Operation Financial Freedom

March 01, 2017

[This article originally appeared in our March issue of ETF Report.]

“It was my midlife crisis,” says First Lieutenant Todd Wood. “Instead of buying a Harley, I re-enlisted.”

The founder and CEO of Carmel, Indiana, advisory firm Agile Capital, Wood entered the U.S. Army Reserves in 2011, 15 years after he’d initially been discharged. A lot had changed over those 15 years. He’d built two successful investment advisory practices. Gotten married. Started a family.

Then his reserve unit was called to Afghanistan.

“I had to put my life on hold,” he says. “But country comes first.”

One of the projects left in the lurch was a new collaboration with Naples, Florida-based Capital Wealth Planning called the Veterans Financial Freedom Initiative (VFFI), a financial planning and investment platform specifically designed for members of the military.

Designed to encourage soldiers and veterans to save—rather than spend—their hard-earned pay, the VFFI had only barely gotten off the ground before Wood’s deployment began.

“Good timing is everything,” he deadpans.

Putting ETFs To Work For Soldiers
Wood may be overseas now, but work on VFFI continues. It’s a mission of sorts, says Kevin Simpson, president and founder of Capital Wealth Planning.

“It’s a platform built by veterans, for veterans,” he says, adding that, in addition to Wood’s own history of service, Capital Wealth Planning’s lead portfolio manager Josh Smith is an Iraq War veteran. “It’s built by people who understand the unique, admirable lives our servicemen and servicewomen lead.”

VFFI is a two-pronged effort. First, it offers free financial planning advice to veterans, retired military and active soldiers through any-time phone and email consultations. It also offers a money management platform, based on Agile Capital’s own toolkit, which helps users track spending, set budgets and brush up on their financial literacy.

VFFI also offers an online investment platform that’s easy to use, even for small account sizes and in remote locations, such as soldiers on assignment. Accessible even from a smartphone, the platform is designed particularly for first-time investors—which describes the vast majority of recruits.

Investments are managed using Institutional Intelligent Portfolios, Schwab’s institutional robo advisory. When users open an account, the algorithm first calculates their risk score, then uses it to customize an all-ETF portfolio, pulling from a universe of some 950 ETFs.

VFFI charges no commissions or management fees for the first $20,000. Even above the $20,000 threshold, expenses remain rock-bottom: 0.35%. Furthermore, VFFI offers a 25% discount for veterans and a 50% discount for disabled veterans. And 2% of all profits go to veteran-focused charities. It’s enough to make you wonder how they’ll make any money at all.

But profit isn’t the point, says Wood. It’s about soldiers helping soldiers, veterans helping veterans.

“We’re not trying to push an agenda or sell a product,” adds Wood. “We just want to create avenues for soldiers to get educated and start investing—to help them reach out to someone who has the same experience they’ve had.”

Soldiers Have Higher Debt, Lower Assets
Keeping VFFI low cost is essential, says Wood, because both active and retired military personnel face unique financial circumstances—and hardships.

Military members and their families carry increased debt loads and have fewer tangible assets than civilians, research from the National Foundation for Credit Counseling shows. Frequent deployments and relocations can strain a family’s finances, and many soldiers hail from low-income backgrounds, with little to no financial education. Their military pay might be their first experience with a steady paycheck.

“First-time investing can be a big deal, and it’s not something we all learned in school,” says Simpson. “So VFFI allows soldiers to talk to a financial planner who’s qualified and experienced, without worrying what that professional advice will end up costing.”

For service members at the end of their careers, Simpson and Wood hope VFFI can help ease the transition back to civilian life.

‘Once You’re Out, You’re On Your Own’
“The military does a great job of taking care of you while you’re in,” says Wood, citing the military’s food allowance and basic housing, even its financial counseling services. “But once you’re out, you’re on your own. A lot of people aren’t as prepared as they should be.”

In addition to dealing with the change to their daily structure and the loss of a financial safety net, many veterans also struggle with combat wounds, both physical and mental. Though the VA provides medical care, coverage isn’t universal, and some retired soldiers end up taking out advances on their pensions to pay off their medical bills.

“Financial risk is one of the top struggles of soldiers and their families, especially when it comes to PTSD and other health issues,” said Wood.

Complicating matters, the military is currently undergoing significant changes to its retirement plan, transitioning from a traditional pension toward a “blended retirement system,” explains Ryan Guina, founder and editor of TheMilitaryWallet.com. Pensions have been reduced considerably; in their place, the military makes matching contributions to a thrift savings plan (TSP), which is structured much like a 401(k) plan.

“That’s a huge change,” says Guina, a former staff sergeant in the U.S. Air Force, currently serving in the Illinois Air National Guard. “It’s going to require an equally huge push in education for service members.”

Current Options Offer No Cure-All
Currently, the military offers some avenues for soldiers to start saving and investing. For example, the Savings Deposit Program (SDP) offers a guaranteed annual return of 10% on up to $10,000 of savings. The aforementioned TSP, meanwhile, offers 10 funds to invest in, including five target-date retirement funds. 

Both programs, however, are only for active military members (which includes members of the National Guard). Soldiers who leave a combat assignment have 90 days to move their money from an SDP into a different account before it stops earning interest. With a TSP, discharged service members must roll their funds over into an IRA or taxable account.

“The TSP works well for your basic retirement needs,” says Guina, “But it doesn’t cover everything. It isn’t a cure-all.”

What’s more, adds Simpson, the TSP “doesn’t include the professional advice that’s so often needed when dealing with investment decisions.”

While the military offers briefings and training on financial literacy, both as part of basic training and at recurring intervals—such as rank promotions and service extensions—advice is often brief and generic, says Wood. It’s up to individual service members to take next steps.

“They’ll give you names and numbers of people to contact, but they’re not going to give you financial advice,” says Wood.

That can leave many soldiers and veterans confused, frustrated and overwhelmed about how best to handle their accounts. That’s where VFFI can help. A consultation with a CFP or financial advisor is only a phone call or email away.

“Basically, [VFFI] is a robo advisor with a human touch,” says Simpson. “It’s the best of both worlds.”

The Future: A Veterans’ Financial Network
Though VFFI has been in the works for over a year and a half, the program is still in its infancy. Wood’s and Simpson’s next steps include finding partners such as CPAs, estate attorneys, even other RIAs willing to assist service members; they envision a vast network of financial services to help soldiers and veterans find their footing.

“They could really use support from all of us, for putting their lives on the line,” says Simpson. “If we can help make their whole financial picture easier to understand, then we’ll have accomplished something really special.”

Learn more about the Veteran Financial Freedom Initiative at vetfinancialfreedom.com

 

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