July 22, 2004, 2:39 p.m.
No Predator
First Command is an honorable service.

By Patrick A. Swan

To many Americans, today's military is the smartest, most innovative, most savvy, and most adaptive force in our nation's history. But, if you read a recent New York Times exposé, you'll discover that, despite their competence on the battlefield, our servicemen are actually financial simpletons, and hence are easy prey for unsavory firms ready to exploit military clients.

Read the first part (of two) of Diana Henriques's article, and you'll walk away with the sense that military folks are duped by senior or retired military leaders into purchasing investments and life insurance that are not in their best interests.

BY MILITARY PEOPLE, FOR MILITARY PEOPLE

The article is unfair and one of the companies that falls victim is First Command Financial Planning, of Fort Worth, Texas. First Command was founded 46 years ago by retired military people for serving military people. Its founder, Carroll Payne, recognized that military families had special financial needs to which the big Wall Street investment firms did not cater. First Command presently represents more than 300,000 military families.

Is the Times's claim that G.I.'s need to guard against First Command valid? Henriques hardly bolsters their case when she dismisses successful military-niche companies (like First Command) by saying, "Many financial experts say the products sold are often ill-suited for the military people who buy them." Henriques supports this statement by quoting competitors from Wall Street-style financial interests whose philosophies differ from First Command's.

It would have been nice if, before she accepted these competitors' claims at face value, she had at least presented them with this quiz. Here are several military acronyms related to pay and travel: SBP, BAH, BAS, TDY, PCS. What do they stand for, and what do they do for military people? I'm confident these firms would be hard-pressed to figure out even half of them. [For the record, they are Survivor Benefit Program, Basic Allowance for Housing, Basic Allowance for Subsistence, Temporary Duty, and Permanent Change of Station.] If you don't understand Military Acronyms 101, you are hardly in the position to strike a superior pose on whether someone else's financial producers are suitable or not for servicemen and their families.

What is clear is that First Command knows and understands them all. Why? Because while most financial-services companies take military people and try to make them accept programs the companies offer the general public, First Command takes its financial programs and shapes them to match the unique needs of military people. It can do this because it hires former servicemen as its agents.

NOT FOR THE SHORT-SIGHTED

One specific subject of Henriques's extended derision is First Command's support for front-end-load contractual investment plans. They are designed for career military families with long-term goals and the discipline to pursue them over a 15- to 20-year career. They are not designed to bring high-flying, short-term results. On the contrary, they are designed to keep short-term, "market-timing" speculators out of the funds — precisely because of the high front-end load. This approach benefits long-term investors by providing a stable fund largely immune to daily market fluctuations. If you believe Henriques, however, you'll consider these funds bad because they are "obscure" or because they don't employ the follow-the-heard approach.

Henriques then quotes some dissatisfied clients who demonstrate that they are short-term (if not also short-sighted) investors. Certainly, some First Command clients are unhappy with the performance of their mutual funds over the past several years. Considering we've just come out of the worst bear market in some 70 years, who hasn't been unhappy with his mutual fund's performance? Henriques should have compared First Command's mutual funds with the no-load funds whose managers she uses to disparage First Command. Nothing doing.

In addition, she could have explained how this long-term investing approach, called "dollar-cost averaging," allows First Command clients to buy more shares of their mutual funds when the market is depressed, thereby purchasing when shares are "on sale" so they can bring in greater returns when they sell decades later. (Isn't that the nirvana of the stock market? Buy low and sell high?) Instead, these somehow "obscure" funds — from nationally recognized investment firms such as Pioneer, Fidelity, and AIM — are portrayed as "ill-suited" for military people.

Despite offering such "ill-suited" investments to its military clients, companies like First Command have prospered. There can be only one explanation, of course: Henriques helpfully quotes a lawyer, Robert R. Sparks, who states ominously that "their customers are used to going along with authority" (read: They are mindless automatons. They're in the military, after all, right?).

A COMPANY THAT KEEPS ITS WORD

First Command makes an easy target because it is a word-of-mouth, or "affinity," company. Any such affinity company knows that its word is its bond, and if it fails to live up to its word, it is out of business. To establish its bona fides with potential military clients, First Command relies on testimonials and referrals from its satisfied customers. These satisfied clients are inevitably senior military people who have stuck with their financial programs throughout their careers, and are now reaping the rewards from this disciplined approach.

I can personally attest that if Sparks were right in his assertion that First Command military clients were so easily persuaded to part with their paychecks because they are used to obeying authority, I, as a one-time agent, would be a wealthy man today. The truth is less spectacular: I worked with hundreds of clients on programs individually tailored for them. Some took all our recommendations. Some took some recommendations. Some took none. It was their choice, not mine. All were smart professionals, not lemmings — and none were straight out of basic training (First Command serves military officers and non-commissioned officers in the grades of E-6 and above).

As for Henriques's inference of undue command influence regarding referrals: It was no more serious than if you ate at a favorite restaurant, enjoyed both the food and the service, and so recommended it to a friend. Despite the nefarious implications in Henriques's article, that is all these referrals are. The person doing the recommending gets no financial benefit for referring prospective clients. And after he refers the prospective client, he has no further influence. As I noted earlier, First Command spends a lot of time working with prospective clients to design a program that meets their unique needs; it does not rush anyone into anything. Shouldn't that be applauded rather than condemned?

SERVING SOLDIERS FIRST

Here are some other facts about First Command that Henriques omits: No military person can sign up with First Command at one of its free dinners, even if he asks to. No military person can sign up with First Command at the initial appointment, even if he asks to. Only after a comprehensive assessment of a military family's total financial situation — and its long-term financial goals — does First Command recommend a full financial plan. That plan is a mix of investments (to achieve long-term financial goals), savings (for short-term needs of less than five years), and permanent life insurance to cover any permanent financial needs (e.g., providing a permanent "check a month" for widows or widowers, for instance; or death taxes). It may include a monthly family budget aimed at controlling expenses and reducing debt.

And no one is forced to sign up for the program: First Command recognizes that a client who joins a financial program under pressure is unlikely to stick with that program once the pressure is over. The reason many military clients do sign up for the program is that they've helped to build it — through the time-consuming process of working with an agent who understands their special needs. If a prospective client is not interested in sticking with a financial plan for the long term, First Command tells him candidly that it cannot help him.

On the subject of life-insurance products offered to military clients, First Command carefully selects the companies with which it deals. In may surprise some that there are companies that sell life-insurance policies containing a "war clause" that invalidates the policy if the insured goes to war. First Command will not sell life insurance with such clauses to its military clients. In fact, First Command has negotiated deals with several insurance firms to offer guaranteed life insurance to its military clients. These "options to purchase additional life insurance" are tantamount to providing a policy with "no questions asked." These are usually available once every three years.

Now, what insurance company would sell a policy (without a heavy rate-up) to a soldier mobilizing for war? The insurance companies First Command has chosen do. In fact, from a personal perspective, if my "option" were due this month, I could take it, and the insurance company could neither turn me down nor charge me a heavy rate-up premium — even though I'm serving today in a combat zone. I could make one premium payment, be killed by mortar fire the next day, and my family would receive the full life-insurance payout.

My circumstances are not unique. During Operation Desert Storm, in 1991, a soldier "option" came up. Because of poor communications, the soldier was unable to tell his First Command agent that he wanted to purchase it. That soldier was killed in the war. No only did First Command approach the insurance company on the KIA soldier's behalf, but it explained that he had always taken his option policies and would have taken this one. Not only did the insurance company pay out for the amount of the soldier's existing policy, it added $50K because it agreed the soldier likely would have taken the "option" policy had he been able to.

I've described the operations of this firm in some detail because it is important people know that there are reputable companies out there whose sole mission in business is to help military people. First Command's mission is to do the heavy financial lifting for servicemen so the fighting force can do the heavy lifting of sustaining our liberties (without the worry of managing their personal financial portfolios). When a newspaper like the New York Times smears an honorable company, such as First Command, for providing products that are "ill-suited to military people," we should call them on it.

We may not all agree on the definition of an "honorable" company, but readers here can judge for themselves what kind of company First Command truly is.

— Patrick A. Swan is a mobilized reserve soldier serving in Baghdad. He is a former First Command agent and current First Command client. He is the editor, most recently, of Alger Hiss, Whittaker Chambers and the Schism in the American Soul.