By Alex Tsepaev, Chief Strategy Officer, B2PRIME Group
In 2025, RIAs and wealth managers are navigating global market conditions that look very different from just a few years ago. Volatility is back, central banks have held rates higher for longer than expected, and liquidity is now a daily concern. Across asset classes, the big question now isn’t just where to allocate, but how quickly you can move when things shift yet again.
But this tighter environment didn’t come to be overnight. So how did it begin? And where is it taking us now? Let’s try to figure it out.
What’s Driving the Liquidity Crunch?
Let’s start with the big picture. In 2023, a combination of factors has begun reshaping global markets. Interest rates surged across the US, UK, and other developed markets. This wasn’t just another hike — it triggered a structural change in market behaviour. Higher rates meant tighter liquidity, wider bid-ask spreads, and a noticeable drop in trading activity across developed markets. It became harder and more expensive to move in and out of positions, leading investors to become more cautious.
Emerging markets were hit even harder. As rates rose globally, capital flowed out of riskier assets and into more stable, developed economies. As a result, local currencies in emerging markets became highly volatile, with countries like Sri Lanka and Ghana experiencing severe debt-related crises. For global portfolios, it meant higher risks and even tighter liquidity conditions.
Regulatory Standards Putting a Slow Squeeze
Now add to this the fact that regulation just kept getting tougher. The wave of post-2008 frameworks — particularly the likes of Basel III, MiFID II, and Dodd-Frank — raised capital requirements and limited balance sheet risk. These frameworks were designed to prevent another meltdown.
At the same time, they also significantly raised compliance burdens and costs, which, in turn, led to a wave of consolidation. For smaller players, keeping up with regulation has become that much more difficult. Getting new instruments approved became harder, working with auditors became slower, and ultimately, larger institutions benefited as competition thinned out. All of these events contributed to a pullback in market-making and liquidity provision, which continue to shape the industry even now.
That said, the picture is changing again. The U.S. is exploring a more deregulatory stance — particularly around capital rules for regional banks and certain aspects of market infrastructure. It’s a trend worth noting, and there is potential for some easing at the margins. But I’d be cautious about overstating the possible impact — it is likely to be fairly modest in the end. Most major liquidity providers operate globally and remain subject to European and international standards. Plus, the structural retrenchment in market-making capacity over the last decade isn’t something that will be easily reversed.
So while U.S. policy shifts should be viewed as a potential moderating factor, they don’t change the broader trend toward cautious, fragmented, and regulation-heavy liquidity provision.
How Liquidity Constraints Are Reshaping Portfolio Strategies
All of this is changing not only how portfolios are managed, but how they’re even built in the first place. Many investors are rotating into cash, ETFs, and futures to stay flexible and maintain liquidity
In equities, large-cap stocks are favored for ease of trading. But even among them, performance varies significantly depending on company-specific fundamentals. We’ve seen it play out with names like Ubisoft, Intel, and Nvidia — volatility remains company-driven.
Interestingly, alternative assets like private equity and real estate are holding up well, especially in concentrated capital hubs. But managing their liquidity is becoming more critical. Allocators are being much more selective, not just on returns, but on how fast and efficiently these assets can be sold when needed.
Liquidity is becoming the central piece in building strategies. “How quickly can I sell this, and at what cost?” is now the most important question RIAs are asking.
Best Execution Is No Longer Optional — And It’s Getting Harder
Regulators are also stepping up their expectations: best execution has shifted from being a good practice to an actual regulatory obligation. MiFID II in Europe, the SEC in the U.S., and other major regulators beside them are tightening screws, and what used to be more of a guideline is now a measurable — and controlled — demand
But putting this into practice is proving to be a challenge. For large wealth managers working with 10 to 15 execution venues, tracking performance across all of them — on price, volume, speed, and spread — is no easy feat. How do you define the “best” option? And how do you document that in a way that regulators will accept? Without clear oversight or transparent logic, firms risk falling short of compliance.
As a result, I imagine that many firms may simply reduce the number of venues to better manage risks. It is ironic that having better infrastructure actually increases the odds of accidentally breaking the rules.
Final Thoughts: Liquidity Needs Strategic Management
So, to sum up — where does this leave RIAs and wealth managers?
Maintaining a liquidity buffer has become crucial. Cash, short-term T-bills, high-grade ETFs — all of these should be kept on hand not just for emergencies, but as part of everyday strategy. Stress-testing portfolios for liquidity should also become standard practice, just like market or credit risk analysis. Regulators increasingly expect it to be part of operational risk frameworks.
And on the execution side of things, the infrastructure must be carefully curated. More isn’t always better. Instead of adding to the number of venues, firms should focus on a smaller set they can confidently monitor and manage well.
The key takeaway is that, in today’s environment, liquidity has turned into a strategic pillar, not just a portfolio metric. And it should be treated as such.
