Business ProfileforTIAA

The following describes a government action that has been resolved by either a settlement or a decision by a court or administrative agency. If the matter is being appealed, it will be noted below.

On 7/13/2021, New York Attorney General Letitia James announced that TIAA-CREF Individual & Institutional Services, Inc. — a subsidiary of the Teachers Insurance and Annuity Association of America (TIAA) — has agreed to pay $97 million in restitution to tens of thousands of customers who were fraudulently misled into moving their retirement investments into higher-fee accounts offered by the company. 

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 program was significantly more expensive for clients and generated hundreds of millions of dollars in fees for TIAA. As part of today’s agreements — which resolve parallel investigations by the Office of the Attorney General (OAG) and the Securities and Exchange Commission (SEC) — TIAA is not only providing significant relief to customers, but has also agreed to undertake significant internal reforms.

Beginning in 2012 and continuing through March 2018, TIAA capitalized on its reputation and client goodwill and employed a fraudulent and misleading marketing pitch to convince its clients to roll over assets from low-cost, employer-sponsored retirement plans to higher-cost, individually-managed accounts in TIAA’s Portfolio Advisor program. 

TIAA's sales representatives falsely described themselves as “objective” and “non-commissioned” advisors who could be seen as “a trusted partner” that worked in a client’s “best interest.” In truth, however, these sales representatives were not objective and actually had a serious conflict of interest. They were heavily incentivized — through financial compensation and supervisory and disciplinary pressures — to identify clients’ “pain points.” These pain points helped the company pressure clients into making different investments by essentially selling fear. This is when sales representatives would recommend that clients rollover their investments to the higher-fee, individually-managed accounts.  

Similarly, TIAA advisors represented to clients that TIAA was operating under a fiduciary standard, but, in reality, the company treated rollover recommendations as subject only to a less rigorous “suitability” standard.   

TIAA’s sales representatives also presented clients with a biased and misleading comparison of their investment options, promoting managed accounts as the only alternative to self-directed investments, while downplaying or omitting advantages of employer-sponsored plans. Many of the advertised features of the Portfolio Advisor accounts were, however, also available for free in clients’ employer-sponsored plans.

Moreover, TIAA learned, in 2018, that projected performance in Portfolio Advisor accounts was worse than the projected performance of assets in employer-sponsored plans that were regularly rebalanced according to free third-party advice. A more recent TIAA analysis, conducted pursuant 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.

Beginning in 2017, TIAA undertook a review of its internal procedures and began to correct some, but not all, of its practices. Resolving both the OAG and the SEC’s claims, TIAA has agreed to pay $97 million that will be provided as restitution to affected investors. Additionally, TIAA has agreed to 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.