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TIAA-CREF Fined $97 Million for Conflict of Interest Violations
By: Roccy DeFrancesco, JD, CAPP, CMP
You may remember my newsletter a few years ago titled: Northwestern Mutual (NWM) Admits to Material Conflicts of Interest. If you didn’t download the 8-page piece documenting the massive conflict of interest problems NWM advisors have, click on the following link:
I don’t think the TIAA-CREF conflicts are as bad as NWM, but neither company seems to care about what’s really best for the clients.
To download the 17-page TIAA Cease and Desist Order from the SEC, click on the following:
Factual Summary—TIAA (Teachers Insurance and Annuity Association)-CREF (hereinafter “TC”) is a broker dealer and registered investment advisor. TC has a large retirement plan services arm that, as the name insinuates, administers many school system pension plans.
TC was not happy about the fact that they were not getting enough of the rollover money when clients retired and rolled their money to an IRA. So, TC instituted what the SEC determined was a deceitful practice to incentivize TC advisors to get more of that money.
As the SEC indicated, TC trained advisors when talking with clients about rollovers to “discover areas of vulnerabilities” (called “pain points”) to help clients “self-realize” their financial vulnerabilities, and as part of the self-realization process get the client to conclude that putting their money into a specific TC investment account is best.
The problem is that this self-realization process was misleading. And the accounts TC wanted to put clients in were much more profitable for TC than other potentially more suitable accounts.
TC advisors touted that they were “fiduciaries” giving “objective” and “non-commissioned” advice. The SEC concluded that TC advisors did NOT act as fiduciaries (quite the opposite), that they were not objective because they were trying to push rollover money into higher profit investments for TC and the advisors.
Threats of termination—to make sure advisors pushed clients into the more expensive portfolios, TC threatened to fire advisors who didn’t accomplish this goal.
TC offered financial incentive for advisors to push expensive portfolios
Internal compliance audit—TC’s compliance department did an internal audit and came to the conclusion that “it is not possible to claim that the agents are ‘product neutral.’” But after the audit, nothing changed.
It worked—TC opened 18,000 new portfolios and went from $2.6 to $54 million in assets in their more expensive portfolios.
TC not only wanted to keep more of the rollover money coming out of the pension plans they administered, they wanted the money to go into expensive portfolios. To accomplish this goal they taught advisors how to manipulate clients with misleading statements about being objective fiduciaries who were looking out for the clients’ best interest.
At least NWM discloses to clients their built-in biases to funnel money to products that may not be in the client’s best interest and make the advisor more money. In TC’s case the lack of disclosure of these conflicts of interest sunk them with the SEC and generated a fine of $97 million.
In short, TC’s actions are everything that is wrong with the industry today and if you ever have to compete against TC when trying to pick up a client, you can pull out the 17-page SEC document to show the potential client this history TC has of giving advice to clients that is NOT in their best interest.