Avoiding Fiduciary Responsibility: Not Just an EB-5 Problem

In April of 2017, the Labor Department’s new “fiduciary rule” will take effect and the parallels between what the rule seeks to rectify and the imminent reform of EB-5 are virtually identical:  after many years of resistance/lobbying/stalling by Wall Street investment firms wanting to have their cake and eat it to — that is, to pretend they can genuinely represent the interest of the investors they represent while benefiting financially from trade-driven commissions, the rules are changing to create accountability .  The fiduciary rule is the necessary response for Wall Street’s abuse of retirement account management and a culture of generating intensive IRA trading patterns to create profits for the brokers via transaction driven fees.  The new law’s mandate is clear:   “Choose your role, are you profiting directly by giving financial advice and disclosing it or are you a neutral, disinterested advisor who really DOES represent the interests of your investor?”

While Merrill Lynch – one of the big firms fighting the fiduciary rule for years — responded earlier this month by saying they will discontinue traditional commission-based sales models in retirement accounts and only sell IRAs with fees based on assets managed, Morgan Stanley is not-so-subtly trying to weasel out of the fiduciary rule’s intent: they have just announced that commission-based retirement accounts WILL continue, via a technical loophole in the new law, essentially letting it’s 15,000+ brokers to continue to profit from retirement account transactions, i.e., the more they suggest a customer trades, the more they make.

Like Big EB-5, which the U.S. General Accounting Office just BUSTED via its review revealing that more than 1/3 of all EB-5 investor dollars are being raised as “TEA” eligible investments are really going to projects in areas with less than 4% unemployment, Wall Street has a big financial stake in continuing to evade its responsibilities to investors; Morgan Stanley’s public position is disappointing, reflective of their aversion to ethics…but hardly a surprise because big bucks are involved.

EB-5 reform IS coming, Big EB-5 WILL be required to stick to bona fide census figures and ask investors for twice the TEA investment amount, but rest assured that many will go the route of Morgan Stanley,  looking for technical loopholes which permit the abuse to continue and to evade EB-5 fiduciary responsibilities to investors and the program in general.