TIAA-CREF Individual & Institutional Services LLC, a subsidiary of Teachers Insurance and Annuity Association of America (TIAA), agreed Tuesday to pay the Securities and Exchange Commission $97 million in restitution to settle charges of inaccurate and misleading statements related to rollovers.
TIAA was also charged with a failure to adequately disclose conflicts of interest to thousands of participants in TIAA record-kept employer-sponsored retirement plans (ESPs).
The $97 million includes a $9 million SEC civil penalty, plus reimbursement of a portion of the affected clients' Portfolio Advisor account fees and interest on those fees. The payment settles both the SEC's case and a parallel action announced the same day by the Office of the New York Attorney General.
According to the SEC's order, from Jan. 1, 2013, through March 30, 2018, TC Services and its Wealth Management Advisers failed to "adequately disclose the full nature and extent of their conflicts of interest in recommending to clients that they roll over their retirement assets" into a managed account program called Portfolio Advisor.
The order finds that TC Services failed to adequately disclose compensation practices that incentivized the firm and its WMAs to recommend Portfolio Advisor for reasons other than a client's particular investment needs.
"Over the course of six years, tens of thousands of customers were pressured by TIAA advisors to move their investments from low-cost, employer-sponsored retirement plans to higher-cost, individually-managed accounts," the New York attorney general's office said, adding that the Portfolio Advisor program "was significantly more expensive for clients and generated hundreds of millions of dollars in fees for TIAA."
TIAA also agreed to undertake significant internal reforms, including:
- Subjecting all rollover recommendations to a strict fiduciary standard;
- Eliminating differential compensation for sales of managed accounts;
- Eliminating or fully disclosing other advisor conflicts of interests related to recommending managed accounts;
- Using plain language to disclose when advisors are not acting as fiduciaries; and
- Training advisors to offer a fair comparison between managed accounts and employer-sponsored plans.
According to the SEC's order, "TC Services trained its WMAs to make, and its WMAs made, representations that they offered 'objective' and 'non-commissioned' advice, 'put the client first,' and acted in the client's best interest while holding themselves out as fiduciaries. This was misleading because TC Services' financial incentives for WMAs rendered their advice non-objective and TC Services did not ensure that WMA's recommendations were, in fact, in the best interest of its clients."
TC Services "simultaneously applied continual pressure to compel WMAs to prioritize the rollover of ESP assets into Portfolio Advisor over lower cost alternatives," the SEC states.
