing segments over the past 15 years, and the addressable market could now top $30 trillion in the US alone, according to McKinsey.

“You can’t take three steps in our industry without hearing the phrase ‘democratization of private markets,’” said Jen Wing, chief investment officer at GeoWealth, adding that the opportunity in equity markets has shifted substantially over the past 20 years. “Investors in a traditional stock and bond portfolio may benefit from new sources of growth and diversification that private markets may bring.”

Now, if the SEC can just stay on top of those pesky filings.

Gotta spend money to make money.

LPL Financial is looking to raise as much as $4 billion in capital, per a Securities and Exchange Commission filing this week. The new funding would go toward “general corporate purposes,” like supporting M&A activity, and comes at an opportune time as the wealth management industry broke deal-making records last year. An influx of billions of dollars could take LPL, which is already the largest independent broker-dealer with some 28,000 advisors, to new heights.

The step marks one of the first significant moves under Rich Steinmeier, who took over as CEO after longtime executive Dan Arnold was terminated in October for violating the company’s respectful workplace policies. LPL’s “long-term vision is to become the leader across the advisor-centered marketplace,” Steinmeier said during the company’s earnings call in January.

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