Business Transformation | 06.18.25

Advisors Well-Positioned To Navigate Tariff Uncertainties

by: Rich Blake

Securities markets turned historically turbulent after President Trump announced his sweeping tariff policy on April 2. Investors have since experienced a rollercoaster ride of fits, starts, pauses, exemptions and speculation about potential trade deals.

Meanwhile, retirees, retirement savers and small business owners — core constituencies of community banks and credit unions — all could use some clear-cut answers in a time of heightened uncertainty.

Advisors, in other words, have a unique chance to meet the moment.

"If there's a silver lining [from tariffs] for community institutions it's that they will gain a major advantage," says Dave Koch, director of advisory services at Abrigo, a software solutions provider that serves an array of small financial institutions.

"That advantage is proximity. You’re in the room with your borrowers. You’re in the neighborhoods where economic change shows up first. That kind of insight can be your edge.”

The tariff-related uncertainty of today may even push the innovations of tomorrow, says Koch, pointing to areas such as community-focused services and strategies.

Storm Brewing?

Here’s something that knits together small- and mid-sized businesses across the country — they all need somebody to lean on. Many are already struggling to absorb the rising costs tied to tariffs, according to the Federal Reserve’s latest Beige Book report. The report compiles anecdotal information gleaned from business contacts throughout the central bank's 12 regional districts.

The Fed found that tariffs are squeezing smaller firms. This is especially true with respect to manufacturers and importers with limited supply chain flexibility. And while larger corporations may enjoy greater pricing power or diversified sourcing options, small business owners do not have that same luxury.

“Several districts reported that small- and mid-sized businesses were experiencing tighter margins," the report said, "as they were unable to fully pass on increased costs from tariffs to customers.”

That pressure on margins will “limit the ability of business owners to save and invest," one wealth management executive cautioned while discussing some of the challenges right now confronting small business owners.

Most worrisome is the prospect of business owners having to dip into their retirement accounts to help keep up with obligatory expenses — like paying their employees.

Advisors should, as best they can, steer clients toward alternative arrangements so as to avoid potentially setting their retirement plans back by years, one industry member stressed.

At a minimum, advisors should be ready and willing to patiently listen to the trials and tribulations of an entrepreneurial client who simply may need to vent. The human element — that sense of truly personalized service — can't be replicated.

A Wider-Angle View

All clients will have questions about the changing economy. It's entirely conceivable that, in a few years, the entire global trade landscape will look dramatically different. Disruption in general could have longer-term positive consequences for pockets of the country, especially if forecasts about more on-shoring wind up being even partially correct.

In Arizona, Taiwan-based TSMC is investing heavily in semiconductor manufacturing. GM, meanwhile, recently announced plans to significantly expand domestic manufacturing in the Midwest.

Foreign markets that have leaned away from U.S. imports might open up — eventually. For at least the next year, though, it's not a terrible idea to start to prepare for a scenario in which, owing to policy ambiguity, investment growth slows down in the U.S.

"The dust is still settling on the details, with various interpretations on the amounts involved," reported the BlackRock Investment Institute in a bulletin issued earlier this spring.

Crunching the numbers, the giant money manager envisioned a U.S. average effective tariff rate of as much as 25% — a level not seen for at least a century — but go ahead and call that the ceiling.

"We think negotiations between the U.S. and other countries will eventually bring it down," BlackRock said.

Put another way: the stock market generally seems to be bracing for a 10% rate at some point down the line. But you don’t have to go along with consensus. The effective rate could wind up being higher and harder to digest.

"If much higher, the drag on growth and boost to inflation over the next two years could be sizeable," BlackRock said. "U.S. stagflation and a global recession cannot be ruled out."

Wealth Diversification Prioritized

Meanwhile, BlackRock also just surveyed 175 wealthy clients and more than three-fourths are concerned about the trade war. Prior to "Liberation Day," two-thirds of respondents had reported confidence in achieving return targets for 2025; afterwards, that number shrank to merely half.

At the same time, half of this cohort of 175 investors indicated a desire to broaden their return sources. Among the ways: increased allocations to illiquid alternatives, as well as non-U.S. equities, liquid alternatives and cash.

“Private credit is gaining traction as investors increasingly value consistent cash flow," said Sarah Butcher, head of Institutional and Capital Formation for BlackRock in Canada.

"Uncertainty isn’t new," says Abrigo's Koch, who specializes in asset/liability management (ALM) education for industry members. "But the combination of geopolitical risk, inflation and rate pressure means financial institutions need to be sharper than ever. With disciplined planning and a strong read on your local economy, your institution can come through this even more resilient and better prepared for the next curveball."