Admin. Proc. File No. 3-11770

ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934.

The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (Securities Act) and Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act) against First Command Financial Planning, Inc. (First Command or Respondent).

II.

In anticipation of the institution of these proceedings, First Command has submitted an Offer of Settlement (the Offer), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these proceedings, First Command consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Section 15(b) of the Securities Exchange Act of 1934 (Order), as set forth below.

III.

On the basis of this Order and First Command’s Offer, the Commission finds that:

RESPONDENT

1. First Command is a registered broker-dealer, with its principal offices in Fort Worth, Texas. It employs approximately 1,000 registered representatives/agents (agents) through approximately 200 branch offices throughout the United States and in Germany, England, the Netherlands, Spain, Italy, Guam, and Japan. First Command claims to be [t]he #1 independent provider of financial plans to the professional military family, and currently has over 297,000 military families as customers, including 40% of the current active-duty general officers, one-third of the commissioned officers, and 16% of the non-commissioned officers in the United States military. The great majority of the firm’s agents are former commissioned or non-commissioned military officers.

SUMMARY

2. This matter involves violations of the federal securities laws by First Command in its use of sales materials to offer and sell mutual-fund investments through an installment method known as a contractual or systematic investment plan (systematic plan). 1 The systematic plans allow investors to accumulate shares of a specified mutual fund indirectly by contributing fixed monthly payments-typically 180 payments ranging from $100 to $500-over a period of at least 15 years. Systematic plans, including the plans offered and sold by First Command, are subject to a sales charge unique to such plans, often referred to as a sales and creation charge or front end load, that equals 50% of the plan’s first 12 monthly payments. There is no front-end sales load after the first 12 payments. From January 1999 through March 2004, First Command received approximately $175 million in front-end sales-load revenue from the sale of systematic plans, which accounted for approximately 70% of its revenue. 2

3. Since at least January 1999, First Command, using a structured sales process, has offered and sold systematic plans by, in part, making misleading statements and omissions concerning, among other things: (a) comparisons between the systematic plan and other mutual fund investments; (b) the availability of the Thrift Savings Plan (TSP), 3 which offers military investors many of the features of a systematic plan at lower costs; and (c) the efficacy of the front-end sales load in ensuring that investors remain committed to the systematic plan. As a result, First Command violated Section 17(a)(2) of the Securities Act.

FACTS

The Family Financial Plan

4. First Command markets a comprehensive package of financial services called a Family Financial Plan (FFP) that includes investment products, banking, and insurance offered through First Command, its affiliated bank, and its affiliated insurance agency. The firm’s website states that the FFP is a personalized road map for your journey in pursuit of financial success, encompassing not only the products you have acquired through your First Command representative, but also assets like 401(k) accounts and military retirement income. The site further states that the company maintains a close, but independent, relationship with many giants of the financial industry, which allows the firm to provide [the customer] with an objective analysis of [the customer’s] situation and to make an independent recommendation for specific products. First Command represents to its customers that the FFP is tailored to the specific needs of the customer based, in part, on a Confidential Checklist of personal financial information completed by the customer and the agent. In the usual case, First Command recommends that the customer purchase a life-insurance policy from one of several insurance companies through the firm’s insurance agency, open an account at the firm’s bank, and purchase mutual funds through one or more of First Command’s systematic plans offered by four mutual funds groups.

The Systematic Plans

5. The sale of systematic plans to military personnel has historically constituted 70% of First Command’s mutual-fund business. Since 1970, First Command customers have invested approximately $10.1 billion in mutual funds-of this amount, approximately $7.4 billion has been invested through systematic plans. First Command sells five systematic plans, which, in turn, make purchases from one of five different mutual funds. 4 Under these systematic plans, the investor is to pay 180 fixed monthly installments (15 years), which may be extended to 300 payments (25 years) at the investor’s option with no additional sales charge. First Command customers pay a front-end sales load equal to 50% of the first 12 payments, but thereafter pay no additional front-end sales load for the life of the plan. 5 This sales load is received by First Command, which, in turn shares the commission with the selling agent. Assuming a fixed monthly payment of $100, a systematic-plan investor would pay a total of $1200 in the first 12 months. Of this amount, $600 would pay the 50% sales load and $600 would purchase an indirect interest in mutual-fund shares. As required by Section 27 of the Investment Company Act, the systematic plans also permit the purchaser to terminate within the first 45 days, with no sales charge, and within the first 18 months, with a maximum charge of 15%.

6. After an investor completes the first 12 payments, the effective sales load is reduced with each payment. If all 180 payments are made under the plan, the effective sales load on the total investment is 3.33%. If 300 payments are made, then the sales load on the total investment is 2%. Conversely, if the investor ceases making payments or terminates the plan before making all of the required payments under the plan, the effective total sales load may be higher than the average sales load charged by a conventional load mutual fund. According to Lipper Inc. the average load charged by a conventional load equity mutual fund in 2003 was approximately 5.2%.

7. The following chart illustrates the effective sales load on the total investment at various discontinuation points: