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."
