First Command Responds to Regulatory Actions of 2004

On December 15, 2004, financial industry regulators made headlines by assessing a $12 million fine against a national financial planning company that had built a sterling reputation on serving the needs of our Nation’s military families. That company was ours. News quickly spread through the military community that our executive leaders had agreed to settle accusations of misleading sales practices and other regulatory violations. Class action lawsuits against First Command soon followed.

Today, the events of 2004 continue to attract attention in the military community and information about those events is still easily found online. Almost two decades later, we are still occasionally asked about them by the military families we seek to serve. What they really want to know, of course, is: Can I trust First Command?

All of us at First Command – from our Financial Advisors and their teams to the employees at our Home Office and our leadership team – are proud to be able to confidently answer that question with an emphatic “yes.” Because after the events of 2004, we embarked on a mission to re-establish trust with our clients and the military community by strengthening our company in a number of important ways. We treated the events of 2004 as an opportunity for improvement and committed to taking whatever steps were necessary to ensure that our practices and ethics would never be called into question again.

We set an audacious goal for ourselves: Create a greatly enhanced client-first culture. We would build more collaborative relationships with our regulators. We would adopt the best practices of the financial planning industry. But most importantly, we would align our company identity with the personal integrity and values of the Advisors and employees who had built their careers on behaving honorably and honestly toward the military families they had been serving since 1958.

We committed to a series of bold, sweeping changes to reshape the company solely in service to our clients' best interests. In the spring of 2005, we registered with the U.S. Securities and Exchange Commission as a Registered Investment Adviser (RIA)* and required all our Financial Advisors to become Investment Adviser Representatives (IAR). The RIA and IAR registrations are significant because they require our company and our Financial Advisors to adhere to what is referred to in our industry as the "fiduciary standard," i.e., a legal obligation to put clients’ interests first when providing investment advice and making financial recommendations.

As a practical matter, these new registrations meant our Advisors had to take challenging new securities exams. Roughly one in four were either unwilling to take the exam or unable to pass it and had to leave the firm. It was painful to lose valued members of our team, but those of us who remained knew without a doubt we were moving in the right direction. We aligned with our personal values and integrity so we could deliver the full measure of our knowledge, skills and judgment in the service of our clients.

Our early efforts to create a client-first culture included expanding our Legal and Compliance team. We brought on new people whose work was overseen by a restructured Board of Directors featuring more outside and independent directors. To complement the fiduciary duties of the Board, we established a new Military Advisory Board, a select group of retired senior flag officers and senior enlisted leaders from each branch of the military to advise us on how to best serve the interests of our military clients.

We took actions to develop and perpetuate strong and sound business practices that reflected the highest industry standards. Those actions included:

• Reshaping our management team of long-term, home-grown leaders to include new experts from outside the company.
• Expanding and diversifying our product offerings.
• Investing millions of dollars to modernize the systems by which we serve clients.
• Incorporating an independent review for all product and service recommendations to ensure suitability for the client.
• Encouraging Advisors to pursue advanced credentials.

We believed it was vitally important to publicly declare our commitment to this higher level of professionalism. So our Advisors created and adopted a Financial Planner Oath, which addressed the accusations about our sales and service practices with a clear and unambiguous promise to always value people over profits:

I will never treat my client relationships as merely transactions to be managed. Instead, I will seek to establish and grow trusted relationships with unique individuals whose goals can be clarified, whose behaviors can be coached, and whose financial success can be inspired.

Our efforts attracted considerable attention in the financial planning industry. In 2009, we were honored when the Financial Planning Association recognized First Command as an FPA Alliance firm, a designation for firms that publicly demonstrate a commitment to professionalism in financial planning and deliver all financial planning services in accordance with the FPA Standard of Care, which calls for putting clients’ best interests first at all times.

We are committed to understanding and responding to our clients’ requests and needs. We keep clients at the center of our actions and decisions through our Client Experience team, which works to incorporate research and guidance into our business.

And we have evolved the Financial Planner Oath into a Code of Ethics that applies to everyone at First Command. The first and most important standard of conduct stated in our Code of Ethics is “We put the interests of our clients ahead of our own interests.”

By no means is First Command the only financial company to experience a reputation challenge. Virtually all major financial institutions have faced lawsuits. At First Command, we focus on serving our clients so that we do not experience a repeat of the events of 2004.

As First Command continues to grow and adapt to meet the needs of our clients, we are wholly committed to holding ourselves to strict standards of ethical behavior. When we receive feedback from our clients – positive or negative – we consider it carefully and treat it as an opportunity to continually evolve and improve.

Every challenge is an opportunity to grow successfully, and our results show that we’ve done just that. We hold an A+ rating with the Better Business Bureau. And in offices around the world, more than 300,000 client families are served by dedicated Advisors— nine out of ten of whom are veterans or military spouses wholly committed to the company’s mission of “Coaching those who serve in their pursuit of financial security.”

Whether it’s helping our clients imagine, plan for and pursue their financial futures or building on the success of a business that’s been dedicated to serving the military community since its founding by a retired Air Force officer in 1958, there’s always more to learn. And we’ll never stop working to improve and to earn the trust of military families.

A Message from First Command’s Executive Leadership Team

While the events of 2004 came as a surprise to members of the military community, they were particularly shocking to our Financial Advisors, their administrative teams and our Home Office employees. They had built their careers on and taken pride in behaving honorably and honestly with the military families they were committed to serve. They were confident they were doing everything right, and a few members of the First Command family even asked when we might have our day in court. When company executives opted to settle with regulators, our people responded by joining together to remake the company. Thanks to their selfless efforts, we can proudly say that we have fully embraced the client-first culture on which this company was built more than 60 years ago. We owe the members of the First Command family – those who were part of the company in 2004 as well as the current generation of Advisors and employees – our profound gratitude and thanks for all they’ve done and continue to do to earn the trust of our clients by putting their interests ahead of our own.

*Registration as an investment adviser with the SEC does not imply a certain level of skill or training.