Pension giant settles with SEC, New York AG

By James Langton | July 13, 2021 | Last updated on July 13, 2021
2 min read

U.S. pension giant Teachers Insurance and Annuity Association of America (TIAA) is paying US$97 million to settle allegations that its advisors misled clients when they recommended rolling over retirement assets into a pricey, proprietary managed account program.

The U.S. Securities and Exchange Commission (SEC) and the Office of the New York Attorney General (OAG) settled with TIAA-CREF Individual & Institutional Services LLC over allegations that its reps made inaccurate and misleading statements and failed to properly disclose conflicts of interest to participants in employer-sponsored retirement plans.

According to the SEC’s order, from Jan. 1, 2013, through March 30, 2018, the firm and its advisors didn’t adequately disclose conflicts of interest or compensation arrangements to clients when recommending they roll over retirement assets from low-cost, employer-sponsored retirement plans to higher-cost, individually managed accounts.

The SEC said the advisors claimed to act in clients’ best interests and held themselves out as fiduciaries but didn’t actually work in the best interest of clients.

In fact, TIAA “applied continual pressure to compel [advisors] to prioritize the rollover of assets into [the managed account program] over lower cost alternatives,” the SEC said.

According to the OAG, assets in the managed accounts also performed worse than the employer-sponsored plans.

An analysis by TIAA, carried out in response to the OAG’s investigation, “showed that assets invested in a sample employer-sponsored plan and regularly rebalanced according to free third-party advice had superior risk-adjusted returns — across all risk tolerance levels — on both a retrospective and prospective basis,” the OAG said.

TIAA settled the allegations without admitting or denying the SEC’s findings. It agreed to pay US$97 million in disgorgement, interest and civil penalties, which will be distributed to affected investors.

In a statement, a TIAA spokesperson said the company co-operated with regulators.

“We regret the times that we did not live up to our clients’ expectations of us,” the statement said.

“We have learned some valuable lessons and have applied those lessons to enhancing our training, supervisory controls and disclosures.”

In addition to the monetary settlement, the firm also agreed to significant internal reforms, including eliminating differential compensation, eliminating or fully disclosing other advisor conflicts of interest, enhanced advisor training, and subjecting all rollover recommendations to a strict fiduciary standard.

“TIAA made hundreds of millions of dollars misleading clients and pressuring them into higher-cost investments that picked away at tens of thousands of investors’ retirement accounts,” said New York attorney general Letitia James in a release.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.