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Regulation and Compliance > Litigation

TIAA, Morningstar Accused of Funneling Assets to Proprietary Products

By John Manganaro

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A lawsuit filed Monday in a federal court accuses TIAA and Morningstar of developing an investment advice tool that has improperly steered clients toward profitable proprietary investment vehicles, including the TIAA Traditional Annuity and the TIAA Real Estate Account.

Known as the Retirement Advisor Field View, the tool was allegedly developed in response to a drop in market share for TIAA’s retirement plan services business.

“A critical component of the scheme was for TIAA to leverage its position as a recordkeeper to employer-sponsored plans, in order to gain access to participants and make investment recommendations that favored its own products,” according to the complaint, filed in the U.S. District Court for the Southern District of New York.

A spokesperson for Morningstar declined to comment, citing the firm’s policy of not discussing pending litigation. A spokesperson for TIAA provided a detailed statement to ThinkAdvisor and said the lawsuit is “without merit,” adding that TIAA “will defend itself vigorously.”

“We stand behind the Retirement Advisor and Retirement Advisor Field View tools, and the investment advice and selection of asset classes provided within, which are developed by third-party Morningstar Investment Management,” the spokesperson said.

The firms developed separate services that use the Retirement Advisor Field View tool for participants in TIAA’s record-kept plans, the complaint alleges.

The first was an investment advice service known as TIAA Retirement Advisor, which allowed participants to access the RAFV tool online, over the phone or in person through on-site TIAA financial consultants, the complaint states. The second was a managed account service known as TIAA Retirement Plan Portfolio Manager, which allegedly followed the recommendations of the RAFV tool in managing participants’ accounts.

“Regardless of the participant’s individual circumstances, the RAFV tool was coded to recommend an allocation to the TIAA Traditional Annuity in six out of seven recommended models. The RAFV tool was similarly designed to recommend an 8% or 9% allocation to the TIAA Real Estate Account for every participant,” according to the complaint.

“Defendants represented that they were providing participants with Morningstar’s independent and unbiased advice,” the complaint states. “Those representations were materially false and misleading.”

The TIAA statement argues against those suggestions.

“The tool’s asset allocation recommendations use the asset classes and investments available within the participant’s employer-sponsored retirement plan, which are selected by the plan sponsor or a third-party consultant selected by the sponsor,” the spokesperson said.

“TIAA representatives are required to adhere to the tool’s recommendation and are trained on this,” they added. “Additionally, we take our regulatory compliance and disclosure obligations very seriously and provide clients required disclosures around fees and conflicts of interests.”

The statement continues: “TIAA works very hard to earn and keep our clients’ trust. TIAA believes in the importance of advice in achieving better outcomes in retirement, and we take great care to deliver advice that is in their best interest. TIAA does not put its own interests ahead of our clients. Any claims to the contrary are false.”

Other allegations suggest that, to qualify for certain year-end bonus awards, TIAA financial consultants are required to meet a quota for persuading a certain number of participants to implement the increased allocations to the TIAA Traditional Annuity and the TIAA Real Estate Account recommended by the RAFV tool.

The plaintiffs in the lawsuit are seeking class action status on behalf of two broad classes of retirement plan participants — including those both covered and not covered by the Employee Retirement Income Security Act’s fiduciary protections — who have allegedly been steered toward investments in the TIAA Traditional Annuity and the TIAA Real Estate Account since August 2018.

The law firm representing the plaintiffs, Schlichter, Bogard and Denton, has been involved in more than 30 class action suits filed with mixed results against retirement plan service providers.

Credit: Adobe Stock 

John Manganaro

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