Funding agency TIAA to pay $97 million for allegedly pushing prospects into higher-cost accounts

TIAA, one of many nation’s largest and most trusted funding advisory corporations, fraudulently pushed tens of hundreds of its prospects into higher-fee accounts, benefitting the agency however elevating traders’ prices, in keeping with a settlement with the agency introduced as we speak by Letitia James, the New York lawyer common, and the federal Securities and Trade Fee.

“For years, TIAA put earnings over folks, taking cash from folks’s hard-earned retirement funds,” mentioned James, saying the settlement. “TIAA relied on its status as a trusted and goal monetary adviser to revenue off of purchasers by fraudulent and manipulative gross sales practices.”

Calling it a case of “company greed,” the lawyer common mentioned TIAA would pay $97 million to settle the matter, cash that may return into the pockets of affected purchasers all through the U.S. TIAA should additionally reform its gross sales practices beneath the deal, which additionally features a $9 million civil tremendous.

TIAA is a large funding agency, with $1.3 trillion in property beneath administration. It started life in 1918 as a nonprofit entity set as much as present assured retirement revenue and life insurance coverage to the nation’s educators. Based and funded with a $1 million donation by Andrew Carnegie, TIAA grew to concentrate on retirement accounts and funding recommendation for workers working for schools and universities, medical analysis organizations, cultural teams and different nonprofits. TIAA misplaced its nonprofit standing in 1997 when Congress handed a tax reform invoice and mentioned the corporate’s tax standing gave it an unfair benefit over opponents.

Pedestrians stroll close to the U.S. Securities and Trade Fee headquarters in Washington on January 2, 2020.Andrew Harrer / Bloomberg by way of Getty Photos

Nonetheless, TIAA continued to spotlight its “nonprofit heritage” in advertising supplies. In 2017, its then-president and CEO mentioned, “Our values make us a unique form of monetary companies group, recognized for our integrity.” TIAA serves greater than 15,000 establishments and 5 million prospects, its web site says. Many of the agency’s purchasers make investments with it as a result of their employers have employed it to manage their retirement accounts, often called 403(b) plans.

Chad Peterson, a TIAA spokesman, mentioned in a press release that the agency was happy to settle the regulatory matter. The agency neither admitted nor denied the allegations.

TIAA “discovered some helpful classes and have utilized these classes to enhancing our coaching, supervisory controls and disclosures,” the spokesman’s assertion mentioned. “We remorse the occasions that we didn’t stay as much as our purchasers’ expectations of us.”

On the middle of the investigation, James mentioned, was TIAA-CREF Particular person and Institutional Companies Inc., its funding advisory group. Starting in 2012 and increasing into 2018, the New York lawyer common mentioned, TIAA gross sales representatives “employed a fraudulent and deceptive advertising pitch to persuade its purchasers to roll over property from low-cost, employer-sponsored retirement plans to higher-cost, individually managed accounts in TIAA’s Portfolio Advisor program.”

The worker-sponsored plans that prospects have been moved out of carried out higher than the adviser accounts, the lawyer common mentioned.

Such high-pressure gross sales practices at TIAA have been the topic of an investigation in The New York Occasions in 2017. In that report, former TIAA staff advised of the agency’s push to shift prospects into higher-paying accounts. The agency directed the staff to fulfill outsized gross sales quotas, the previous staff mentioned, by enjoying up purchasers’ fears of not having sufficient cash in retirement. “Making the Consumer ‘Really feel the Ache'” was a headline atop one piece of TIAA gross sales coaching materials, a second report mentioned.

Some staff who refused to push prospects into the higher-cost accounts have been phased out of the corporate, the previous staff mentioned.

In saying the settlement with TIAA, the New York lawyer common mentioned the corporate’s gross sales representatives “falsely described themselves as ‘goal’ and ‘noncommissioned’ advisers who may very well be seen as ‘a trusted accomplice’ that labored in a consumer’s ‘finest curiosity.'” In reality, the gross sales representatives have been conflicted — closely incentivized to stress purchasers to roll their investments into higher-cost accounts, the settlement announcement mentioned.

Advisers not obtain completely different compensation for managed accounts, the TIAA spokesman mentioned. TIAA additionally agreed to different reforms beneath the settlement, corresponding to eliminating or absolutely disclosing different adviser conflicts of pursuits associated to recommending managed accounts and coaching advisers to supply a good comparability between managed accounts and employer-sponsored plans.

Editor’s Observe: The creator is a trustee of St. Olaf Faculty, an establishment that employs TIAA as report keeper on its retirement plans. She won’t advise or make selections on issues involving TIAA’s relationship with the faculty.


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