The Securities and Exchange Commission (SEC) has fined a subsidiary of Teachers Insurance and Annuity Association of America (TIAA) $97 million for producing 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 money from TIAA-CREF Individual & Institutional Services LLC (TC Services) will be paid to investors and settles both the SEC case and one announced by the Office of the New York Attorney General (NYAG).
According to the SEC, between Jan. 1, 2013, and March 30, 2018, TC Services and its wealth management advisers (WMA) 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. They allege TC Services failed to adequately disclose compensation practices that incentivized the firm and its advisers to recommend Portfolio Advisor for reasons other than a client’s particular investment needs. TC Services also coached its advisers to say their recommendations were “objective” and “non-commissioned”.
“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,” the SEC said in a release. “TC Services simultaneously applied continual pressure to compel WMAs to prioritize the rollover of ESP assets into Portfolio Advisor over lower-cost alternatives.”
TC Services also 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 stated 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.
TC Services did not admit or deny guilt but agreed to cease and desist from committing or causing any future violations of these provisions in addition to paying the fine.