RIA Washington Watch: A challenging time for advisors

What is RIA Washington Watch?

Every quarter, RIA Washington Watch brings you the most up-to-date information on registered investment advisor news and policy changes to help your firm make informed decisions.

This report is current as of May 14, 2025

President Donald Trump completed the first 100 days of his second presidency at the end of April and, well, it's been a LOT. A record 143 executive orders have been signed. The markets suffered the worst first 100 days of any president's term since 1974 before rebounding in early May. Economic growth was negative in the first quarter. Border crossings are way down. Tariffs are way up. What's going on from a policy perspective in Washington has had a more direct impact on the markets than at any other time in decades.

Amid higher market volatility and huge swings in the market, it's been a head-spinning time for investors trying to make sense of it all. The key question for investors and advisors is how much of everything happening in the nation's capital will significantly impact the markets over the longer run. Here's a quick look at some of the most important issues to watch.

Tariffs dominate the economic discussion

The president's sweeping tariff plan includes tariffs on imports from Canada and Mexico, as well as new tariffs on steel, aluminum, cars, and car parts. Tariffs on imports from China hit 145% before the two countries reached a temporary truce in early May that saw those reduced to 30% for 90 days. But it is the universal 10% tariff on all imports, implemented on April 5, that may have the broadest impact. That provision alone brings the effective U.S. tariff rate to its highest point in nearly a century. The White House's plan for even higher "reciprocal" tariffs on about 90 countries would increase the impact further, but the president paused those for 90 days, until early July, to give an opportunity for country-by-country trade deals to be negotiated.

Expect tariffs to dominate the economic discussion for the next several months. The president is attempting to fundamentally reshape the U.S. economy, hoping to encourage companies to manufacture more products domestically. Economists are skeptical that will be the outcome. What's clear at the outset, however, is that markets are rattled, diplomatic relations are strained, the dollar's value has declined, consumer confidence has tumbled, and companies are finding it difficult to plan. The risk of a recession has risen markedly. The president remains committed to his plan, but he'll likely need a series of major trade deals in the coming weeks to convey that his plan is working. Meanwhile, expect the White House to keep a close eye on the markets and the economic data as we head into the summer—and to change course if needed.

Tax-and-spending bill is the next big thing

While the White House has engaged in a blizzard of activity, Congress has been strikingly quiet. But now the focus is turning to Capitol Hill as it takes on its first major legislative challenge of 2025: a massive bill of tax cuts and spending cuts that forms the heart of the Republicans' policy agenda. Republicans plan to use "budget reconciliation," a parliamentary process that allows budget bills to be considered under expedited rules. Crucially, the process allows a final budget package to be approved with just a simple majority in both the House and Senate—obviating the need for a 60-vote supermajority in the Senate to overcome a filibuster.

Both the House and the Senate have completed the first big step: passing the "budget resolution," a framework that sets broad targets for $4.5 trillion in tax cuts and as much as $2 trillion in spending cuts. But now comes the difficult part. The two chambers will have to reach agreement on a detailed package that spells out the specifics of every spending cut and every tax provision. The House of Representatives is taking the first crack at doing just that.

On the tax side of things, the House legislation extends all of the 2017 tax cuts that are slated to expire at the end of 2025, including the lower individual income tax rates and the higher standard deduction, among dozens of other provisions. The estate tax exemption amount would increase to $15 million per person in 2026. There has been some talk of raising the top income tax rate for wealthy individuals, but that was not included in the House bill.

Other priorities included

Some of the president's other priorities are also in the House legislation. The bill includes a four-year period of no taxes on tip income and overtime hours. A new provision offers a special $4,000 tax deduction for seniors, subject to income limits. The bill also includes a significant increase in taxes on private foundation assets, as well as higher taxes on endowments at private colleges and universities. Another key issue will be how to handle the state and local tax deduction (SALT) cap. Republicans representing high-tax states like California, New Jersey, and New York are pushing for an increase in the current $10,000 cap, something the president supports. House leaders proposed an increase to $30,000, but several lawmakers are pushing for a higher cap.

Moreover, tax bills don't come along in Congress very often, so individual members have their own priorities they would like to see included in the bill. Senators have reportedly floated more than 200 specific tax ideas to Republican leaders, who will have to sort out a lot of competing priorities to ensure the bill does not completely blow out the federal deficit.

Some cuts will be especially sensitive

The spending cuts will be even trickier to finalize. Lawmakers are always for "spending cuts" in the generic sense, but once it gets to making program-by-program cuts, every politician wants to protect whatever is most important to their constituents. Medicaid spending is a particular flashpoint. The House Energy & Commerce Committee has been tasked with cutting $880 billion for programs under its jurisdiction, of which Medicaid is by far the largest. But severe cuts could decimate the program—and hit red states especially hard. Tough choices will have to be made in the weeks ahead.

House leaders are optimistic that the big bill can be approved by the House by Memorial Day. But whenever the bill passes the House, it faces an even tougher road in the Senate, where further changes are all but certain. Getting a final bill through both chambers by August 1 would be a significant accomplishment—but that is not a sure thing.

Big regulatory changes loom

On April 21, Paul Atkins took the oath of office as Chair of the Securities and Exchange Commission (SEC). Atkins served as a commissioner from 2002–2008, during the George W. Bush administration, and until recently ran a well-regarded financial consulting firm in Washington. Atkins will head an agency whose regulatory priorities could not be more different from those of the previous administration. He's also taking over a notably slimmed-down agency. An estimated 15% of employees took early retirement or a buyout package earlier this year, part of the Department of Government Efficiency (DOGE)–led effort to reduce the size of the federal government. But decades of experience, expertise and institutional knowledge across all parts of the agency have walked out the door.

Atkins is expected to take a much lighter regulatory approach to the markets than his predecessor, Gary Gensler. Several major regulatory initiatives from the previous administration, including public company climate risk disclosure, equity market structure overhaul, and ESG-related rules are being scrapped, shelved, or rolled back. For RIAs, proposals relating to third-party vendor due diligence, a revised Custody Rule, and the use of predictive data analytics in investment advice have been set aside and are unlikely to be revisited under the current administration. Enforcement priorities are also expected to change under the new leadership.

Two major rules affecting advisors are still in progress

For RIAs, a major focus in 2025 should be to get ready for the new rule from Treasury's Financial Crimes Enforcement Network (FinCEN) requiring RIAs to implement robust anti-money laundering (AML) programs, including filing Suspicious Activity Reports and appointing an AML officer. That rule takes effect January 1, 2026. There is an advocacy effort underway in Washington to push for a delay in the effective date of the new rule (or even an outright repeal of it), but it's not at all clear whether that effort will succeed. While it plays out, firms should work toward compliance.

And, finally, over at the Department of Labor, the never-ending topic of the fiduciary rule remains as uncertain as ever. The so-called "Retirement Security Rule" was approved in 2024 during the previous administration but was paused nationwide by two different federal courts before going into effect in September 2024. Those cases remain ongoing. Most recently, the court granted the Department of Labor additional time, until mid-June, to decide how to proceed in the cases, which have been consolidated. It's widely believed that the fiduciary rule will ultimately be tossed out by the courts. Assuming that happens, however, current Labor Department officials will have to decide whether and how to proceed with another effort to define who is a fiduciary in the retirement savings context, a topic of intense debate across four presidential administrations.

What you can do next

• Register for the next Schwab Market Talk to hear the latest information on potential impacts to the market and regulatory changes.
• Tune in to Michael Townsend's biweekly podcast, WashingtonWise, for insights on the policies and politics impacting portfolios.
• If you don't yet work with Schwab, consider a custodian that is invested in your success. Contact us to learn more about the potential benefits of a custodial relationship with Schwab.