On Advice

Air Force veteran-turned-adviser clashes with First Command

Adviser seeks $10 million in damages in dispute over copyrighted sales materials

Apr 4, 2019 @ 1:53 pm

By Bruce Kelly

First Command Financial Planning Inc. is an independent broker-dealer that recruits retired military personnel. But one of the firm's former advisers — a disabled Air Force veteran — is unhappy with how he was treated and last month filed a lawsuit against the firm and affiliated companies seeking $10 million in damages.

The complaint by the adviser, Joachim "John" Exner, alleges that he was terminated by the firm for refusing to sign over sales materials he developed and copyrighted while he worked as an affiliated adviser for First Command.

Mr. Exner joined First Command in 2003, after his military career was over. He is a financial planner for military veterans and their families. His eponymous firm is located in Fairfax Station, Va., a Washington D.C. suburb.

According to his lawsuit, which was filed last month in U.S. District Court in the Eastern District of Virginia, the conflict centers on who controls the copyright to a financial planning system Mr. Exner created called "The Consistent Client Experience."

In an interview, Mr. Exner claimed that First Command took the copyrighted materials and trained the firm's advisers to use his system.

According to his complaint, First Command began to falsely assert ownership of these copyright-protected works and tried to deceive Mr. Exner into relinquishing them, but he refused. Mr. Exner's lawsuit claimed that First Command terminated him even as it continued to use his copyrighted works.

After leaving First Command in 2017, Mr. Exner affiliated with LPL Financial.

First Command is not part of the protocol for broker recruiting and has a two-year non-solicit agreement in contracts, preventing advisers from speaking to clients when they start working at another brokerage firm, Mr. Exner said.

"They locked us out of our own office that we pay rent for," Mr. Exner said. "They took our computers and copied the hard drive. They sent letters to clients that made them feel like we abandoned them.

"We were attracted to First Command because I was prior military," he said. "[But] the contract with advisers puts handcuffs on you. We are independent contractors and First Command treated us like employees. It was a hostile takeover of our clients and intellectual property."

By the time he left First Command Financial Planning, Mr. Exner and his wife, Claudia, had built a book of client assets totaling close to $130 million. First Command gives advisers referrals, but Mr. Exner said that a little more than half — roughly $70 million in assets — were the result of his and his wife's work and not referrals.

A spokesman for First Command, Mark Leach, did not return calls seeking comment. The company has not yet filed a response to Mr. Exner's lawsuit.

First Command Financial Planning is a sizable firm. It reported close to $7.5 million in income for fiscal 2018, which ended in September, and $59 million in total revenue, according to its annual audited financial statement with the Securities and Exchange Commission.

Its parent company, First Command Financial Services Inc., states on its web site that it has 170 offices worldwide, many near military installations, and $27.2 billion in managed account and mutual fund assets. Eight out of 10 of its advisers are veterans or military spouses, according to the website.

This could turn into another ugly dispute for First Command Financial Planning, which has had a couple other dark marks in its past.

In December 2005, the SEC and the National Association of Securities Dealers, or NASD, the forerunner to the Financial Industry Regulatory Authority Inc., alleged that First Command used misleading sales materials to offer and sell mutual-fund investments through an installment method that resulted in overcharging many clients. The firm paid $12 million as part of a settlement with the regulators.

Two years later, InvestmentNewsreported that First Command was using strong- arm legal tactics as the firm fought with advisers over clients.

There is no room in the financial advice business for advisers and firms to fight over who controls the client. The client controls the relationship.

When a broker leaves one firm to work at another, both the firm and broker should be able to talk to the client and make their pitch.

Let's hope Mr. Exner and First Command can reach an appropriate settlement to their dispute in which clients' interests should truly come first.

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