The New “Fiduciary Rule” and What it Means for the EB-5 Industry

After months of uncertainty, and expectation that President Trump might kill the regulation, the so-called “Fiduciary Rule” is now scheduled to go into effect June 9.  The idea behind the fiduciary rule is to create a requirement that requirement that investment and financial advisers to act only in the ­best interests of their clients. In other words, it will require the professionally trained and government regulated advisers to put THEIR financial interest secondary, after that of their client.

When I first heard about this several years ago, I thought it was a joke: you mean to tell me that despite all the SEC regulations, there isn’t a rule that basically says “you can’t put the amount of your commission ahead of the interest of your CLIENT??”  To me it was a stunning revelation, particularly with the HUGH complexities in investment products, the amount of money involved and the horrific consequences of bad investment advice for ANY investor,  much more so for an investor who’s investing specifically for their family’s future in the U.S.

EB-5 investor visas are “securities” within the meaning of the law, so on June 9^th, when the Fiduciary Rule goes into effect, our industry is implicitly covered by its intent.  That means that those of us who present EB-5 opportunities to accredited foreign investors need to abide by the spirit and, possibly, depending on the final language, the LETTER of the Fiduciary Rule.   It means simply that we need to consider our investor’s best interest when recommending an EB-5 product.

This is a particularly troubling situation in an EB-5 industry were the vast majority of investors are sourced via foreign immigration agents who not only are NOT subject to such a duty, but whose exploitation and rip-off of EB-5 investors has been chronicled extensively over the past two decades.  It means, as Jared Kushner and his family are learning this week, that it is NOT okay to “mass market” EB-5 projects to large, agent-sourced groups of prospects without considering the individual needs of EACH investor.

And there’s more:  as recently as June 2016, the SEC has continued to prosecute the violation of these unlawful fees paid illegally by EB-5 Regional Centers.   Until last year, enforcement was directed at U.S. lawyers receiving illegal commissions.  Last year, the SEC prosecuted one of nation’s oldest EB-5 Regional Centers for unlawfully paying commissions to people where were NOT registered security broker/dealers as required under U.S. laws.  That critical enforcement action, in which the Regional Center paid a $1M fine as a settlement, has been absolutely IGNORED by the EB-5 industry, as evidenced by the Kushner family’s reliance on two of the largest Chinese immigration brokers, neither of which are registered broker/dealers in China.  (To understand the extent of the abuse by EB-5 players in the U.S., take a look at this great map which shows the geographic location of all those prosecuted under federal laws relating to EB-5: http://cis.org/EB5-Investor-Visa-Fraud-Map .

In sharp contrast to the industry norm, American Venture Solutions EB-5 Regional Center has, since its USCIS certification in 2011, ALWAYS looked out for the inter.est of our investors, who are sourced directly through existing AVSEB5 investors, and lawyers and other professionals who are NOT expecting a kickback but who instead are looking out for the best interests of the client, friend or family member they referring to us.    The truth is that the best EB-5 prospects come to us one at a time, and they are referred to AVS because we have earned the trust of the person referring them.    When one of the top tier international law firms we work with refers an investor, it’s because they are looking out for their client, who pays the lawyer for legal services.  AVSEB5 does NOT pay “finder fees” to “referrers”, there are no broker markups paid under false pretenses by the investor, and we only accept investors’ funding AFTER completing a comprehensive Source of Funds verification.  We estimate that AVSEB-5 investors throughout Asian markets typically save between $30,000 and $100,000 in totally avoidable, unjustified “fees” tagged on by migration agents doing nothing more than an introduction.

It is sad to realize that something as fundamental as doing your clients right is a controversial problem for the US financial and EB-5 sectors, but the Fiduciary Rule is the first of many steps to improve that. For us, it’s business as usual.  Contact us at www.avseb5.com today if you are seriously considering EB-5 before the price goes up!

JL

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