SEC Announces $97 Million Enforcement Action Against TIAA Subsidiary for Violations in Retirement Rollover Recommendations

SEC and N.Y. Attorney General Secure Significant Relief for Investors and Reforms at TIAA

The Securities and Exchange Commission today announced that TIAA-CREF Individual & Institutional Services LLC (TC Services), a subsidiary of Teachers Insurance and Annuity Association of America (TIAA), will pay $97 million to settle charges of inaccurate and misleading statements and a failure to adequately disclose conflicts of interest to thousands of participants in TIAA record-kept employer-sponsored retirement plans (ESPs).

The $97 million will be distributed to investors affected by the misconduct and settles both the SEC’s case and a parallel action announced today by the Office of the New York Attorney General (NYAG).

According to the SEC’s order, from Jan. 1, 2013 through March 30, 2018, TC Services and its Wealth Management Advisers (WMAs) did not adequately disclose the full nature and extent of their conflicts of interest in recommending to clients that they roll over their retirement assets into a managed account program called “Portfolio Advisor.”  The order finds that TC Services failed to adequately disclose compensation practices that incentivized the firm and its WMAs to recommend Portfolio Advisor for reasons other than a client’s particular investment needs.  Further, TC Services trained its WMAs to make, and its WMAs made, representations that they offered “objective” and “non-commissioned” advice, “put the client first,” and acted in the client’s best interest while holding themselves out as fiduciaries.  This was misleading because TC Services’ financial incentives for WMAs rendered their advice non-objective and TC Services did not ensure that WMA’s recommendations were, in fact, in the best interest of its clients.  TC Services simultaneously applied continual pressure to compel WMAs to prioritize the rollover of ESP assets into Portfolio Advisor over lower cost alternatives.  The order also finds that TC Services failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act in connection with rollover recommendations. 

“Rollovers of ESPs are of paramount importance to investors seeking financial security in retirement, and advisers acting in a fiduciary capacity need to provide their clients with complete and accurate disclosure so that they may make fully informed investment decisions,” said Melissa Hodgman, Acting Director of the SEC Enforcement Division.

“Investment advisers must clearly and accurately disclose their conflicts of interest. Here, TC Services’ disclosures and misleading statements downplayed and obscured financial incentives that created conflicts between it and its WMAs on one hand and its clients on the other,” said Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

The SEC’s order finds that TC Services willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, TC Services agreed to cease and desist from committing or causing any future violations of these provisions, be censured, and pay disgorgement, prejudgment interest, and a civil penalty totaling $97 million that will be distributed to investors through a Fair Fund.

The SEC’s investigation was conducted by David P. Bloom of the Asset Management Unit and supervised by David A. Becker.  The SEC appreciates the cooperation of the Office of the New York Attorney General’s Investor Protection Bureau.

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