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John Elliott Tappan

John Elliott Tappan was the founder of Investors Syndicate (IDS), the company which later became American Express Financial Advisors. Tappan was a Minneapolis Lawyer who founded his company based on the notion that everyone could save a little money each month to build the security that would protect from a devastating loss. In an era of corrupt get rich quick schemes, Tappan used his personal reputation to gain the trust of his customers. Tappan was a product of the nineteenth-century frontier west, and his company enabled the west to gain a measure of corporate and financial independence from the east. Tappan was a businessman first: his firm was a capitalist venture meant to reform capitalism from within.

John Elliott Tappan
Born	August 29th, 1870
Died	January 16, 1957
Occupation(s)	Founder, CEO, Lawyer, Real-estate
Known for	Founder of Investors Syndicate (IDS)
Spouse	Winnie Gallagher Tappan
Children	5
Parent(s)	Adelaide and Elliott Smith Tappan

Early Life

John Elliot Tappan was born August 29th, 1870, and just three years later momentous events had already begun taking place around him. America had just plunged into an economic panic which launched a divisive debate over money—who had it, who controlled it, and how it should be used. The depression tore through the farm belt, which had hurt his own family’s fortunes. Earlier in 1873, John had watched with bewilderment as his father was lowered into the ground, dead from an unknown fever at age forty-two. Elliott Smith Tappan, John's father, had come West as a homesteader in 1851, settling in Oshkosh, Wisconsin, on a ninety-acre farm. After his father’s passing, John’s mother Adelaide ran the farm by herself. Two years later, John’s paternal grandfather also passed away. These blows, so sudden and amid hard times, were almost more than the family, and Adelaide in particular, could bear. Adelaide Tappan put the farm up for sale in 1875 and took young John and her two other children by train to the small Wisconsin town of Janesville. There they stayed for four years, until 1879. As the depression subsided, Adelaide pulled up the stakes again, moving the family for good to the booming frontier city of Minneapolis. Tappan was the youngest child in a single-parent household, growing up without a father or elder male presence in his life. John quickly became an independent, energetic boy with lots of interests. He attended school and held several after-school jobs. Though the family had enough money to live comfortably, John liked to earn his own spending money. He delivered newspapers until he was twelve, then took a position as a shoe store clerk. These occupations were not enough to contain all of his energy, however. Though living in the city, John retained a healthy interest in nature and the outdoors, spending his weekends wandering the countryside, watching birds, and collecting eggs. John always had a frugal nature. He opened his own bank account with wages from his store job. When John’s bank account had grown sufficiently large, he spent it all on a pony, which became his prized possession and favorite means of transportation.

Young Adult Years

As his teenage years arrived, John’s admirable self-reliance turned into less palatable adolescent rebellion. He immersed himself in “boy culture,” leaving behind the female world of family, home, and affection to express masculine independence. In retaliation to her brother’s pranks, John’s sister Carrie poisoned him in an attempt to stoke the fire in their sibling rivalry. John became violently ill, and after weeks of recovery, he took what little money he had, and in the spring of 1887, John Elliott Tappan left home without saying goodbye. The break with his family was symbolically important for John. He wished to pursue a more masculine environment, perhaps necessitated by his female-dominated household. Just as his father had looked West for his opportunity, so John Tappan looked in the same direction, towards California. He walked, hopped freight cars, and hitched wagon rides. When John arrived on the West Coast, he worked in the mining regions for a year. The experience taught him firsthand what speculative investment meant. “I think it’s pretty risky to invest in mining schemes without being on the ground and knowing about things personally….” After about a year on the road, John contracted tuberculosis. He only had a mild case, but his physician recommended a more favorable climate. Washington Territory to the north was reputed to have curative powers for those afflicted with the disease, so Tappan moved to Seattle in the summer of 1888. While recuperating he enrolled in the preparatory department of the University of Washington Territory, to complete the high school education he left behind in Minnesota. After a great fire in June 1889, Tappan decided to put his studies on hold and take employment as a lumberjack in the Washington wilderness. There, Tappan’s natural tendencies of self-reliance came in handy. He learned to look after himself, mend his clothes, sew, and cook. Tappan had his prospects on a white-collar career and higher education and sought to construct a system that benefited the economic opportunities of the footloose workers whose prospects for the future were uncertain at best and whose hopes for upward mobility was subordinate to the simple need to survive and live to the next day. John’s western adventures came to a close in 1890 when he returned home after three years apart from his family where he stayed for a month before journeying to Duluth where he sought a job in business and took classes in stenography during his off-hours. In 1892, John took a job as a stenographer with the Merritt Brothers. The move proved to be fortuitous as the Merritts were embarking on a business venture to develop the enormously rich iron ore deposits of the Mesabi Range in northern Minnesota. Though John Elliott Tappan’s exposure to the world of big business was limited, he did not like what he saw. John believed that the pursuit of wealth for its own sake led inevitably to the exploitation of the weak at the hands of the strong. Later, he would codify his beliefs about wealth concentration, saying that no man should ever accumulate more than a million dollars in a lifetime. After working with the Merritt Brothers for a year, and having already grown tired of the hypocrisy and disloyalty that were prevalent in the world of business, Tappan enrolled at the University of Minnesota’s night law school in the fall of 1893. Shortly thereafter, John experienced yet another financial depression which more than anything led him to turn towards a life of financial innovation. The 1893 depression saw John’s friends and neighbors lose jobs, homes, and savings. He learned how unpredictable financial circumstances could easily turn even frugal men and women into debtors. John recounted, “When I conceived of the idea of a thrift plan upon a conservative honest basis that would appeal to people as a means of investing small amounts with the safety and yield that was secured by larger investors.” At the age of twenty-four, John Elliott Tappan was embarking on a bold new financial journey while staring right into the teeth of a howling economic tempest.

Politics

John Tappan was a reserved Republican who was committed to internal reform and private sector action. He sought to resolve a crucial issue that had vexed American capitalism for more than a century—in his view, capitalism was far less amenable to some people than others. Living in Minnesota, he could not help but be aware of the controversies that were dividing farmers from industrialists, controversies that had been existence since he was born. Tappan was anything but a wild-eyed Populist. Though capable of assessing the merits of political platforms without the blinders of pure partisanship, he generally voted Republican. Tappan firmly believed in “honest money.” To him that meant gold, and he thought Populist rhetoric was only playing havoc with commerce. The triumph of fundamental values, he believed, would restore business confidence and pull the nation out of its doldrums. Tappan’s commitment to Gold Republicanism, however, was tempered by his deep belief in the need for reform. He was never a purely conventional thinker on monetary matters. Throughout his life, he would support candidates of different parties and accept a measure of government regulation in his business. He believed that wealth, though important, was a means, not an end. The sort of institution that Tappan proposed with IDS was both national and decentralized. He targeted the broad public, rather than the elite.

Career

Tappan was seeking through financial innovation a way of reconciling economic institutions with social and political ideals. Through his business, Tappan believed that he could help reconcile differences dividing the West and the East and promote financial independence for ordinary citizens, assisting farmers in their quest for money and capital. In 1894, John Tappan and local Minneapolis attorney Henry Farnham submitted articles of incorporation for a new firm, Investors Syndicate. After receiving approval from the state commissioner of insurance, the company was organized under the general incorporation statute of Minnesota in July 1894 with $50,000 in capital. As expressed in the charter, its purpose was extremely broad. Investors syndicate was authorized to deal in government and corporate bonds, stocks, mortgages notes, and all kinds of personal property, to buy and sell such instruments for other persons, and to issue its own notes and obligations of debt. But the real purpose was much simpler. From his own experiences in business and finance, and a keen appreciation of the financial needs of the small investor, John Tappan has conceived of a new investment instrument, which he called a “face amount certificate.” Generally, Tappan’s certificates paid around 6 percent, which was several points above what banks could offer and well above the 2 percent on government bonds of 3 percent on bonds of railroads. The higher yield made them attractive to investors who were looking to increase the earning power of their savings without taking the risks of corporate stocks. ”Its object,” Tappan wrote, “is to encourage frugality and to assist and encourage its patrons in saving systematically small sums monthly.” Tappan continued to practice law, and for much of his life lawyering would be his main source of income. He organized Investors Syndicate as a corporation, but ran it like a partnership, depending on friends and family for support. Tappan drew no income from the firm until 1915. Every cent of profit was plowed back in. Through IDS, Tappan had created a structure of incentives much different from those of other financial products. Too often, financial innovators had sought the fast buck, a quick profit, using exaggerated promises to snare the unwary. Tappan was intent on avoiding the road of financial chicanery from the very start. In 1895 Tappan met Winnie Gallagher, a young “office girl” who worked nearby as a secretary. In the spring of 1896, still pushing Investors Syndicate, Tappan proposed to Gallagher, and they were wed later that year on November 3rd, just a few months after Tappan graduated from the University of Minnesota College of Law. By the end of 1896, Investors Syndicate, like John Elliott Tappan, had embarked on a hopeful yet still uncertain course. He had assets of $2,500 and a handful of subscribers. The founder of Investors Syndicate truly believed that he had developed a revolutionary financial product. Now he set out to prove it.

As Tappan wound up business in 1896, the depression was bottoming out. Yet new concerns were looming over the young Investors Syndicate. Despite hopes that the end of monetary controversy would return the business to a normal footing, several more Minneapolis banks had gone under. The predicted upsurge in orders for face-amount certificates failed to arrive. An issue of “legitimacy” began to vex Tappan during his early years. This was due to numerous setbacks, including the company’s president, George McDonald, being thrown in jail for “swindling,” after being convicted of selling bonds by making false claims. A glimmer of hope emerged as insurance regulators and state attorneys turned a skeptical eye to policies with gambling features, of which Tappan did not make use. Tappan learned through high-profile investigations of insurance companies in 1905, that investment had to be kept separate from gambling and speculation. Using other people’s money carried special obligations, a public trust, recognized by the courts and legislatures. Tappan continued to lean on his knack for perseverance and personal prowess with clients by implementing abnormal approaches to his contracts. By adding extra time to the end of his contracts, he gave those that were late a week an extra week until their contract matured. By giving Syndicate “free” use of clients’ money, this extension increased total returns to the company, which made sure it had the money “out” in interest-earning assets all the time. An important part of the Syndicate’s success depended on the notions of virtue and character, which Tappan himself propagated. Tappan’s legal mind faced its first test in January of 1897, after a letter arrived from the postmaster general of Washington, accusing Tappan of “being engaged in a lottery for the distribution of money.” Tappan scrambled to prove the validity of his certificates, but the company was eventually accused of fraud and lost its mailing privileges. Tappan was furious, and after various appeals to the postmaster general and Justice Department went unanswered, he believed that Investors Syndicate was at death’s door. Tappan and Farnham managed to successfully appeal through their congressman and were able to have their mailing privileges restored. In September of 1897, a break finally came for Tappan, and Tappan was able to satisfy the Post Office by agreeing that Investors Syndicate would only be allowed to pay out all the old business on the books, but not write any new business except under a modified contract. By the end of 1899, John Tappan was feeling optimistic. His company had written over 300 contracts, done $100,000 in business, and paid out over $11,000 in returns to early investors.

In March of 1900, John and Winnie saw the birth of their first child, Ruth Winifred Marie Tappan. Shortly thereafter, Winnie again became pregnant, giving birth to their second daughter Marion Elizabeth in August of 1901. In 1904, Tappan took out a homestead claim for 160 acres of the wild country about 40 miles north of Duluth, which became a rural retreat for him and his family for the following two years. John and Winnie had their third child in the spring of 1906, a baby boy whom they called Elliott. Over the following few years, John Tappan had his hands full with his three children, his business, his avocation as a real-estate man, and his law practice. The Tappan family again grew larger in April of 1906 when the family welcomed their fourth child, a baby girl named Zita. And the final member of the now large family arrived on Christmas day in 1908 with Charles Henry Tappan, who was born during one of the coldest winters on record. In turn-of-the-century-America, the most feared childhood killer was Scarlet Fever. With unpredictable symptoms and few effective remedies, the Tappan family was left praying when the youngest daughter Zita fell terribly ill to the disease. On March 15, Zita tragically passed away, leaving her parents and siblings crushed and in desperation. The family took the following years to reel in the grief that surrounded their loved one's death.

Investors Syndicate began to attempt to expand outside of their personal and professional networks to expand their portfolio. This effort failed following a $10,000 loan to the National Securities Company, a company that soon after would declare bankruptcy, causing Investors Syndicate to write off the loan. Even more troublesome was the passing of J.W. Earl, who since 1900 had run the agency system marketing certificates, in December of 1910. Between asking friends and family for money, and tending to even more cases of sick family members, John Tappan was fearful that his company had reached the end of the road.

In 1913, help arrived for Tappan, in the form of John Salmon Hibbert. Hibbert took the position of General Sales Agency and quickly began making use of his tremendous confidence and mastery of insurance sales. Hibbert established a geographically extensive agency and built on Tappan’s already prominent insurance template for sales. The syndicate began to bloom beyond both of the men’s expectations, and in just a little over three years after Hibbert’s appointment, the company had become one of the largest and most successful investment companies in Minnesota. By 1921, the company would hold over $3 million in insurance policies. In February of 1914, Hibbert was elected vice president and general manager of Investors Syndicate. The company was getting so big, that by December 1914, Tappan owned less stock in Investors Syndicate than did others. The company had become too large for him to be its owner. In 1917, on the verge of the First World War, Investors Syndicate had assets of nearly $1 million. In 1925, Tappan was blindsided when his associates John Hibbert and A. W. King walked into his office and announced that they were thinking of selling their shares in Investors Syndicate. Even though he felt that he had been back-stabbed by his former co-workers, Tappan decided to side with them and their decision to sell the company. Only later did Tappan express the depth of pain that he had experienced. When he ended his association with Investors Syndicate, he remarked that he felt he had lost a child.

Later Life

Through the 1920’s Tappan retained the same interest in Politics and important matters of public life. In 1938, personal losses began to take a toll on Tappan’s world. That April, Tappan’s wife Winnie died after a long battle with an illness at age 70. Tappan remained physically and mentally independent until he reached the age of eighty-five when he returned East to be near his daughters. On January 16, 1957, John Elliott Tappan died in Warwick, Rhode Island.

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