What the 2018 U.S. midterm election results could mean for financial services

After Tuesday’s midterm elections, the bold points were simple: Democrats took control of the House, while Republicans maintained control of the Senate.

What that means for advisors and their clients, though, is obviously more complex. During the opening session of the MDRT EDGE on Wednesday in Boston, Massachusetts, Andrew Friedman, a nationally recognized expert on political affairs and frequent commentator on CNBC, addressed what to expect now that the tightly fought midterms are in the books. That included the likelihood that the Democrat-controlled House will undertake investigations and call administration officials to testify under oath, with the recognition that it is extremely unlikely that a Republican-controlled Senate would ever yield the two-thirds majority vote needed to convict and remove the president.

The division of power also means, to name just a few elements, that there will be more “legislative gridlock” and no major tax cuts or spending increases, Friedman said. The House may also call more hearings about issues involving online security and data privacy, with an eye on reinstating net neutrality. Congresswoman Maxine Waters, the new chair of the financial services committee has expressed concern that the SEC’s long-simmering “best interest” rule is too weak and is interested in a fiduciary rule that would treat brokers like investment advisors, Friedman said. While legislative changes are unlikely, Friedman noted, the administration and SEC may be subject to extensive hearings, and there is related risk for financial services companies.

Friedman also noted the upcoming lame duck session, requiring the government to be funded by December 7 to avoid a shutdown. He predicted that during this time, the bipartisan Retirement Enhancement and Savings Act, allowing small businesses to band together to create one 401(k) plan, would be considered. If a government shutdown is looking possible in the first week of December, Friedman said, that could lead to market volatility.

Three other aspects in particular could lead to fluctuation in the market and impact how advisors interact with clients:

• Inflation. This is a given risk when the economy is stimulated by tax cuts and spending. If wages increase and interest rates rise, inflation will result and the market will adjust.
• Tariffs. Along with the tariffs already put in place by the president and ongoing efforts to create negotiations with countries such as China, Friedman also pointed to a possible 25 percent tariff on all Mexican goods that could go into place on January 1. If so, he said, that would concern markets worried about a trade war.
• The Mueller investigation and Democratic oversight hearings. If charges of malfeasance are brought, it will slow down the administration, Friedman said, resulting in fewer initiatives. “The markets want Trump to do what he does,” Friedman added. “They don’t want him impeded.”

MDRT members can view Friedman’s full presentation here. 

Written by Matt Pais, MDRT Content Specialist