Financial Product Sales: Actions Needed to Better Protect Military Members

DOD issued a revised regulation governing the sales of insurance products on military installations. Effective July 10, 2006, this regulation--DOD Instruction 1344.07, "Personal Commercial Solicitation on DoD Installations"-- requires that the military installation commanders report any suspension or withdrawal of insurance or securities products solicitation privileges to the appropriate State or Federal regulatory authorities. Further, the DOD Instruction eliminates ambiguity concerning the sharing of complaints information between DOD and state regulators. Specifically, the Instruction directs installation commanders to ensure the agent's license status and complaint history are checked with the appropriate State or Federal regulators before granting permission to solicit on the installation. Further, the installation commander is directed to report concerns or complaints involving the quality or suitability of products or concerns or complaints involving marketing methods used to sell these products to the appropriate State and Federal regulatory authorities. The DOD Instruction also instructs each Military Department to provide guidance to DOD personnel who have a complaint, including guidance on referral to the appropriate regulatory agency for processing the complaint. Lastly, life insurance products marketed to DOD personnel on DOD installations must include disclosure information citing the address and phone number where consumer complaints for such products are received by the State regulatory agency that has licensed the sales agent.

DOD concurred with this recommendation and has taken steps to improve the guidance, training, and awareness at all levels related to servicemembers' concerns and complaints over financial product sales. Specifically, DOD has updated and conducted personal financial management training that includes information on where servicemembers can go to get help with financial issues and complaints. In a March 2007 testimony, DOD stated that they had obtained the assistance of several federal agencies and nonprofit organizations, including the National Association of Securities Dealers Foundation, in providing financial awareness training and education. In a February 2009 DOD Inspector General report, investigators noted that personal financial management classes were being conducted at installations they visited and reported instances where some complaints had been forwarded to military authorities. Further, recent GAO work revealed that financial management courses at selected installations did include a mechanism for servicemembers to obtain assistance on financial issues or complaints (including multiple cases where such complaints were forwarded to financial regulators outside DOD). Additionally, DOD has raised awareness and placed new responsibilities among more senior officers related to financial issues negatively impacting servicemembers, as evident by top-down DOD financial training outreach efforts and new responsibilities placed on commanders to forward complaints on financial issues to the appropriate federal or state regulators. Finally, we observed training materials from federal and state financial regulators that were developed in consultation with DOD.

This recommendation, which NASD (now FINRA) concurred with, has been accomplished through numerous outreach efforts that the regulators have conducted within the military community. This outreach also included information on specific contacts within NASD (FINRA) for servicemember concerns and complaints. In a testimony in FYO6, SEC staff reported that they and NASD have been conducting examinations and coordinating closely with the Department of Defense (DOD). NASD also noted that they had developed information and a brochure on periodic payment plans, which had become problematic in the military community. Currently, FINRA has financial information specific to the military community and contact information on its Web site, including information on submitting concerns or complaints (see http://www.saveandinvest.org/Military/ContactUs/index.htm).

SEC, in conjunction with NASD, conducted further investigations and targeted examination sweeps of sales to military members, utilizing DOD lists of disciplinary actions, subsequent to our report, according to SEC officials. During these investigative efforts, SEC was in contact with GAO staff concerning areas of interest to focus on for their investigations, further confirming their efforts in accomplishing this work.

The Military Personnel Financial Services Protection Act (Act), which was enacted into law on September 29, 2006 (Public Law 109-290), banned the sale of contractual plans, eliminating the need for NASD to take any action.

This recommendation, which SEC concurred with, has been accomplished through numerous outreach efforts that the regulators have conducted within the military community. This outreach also included information on specific contacts within SEC to forward servicemember concerns and complaints. In an FY06 testimony, SEC reported, "Our program has included enforcement activity, extensive examination activity, close coordination with the Department of Defense (DOD) and the National Association of Securities Dealers (NASD), and investor education and other outreach activity." Specifically, SEC noted that "the Commission staff in the Office of Investor Education and Assistance have conducted an active investor education initiative targeted towards members of the military," noting that SEC was a charter member of the DOD's Financial Readiness Campaign, assisting in the presentation of financial education programs to the military, and that Commission staff had conducted several financial education workshops on military installations, including information on periodic payment plans. In a 2007 testimony, DOD again testified that they were working cooperatively with SEC to provide outreach and education to servicemembers. Currently, SEC has financial information specific to the military community and contact information for forwarding concerns or complaints on its Web site (see http://www.sec.gov/investor/military.shtml).

SEC, in conjunction with NASD, conducted further investigations and targeted examination sweeps of sales to military members, utilizing DOD lists of disciplinary actions, subsequent to our report, according to SEC officials. During these investigative efforts, SEC was in contact with GAO staff concerning areas of interest to focus on for their investigations, further confirming their efforts in accomplishing this work.

The Military Personnel Financial Services Protection Act (Act), which was enacted into law on September 29, 2006 (Public Law 109-290), banned the sale of contractual plans, eliminating the need for SEC to take any action.