Chapter Four
The first missionary journeys
Paris, Geneva - and many other places, from Caracas to Cox's Bazaar. How a sales force was mustered, a technique was refined, and young men learnt to 'put their egos in their pockets'. Also, some observations on Swiss banks.
One evening in 1958 the doorbell rang in an apartment on one of the drab housing areas attached to the big us Air Force base at Orleans, fifty miles south of Paris. The sergeant who lived there opened the door, to be confronted by a slim, pleasant young American who proceeded to do a very odd thing.
'Good evening,' he said. 'My name is Allen Cantor, and I would like to introduce you' - he made an assured gesture -'to my colleague Mr W. Thad Lovett.'
The odd thing about Cantor's introduction was that he was at that moment quite alone outside the door. The reason for this was that Mr W. Thad Lovett, who was by no means a figment of Cantor's imagination, was down below in the car again, shivering with sheer horror at the idea of ringing the doorbells of perfect strangers and intruding upon them for the purpose of selling mutual fund shares.
Thad Lovett was neither designed by nature, nor prepared by upbringing, for door-to-door selling, least of all to enlisted men in the US Air Force. He is a shy, plumpish man with exquisite manners and a dry sense of humour, who loves music and fives with nine living cats and innumerable china ones. Having inherited what he calls 'an Income' he had knocked about Europe until the age of 45 without having needed to earn a living. Then the Income came dramatically to an end, in the way
Incomes sometimes do, and there was nothing for it, short of
going back to America and working in an office, but selling mutual funds for Bernie Cornfeld.
Allen Cantor's background was very different. His family ran a store in Brooklyn, and after a successful academic career, Allen travelled to Europe and put in a spell as a rare-book dealer.
While outwardly very different, they were both representative of the superficially unlikely material from which Bernie Cornfeld recruited the IOS Old,Guard.
Within weeks of arriving in Paris, Cornfeld had made an interesting discovery. He had found that there were at least two types of Americans in Europe. There were the servicemen, who had reasonable quantities of money in their pockets, but who more and more frequently were accompanied by wives and children - which made them increasingly disinclined to blow all their pay on living it up.
And then there were the exiles. Today, large herds of gentle, conformist rebels against American culture graze anywhere in Europe they can find grass. In 1955, in Paris, Cornfeld was among the vanguard of the invasion. The exiles he met were on the whole highly educated. Many of them had come to Europe as students, on the GI Bill or on Fulbright grants. Theirs was a tolerant society: a mildly bohemian life-style was expected, and some vague stirrings of political radicalism were almost demanded. It was a world of frustrated intellectuals, mild neurotics, political nonconformists and cultural misfits, with the occasional drunk or homosexual. Most American businessmen would have written them off as being hopelessly deficient in acquisitive instincts.
It was the inspiration of Bernie Cornfeld, the psychologist and social worker, to see that these exiles could be remotivated and put to work selling mutual funds to the servicemen. His success in doing so was so enormous that the originality of his perception has been forgotten. It is hard to imagine any ordinary mutual fund sales boss perceiving commercial talent in Thad Lovett, as Mr Lovett himself admits.
The fact that his recruits were people who had found that their careers were stumbling, or that they had overestimated their talents, did not dismay him, as it might have dismayed some ibm-trained personnel manager. Indeed, it may well have served some deep need of his own: for it carried the promise that his recruits would become devoted followers of the man who could perform an act of liberation for them. In the beginning, Investors Overseas Services sometimes seemed more like
a
therapeutic community than a money-making device.
Bernard Cornfeld told
Time
magazine in 1962 that he had started with a capital of $300. It sounds like
a
rags-to-riches beginning, but in fact he began in Europe with most of the things that his new acquaintances were struggling to get: a flat,
a
girl friend (two, by his own account) a sporty little Simca, a typewriter, and a promising source of income in good, green dollars. In Paris, no less than New York, Bernie was the boy who always knew how to get hold of wheels, a girl, a pad and
a
few bucks.
Cornfeld had brought with him to Paris a rather tenuous relationship with Investors Planning Corporation, and on the basis of this he started, experimentally, selling a few mutual fund shares. He wrote off to the Benedicks for supplies of literature and propectuses, and for a while they kept him supplied. But Cornfeld, now that he had seen the large possibilities of the American expatriate market, decided to become an independent dealer - which would, of course, entitle him to a larger slice of the commission on any sales he could procure. Quite early in 1956, Jack Dreyfus in New York received
a
letter which reminded him of the young man who had dropped in and complimented him upon the readability of the Dreyfus prospectus. Cornfeld wrote that he had been hoping to sell for ipc in Europe, but that the arrangement was not working out as he had hoped. What about the prospects of selling for the Dreyfus Fund?
The result was that Cornfeld exchanged his links with ipc for a dealership selling the hottest fund in New York. From Jack Dreyfus' viewpoint, his decision to accredit Cornfeld was nearly as good a buy as Polaroid: within three years Cornfeld's European-based sales crew were selling almost sixteen per cent of the fastest growing section of the Dreyfus Fund's new business. This was the category of 'contractual programmes', under which investors agreed to pay a certain amount into the fund every month, instead of putting up a single lump sum. Cornfeld was an early enthusiast for 'contractuals': from a salesman's viewpoint, the great feature was that commission could be calculated upon the total volume of money that the customer would eventually pay during the life of the programme. By 1962, IOS was bringing in close to forty per cent of all the Dreyfus programme business, and 31.1% of all the Dreyfus Fund's new money.
The salesmen Bernie recruited did not at all resemble the salesmen of legend, or Arthur Miller's imagining. Robert Marx was reasonably representative.
Like Cornfeld, he had joined the merchant navy around the end of the war. On discharge, he became a reporter, which he saw as an interim period on the way to becoming a novelist. By 1955, he was working for Reuters in Paris, on very slender wages indeed, which he eked out by contributions to an international veterans' journal. In March 1956 he was introduced to a girl friend of Cornfeld's, who suggested that Bernie might be able to provide some supplementary income. Marx trudged up to 22 Boulevard Flandrin, a small white house behind a big block of flats, to meet Bernie.
'Physically, he was completely unprepossessing,' Marx remembers. 'His clothes were baggy-there was never a suit off the peg which could fit Bernie. But then he started to speak. His voice is very soft, and reassuring. His smile is very engaging.
‘I didn't at all like the idea of selling mutual funds. And he didn't seem to sell the idea very hard. But by the time I left the flat, I had agreed to give it a try.'
There was nothing elaborate about the operation Marx joined. The firm's chief and almost only asset was a Chrysler Imperial convertible, which has become firmly established as part of the IOS legend. 'It was the headquarters of the firm, really,' says Marx. 'Each weekend Bernie would load it up with salesmen and sales material, and drive out to Orleans. Sometimes, we would sleep over Saturday night in the car before starting in again on Sunday.' But by the time Marx joined, the firm was on its way to fame. Bernie's advertisement in the Paris
Herald-Tribune,
offering 'American men and women' over $10,000 a year for 'sales ability, a willingness to work hard in a fast-growing industry, and a sense of humour', was running regularly, and striking a very effective chord in the exile community, which prided itself, above all, on its sense of humour.
Marx's close friend, John Curran, a quiet, bookish journalist, quit rewriting cables for the
Herald-Tribune
and joined up. Lester Hayes was a professional ballroom dancer, who had been working the cruise ships with his wife. Jack Himes had been in the us merchant navy too. Alvin Ostroff had known Bernie in Brooklyn College, and trekked to Europe to join him. Berton Cantor (not to be confused with Allen Cantor) had been studying at the London School of Economics on a Fulbright grant: before that he had been a newspaperman in Chicago. Gladis Solomon was the first woman aboard, den-mother of the crowd. Her previous trade had been reading your character from the way you drew a horse.
Victor Herbert joined in characteristic circumstances. He had been bouncing around Europe since 1949, making a living by purchasing rare music and musical manuscripts for an antiquarian bookshop in New York. By 1956, Herbert had reluctantly acknowledged that there was no real future in what he was doing.
The prospect of going back to Chicago appalled him, but although Herbert had met Cornfeld, he did not care for the idea of selling mutual funds. By way of a reprieve, before the trek home, Herbert decided to take a holiday with a friend who knew Enrol Flynn, on a yacht moored off the Algerian coast, and he spent a memorable fortnight of Mediterranean pleasures in his company. Under the influence of sea and sun, Herbert decided that
anything
was better than going back to Chicago. He went back to Paris, and looked up Cornfeld. Bernie asked him only one question:
'Do you want to start selling tonight, or tomorrow?'
Despite his lack of initial pleasure at the idea of selling mutual funds, Herbert found Cornfeld as impressive as did Marx. Especially, he was impressed by Bernie's account of 'dollar-cost averaging'. The use of this piece of arithmetical patter reveals a great deal about the essential techniques of mutual fund selling. The standard sales pitch is predicated upon the idea that stock markets everywhere are set upon an upward course. Get your money in now, the customer is exhorted - before prices rise even higher.
From time to time, however, stock markets actually do fall. What to say now? Well, when stocks are going
down,
then it's an even better time to buy. Suppose shares are worth buying at 1oo. If the market drops, they must still be worth buying - but for the same amount of money, you can buy even more of them. You get better value for money! The flaw, of course, is that some shares may fall and never rise again. But in 1956, Herbert was hardly alone in being impressed by this magical calculus.
Still, Herbert wanted to know a little more about what was involved in selling for IOS. Cornfeld brushed aside. 'Let me tell you about the opposition,' he said. 'There's one guy who smokes big cigars, and another guy who wears big cufflinks.' What he meant was that the other enterprising fellows who had seen the potential of the military market were out to make themselves rich fast. He, Cornfeld, had a more enlightened self-interest in view. He proposed to make the salesmen rich along with himself.
'He said he would make us all millionaires,' says Herbert, a by no means uncritical admirer in later years, 'and he did.'
Bernie might never have b
een able to implement that promise without the intervention of Charles de Gaulle. Any American organization as brash as Bernie's was an automatic victim of the change of mood after his return to power in May 1958. Almost inevitably, the infant IOS did things which were sinful in the eyes of Gaullist officials. American mutual funds were a new and puzzling phenomenon: the French authorities entertained dark suspicions that IOS was selling fund shares to French citizens, and they suddenly raided the mail at one of the
post offices IOS was using.
Although they found no evidence, this was a lethal attack, because a mutual fund must have reliable postal communication with its clients. The French said that their regulations made it illegal to send negotiable instruments through the post. Cornfeld claimed this was irrelevant, because IOS was not selling to French citizens. The French bureaucracy deployed its full capacity for non-cooperation. They agreed to give clearance for one post office to pass IOS mail, but they refused to say they would not raid IOS mail at other offices.
It was very clear that the time had come to move on, and a police visit to Boulevard Flandrin drove home the message. Casting around for an alternative haven, Cornfeld hit upon the idea of Geneva.
It appears to have been a casual decision, based on little more than the fact that it was a city outside French regulation where they spoke French, a language in which Cornfeld was now reasonably fluent. Chuck Kleinmann, an ex-mate in the us merchant marine, went ahead to set things up, and he acquired a pleasant apartment at the top of 119 Rue de Lausanne, with a splendid view across the trees of a small park to the lake, and beyond it the long limestone ridge of the Saleve. About one day in five, the occupants of the apartment could see the shining triangle of Mont Blanc, fifty miles away on the frontier between France and Italy. The apartment became Bernie's headquarters when, in the autumn of 1958, he shifted the base of his growing sales force from Paris to Geneva. The hq all fitted into the one apartment; it consisted of Cornfeld, Kleinman, Bert Cantor and two secretaries.
By 1958, Calvin's and Voltaire's city of refuge had turned into the last best hope for the world's unloved rich and their money. Ever since the Reformation, Geneva, a Protestant island hemmed by Catholic seas, had maintained a tradition of sanctuary. In the 1930s and 1940s Geneva, like Switzerland as a whole, helped to save many thousands of people from the Nazis and the Fascists. But after 1945, the new refugees tended more and more to come from outside Europe: from the Middle East, North Africa, Latin America. Not all of them were innocent victims of persecution.
For all those who went to Geneva in person, thousands more sent their money. It had always been possible to rely upon the personal integrity of bankers in the original homeland of the Protestant ethic and the individual - but strictly individual - conscience. And by the time that Bernie arrived, the advantages of Swiss bank accounts were being discovered by spies, gamblers and dictators, and by Middle Western dentists, New York stockbrokers and other honest folk with no love for the taxman. Money, the chairman of the Credit Suisse has noted, 'tends to flow to those places where its owner believes it finds maximum security'. Like all good Swiss bankers, he maintains that most people who send their money to Switzerland have paid their tax first, but it is a proposition which cannot be put to the test, because of Swiss bank secrecy.
In most countries, banks are expected to protect the secrecy of their clients' affairs, and may be sued in the civil courts for damages if they fail to do so. The first remarkable thing about Switzerland is that the additional sanction of the criminal law is invoked to reinforce the civil obligation to secrecy. Article 47(b) of the Banking Act, 1934 provides that any officer of a bank, or of the government's own Banking Commission, shall be liable to a fine of 20,000 francs, or six months' jail, or both, if he betrays a bank customer's secrecy deliberately. This applies to all Swiss bank accounts, not merely numbered, or coded ones. Only the Bahamas, and Indonesia have followed Switzerland in applying criminal law to bank secrecy.
In every legal system the banker's duty of secrecy must give way at some point to the concept of general public interest. There does not seem to be a country anywhere which does not make bankers break secrecy to testify in criminal proceedings. In the vast majority of countries, the tax authorities have the right to demand information from the banks. In Switzerland, the taxmen have no such rights. The Swiss do not think it worth breaking bank secrecy to catch their own tax avoiders; still less do they think it worth pursuing the tax avoiders of other countries.
But the truly remarkable point about the Swiss banking system is that it combines this rigour of secrecy with great freedom in other directions. 'Compared with other countries,' wrote Dr M. Magdalena Schoch,
1
'the Swiss system has been characterized as one of the most liberal laws.' She continues: 'No charter or licence is required for establishing a bank. The Commission does not decide whether the founders of a new bank have
1
Advice to the Committee on Banking and Currency, House of Representatives, Hearings on Foreign Bank Secrecy, March 9, 1970.
expert knowledge of banking, or whether the basic capital is adequate.
Provided the legal organization of the bank is in the correct form, it can be entered in the Commercial Register and start banking at once. Allied with Switzerland's native tradition of independence and security, this law has produced a rich growth of banks. By 1958, Geneva, a city of 175,000 people, had 76 banking institutions. And while this total included massively respectable Protestant houses of two hundred years' pedigree, there were very odd specimens as well. In some of them the doctrine of individual conscience was being turned to account in ways that would have astonished John Calvin.
Bluntly, Geneva was the centre of the international flight capital business, Bernie Cornfeld arrived with a set of commercial techniques which were admirably suited to that business.
According to early IOS company reports, the regular sales force was 77 strong at the time Bernie moved into the top floor at 119 Rue de Lausanne. According to Bert Cantor's recollection, it was much less - but it would have been hard to be quite sure, because all the salesmen were self-employed and self-financing. It was Cornfeld's view that whenever a man was paid a salary, then someone was being exploited - either the employee, or the employer. This meant, inevitably that IOS was a personal syndicate, with only such control over individual salesmen as might derive from the sanction of syndicate membership.
In their recollections, the veterans of the period make much of the point that Bernie himself showed energetic form as a doorstep salesman - but no overwhelming brilliance. In the early days, Cornfeld used to go out with groups of salesmen on training expeditions. They would go to houses in threes and fours, or as many as eight at a time. In Cornfeld's own words: 'We would knock on the door and say "We are going to take over the place." That is how we sold.' If they made a sale, Cornfeld would split the commission with the whole team. 'He wasn't a great salesman,' says Robert Marx. 'He held to a fairly standard line of patter.'
Yet on Marx's own account, Cornfeld had sold him, with some speed, an originally distasteful idea about how to make a living.
Cornfeld's interest in his own selling performance was probably about the same as Napoleon's interest in his own prowess with a musket. When the General joins in practice on the range, his purpose is to inspire the soldiery, by showing them that he does not despise the duties he orders them to perform. If Cornfeld had devoted himself to selling mutual funds in person, he could no doubt have built up impressive commission income. Instead, what he sold was the idea - the concept, if you like - that others should sell mutual funds for him.
Cornfeld was endlessly patient in overcoming the hesitations, errors and reluctances of his recruits. Each salesman began his career by walking into C
ornfeld's office and trying to sell to Cornfeld. After each such exercise, they would sit down together and go through the flaws in the new salesman's 'presentation'. There were lengthy group sessions, where Bernie and his men picked over the techniques of their craft. They practised 'sincere smiles' in front of mirrors - in later, more opulent days, training films were made on the finer points of smiling - and they practised 'firm handshakes' on each other. Cornfeld impressed upon them that they should always try to sit next to a prospect, rather than across the table from him, where it would be harder to 'win his confidence'. He was assiduous in explaining the delicacy required when talking about a man leaving investments to his family. They should always say 'if
something happens to you,' not 'when you die'.
He was even more assiduous in remedying personal, psychological hesitations. Such 'blocks' would be discussed at great length, with much Adlerian speculation about the inner weaknesses and difficulties of the subject. Thad Lovett, for instance especially dreaded 'cold calls', which have to be done when the salesman runs out of introductions to follow up and has to go pressing doorbells unannounced. When Thad's block overcame him, Bernie swept down to Orleans in person, and spent an evening on the phone with Lovett. fixing up appointments for the next day.
With the move to Geneva, the training became more formalized. The advertisement was still running in the Paris
Herald-Tribune
and it brought aspirant salesmen and women to Geneva in surprising quantities, considering that they had to pay their own fares, support themselves during training sessions, and then finance their first selling trips. Customers were naturally recruited with some frequency as salesmen. There was no more natural question for the prospect to ask than ‘Is it difficult to sell these things?'
At ten in the morning on the third Monday of every month, a dozen or more hopefuls would assemble at 119 Rue de Lausanne to start their course. Bert Cantor had the job of teaching them how to sell. Bernie Cornfeld's job was to make them
want
to sell. They were asked numerous rhetorical questions. 'Are you Wellington Winner? Or are you Louie the Loser?' 'Do you want to be used by the capitalist system? Or do you want to use it?' It was a catechism in which the right answers were obvious.
The most important question was asked implicitly in many forms, and explicitly in the form we have used as the title of this book. It was:
'Do you sincerely want to be rich?'
This was a brilliant reading by Cornfeld from Adler and the theory of goals. For most people, the answer is no - they would like to be rich, or would not mind being rich, but they
sincerely want
something else. Cornfeld's question was calculated to sort out the attitudes of his recruits. For those who said, yes, they did sincerely want to be rich, there was a logical follow through. If that was what they wanted, they must do what Bernie wanted them to do. And then he would make them millionaires.
The classes bore the aspect of a sales pitch, to the salesmen. Cornfeld would start by asking them all to write down the names of their nearest relations. 'Now write down your doctor's name. And your dentist.' And so on. 'Now tear up the list!'
Then he would explain to them that after one week's training they would have to be able to go out and sell mutual funds to complete strangers, anywhere in the world.
1
To do that, he
1
The Bernie Cornfeld Story,
by Bert Cantor.
would explain, they had to master one fundamental secret: always to control the conversation with the prospect. Here, as in several respects, he owed an organizational debt to his early mentors, Walter and Ruth Benedick. The basic tool with which the IOS salesmen were first equipped was a text, cast in the form of a dialogue between salesman and prospect, which was largely taken over from Investors Planning Corporation. The salesman was supposed to learn his text by heart, and delivery-time was reckoned at twenty minutes. There were six sections:
1. (Create Interest) Introduction and short explanation of mutual fund.
2. (Explanation) Fund Quarterly Report and $25o-month sheet.
3. (Explanation) 4 ways to get your money out.
4. (Explanation) Dollar Cost Averaging.
5. (Personalization) 'Captain Geldt, what is your age?'
6. (Close) Name wife as first beneficiary.
More usually, a mutual-fund salesman would address himself to 'Mister Prospect': 'Captain Geldt' was an IOS invention. The rank was a tribute to the military market with which Cornfeld's operation began, and 'geldt', being the Yiddish for money, was a humorous label. (It said something, perhaps, about the light in which the salesmen saw their prospects.)
But Cornfeld did not merely copy a pitch and remain content with it. He and his acolytes ceaselessly polished and re-modelled the presentations their salesmen used. They added wise saws, modern instances, jokes, and touches of sentiment. ('There are only two financial problems, Captain Geldt. One is that life is too short - too short to earn all the money you need. The other is that life is too long - you may live too long for the money you can earn.')
Cornfeld was tirelessly fertile in pseudo-psychological insights, designed, of course, not to search the secrets of the human psyche, but directed to the master-goal of turning prospects into customers. Some of these devices have been so thoroughly assimilated into the collective culture of IOS that it would be hard now to say whether it was Bernie or someone else who first used them. What one can say - and what Cornfeld's pupils are the first to acknowledge - is that if the words are the words of Cantor or of Landau, the spirit is the spirit of Cornfeld. By April 1960, a new-model presentation was on offer, which was reckoned to concentrate its whole 'interesting, even exciting' message into five minutes. Now, as IOS began to move out into civilian markets, 'Captain Geldt' dropped his military rank.