Why Trump Advisor Scaramucci ‘Hates’ DOL Fiduciary Rule

At Pershing advisor meeting, an argument for keeping noncorrelated assets in clients’ retirement portfolios

SkyBridge Capital founder and managing partner Anthony Scaramucci. (Courtesy: Pershing) SkyBridge Capital founder and managing partner Anthony Scaramucci. (Courtesy: Pershing)

Anthony Scaramucci delivered a history lesson on nationalism to the 75 advisors gathered for a Pershing advisor meeting, with comments on why President Donald Trump’s style and substance will be beneficial for the U.S. economy.

While presenting at the inaugural Pershing Advisor Solutions Elite Advisor Summit in Aventura, Florida, the hedge fund manager and Goldman Sachs alumnus also spoke bluntly about the Labor Department’s fiduciary rule, which is now in a 60-day review period following President Trump’s directive to do so.

Acknowledging that many in the room full of RIAs might disagree with his negative feelings about the DOL rule, Scaramucci told the advisors why he “hates” it.

“You’re herding people into low-cost ETFs or indexes,” and if “something goes wrong,” as is more likely “in periods of high volatility, like we’re getting into now” considering the currently rich valuation of the stock market, “they can sue you.”

“You’ve limited the options” for retirement investors with the fiduciary requirement, he argued. Instead, “your clients need 5-15 cents of each dollar” in their portfolios to be invested in alternative investments “that aren’t correlated” with the overall market.

(For the latest on the Labor Dept. rule, see ThinkAdvisor's DOL Fiduciary Compliance landing page.)

Scaramucci, who said he has "60 days left" before he finally sells his stake and departs SkyBridge Capital, the hedge fund firm he founded, also warned of a broader global development that will affect the U.S. and the global economy.

“We’re watching a 35-year transition in the economy,” he said, in which “we’re onboarding 3 billion people into the Western capital experience.” Our “success” in accommodating that movement is ushering in a “period of disinflation/possible deflation,” he said, with serious ramifications, especially for the American middle class which, echoing the statements of Trump, have suffered from globalism. “The interdependence of nations” following the end of World War II “reduced conflicts” among nations, he said, “but it’s causing this disinflation” to rear its troubling head.

The decline in “American wages have been a ‘disaster,’” Scaramucci said, “to use a Trump word.” The president’s policies are designed to fix the effects of America’s fostering of “uneven” trade agreements meant to rebuild the nations “decimated” by World War II. Those policies, he charged, “had the deleterious side effect of harming the U.S. middle class.”

Under NAFTA alone, a favorite target of the president, “we’ve lost 70,000 factories.” That could have been avoided, he suggested, if the U.S. had pushed for the “24-month reviews” that were part of NAFTA but which have never taken place. Trump favors free trade, Scaramucci said, but wants to ensure that it’s “fair free trade.” Another example of unfair free trade: Despite strong demand for Jeeps in Japan, it was strict Japanese “trade quotas” that forced Chrysler to declare bankruptcy.

“Deflation is the Death Star” for economies, Scaramucci argued, joking that it’s “the Rogue One Death Star,” not the original "Star Wars" tool of mass destruction.

“Systemic global deflation is an economic tailspin; a deconsumptive process” that can destroy the wealth of advisors’ clients as well. Further, any society with a small wealthy class and a large economically disadvantaged underclass is a prescription for social disaster. “Your clients can have their McMansions," he warned, but we “don’t want to become South America.”

He also discussed Trump’s personality and style. “I have a great relationship with the president,” he said, and revealed that he had discussed with Trump “on the campaign trail” the rise of nationalism in Europe after the Peace of Vienna that ended the Napoleonic wars until World War I, a discussion that took up much of his presentation at the Pershing event. “Trump is ‘wicked smart,’ Scaramucci reported. While not book-smart in the conventional sense, Trump “makes up for it with his reading of people.”

As for Trump's often sensational speechifying, Scaramucci said that "what he says" is all meant to position him for negotiating.

Responding to questions from advisors in the audience and hewing to his theme — richly described in Barbara Tuchman’s classic book "The Guns of August" about the beginning of World War I — Scaramucci discussed global tensions. The downing of a Russian MiG by the Turkish military last year “could have been a Sarajevo moment,” he argued, since Turkey is a member of NATO, which by its founding treaty each signatory must consider an “attack on any member as an attack on itself.”

A similar potential spark could be lit between Japan and China regarding the Spratly islands, which have been a Japanese possession “only since 1905 though [they were] part of China for thousands of years.” The discovery of natural gas reserves there has made the islands an economic issue as well as a nationalistic one, he said.

He had a word about Russia and its mercurial leader Vladimir Putin. Its part of the “Russian culture,” he said, to first “become friends with you” in order to then “take advantage of you.” As for Putin, he said that he might be the “the more moderate leader in Russia; dislodging him might be worse for the U.S.”

After an advisor asked if Trump should back down from his confrontation with the media, Scaramucci agreed, saying “somebody” in the White House “should be pushing back” on the president’s frequently directed animus toward the press.

--- Check out Trump Advisor Scaramucci Sells SkyBridge Capital on ThinkAdvisor.

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