Moon: When an investment adviser isn't

David Moon
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David Moon

As the television provided mindless background noise one evening, a commercial caught my attention.

“How does average growth of 15 percent a year sound?”

Despite being a natural skeptic (or maybe because of it) I began listening more carefully.

The commercial was for Lear Capital, the people who want to sell you gold and silver.

A footnote appeared onscreen, in print so small I had to stand next to the television to read it. “Lear is not providing investment, legal or tax advice. Please consult with your financial planner.”

When someone uses very carefully crafted language to imply - but not promise - that they can help you earn 15 percent a year, how is that not providing investment advice?

Investment advisers are required to register with the Securities and Exchange Commission, provide voluminous disclosures to prospective clients and only offer advice that is in the best interest of the client. However, various players in the “investment helper” industry have lobbied - and received - exemptions from SEC regulations that would legally define them as investment advisers, thus freeing them from the disclosure and fiduciary requirements of a registered investment adviser.

Lear Capital is exempt from the 1940 Investment Advisers Act because its advice is incidental to selling precious metals and it does not hold itself out as being an adviser; the fine print of the ad specifically denies it is giving advice.

Like Lear Capital, the vice president of investments at the financial planning firm or big brokerage company might not legally be an investment adviser either. It’s hard to tell the difference.

The difference between an investment adviser and someone selling securities whose investment advice is, like Lear Capital, solely incidental to the sales process is a bit like the difference between a six- and eight-cylinder engine. Some people know the difference because they know cars. Others can figure it out if they look under the hood. Most people, however, could spend all day crawling around in the engine compartment of a car and never figure it out.

Most people have to rely on the car salesman to learn the difference, placing them at the mercy of someone whose interests are almost fully at odds with those of the customer.

Discerning the difference between a salesman and adviser is similar. If you have no idea how to tell the difference, ask the investment helper if he’s a fiduciary. If so, he must act in your best interest. If not, he may not actually be an investment adviser.

There is a vast and unambiguous legal difference between the best interests of a client versus the interests of a salesman. The problem within the investment helper industry is the intentional lengths to which some people go to disguise that difference.

David Moon, founder and president of Moon Capital Management, may be reached at

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