$97 Million SEC Enforcement Action Against TIAA Subsidiary for Retirement Rollover Recommendations
A fiduciary, as defined by Investopedia.com, is “a person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust that requires the fiduciary to be bound both legally and ethically to act in the other’s best interests.”1
In July, the Securities and Exchange Commission (SEC) announced a $97 million enforcement action against TIAA-CREF Individual & Institutional Services LLC (TC Services), which is a subsidiary of Teachers Insurance and Annuity Association of America (TIAA). TIAA has over $1.2 trillion in assets under management.2 The enforcement action involved a breach of TC Services’ fiduciary responsibility to its record-kept employer-sponsored retirement plans (ESPs) clients.
The SEC order stated that TC Services and their Wealth Management Advisors (WMAs) told some clients that the firm and its WMAs were fiduciaries, providing objective and non-commissioned investment advice when recommending retirement asset rollovers to a managed account program called Portfolio Advisor. The company and WMAs, according to the SEC, were not acting in a fiduciary capacity from January 1, 2013 through March 20, 2018 as TC Services “created positive incentives and negative pressures for its WMAs to prioritize the rollover of ESP assets into Portfolio Advisor over lower cost alternatives for rollover-eligible ESP participants who were receiving advisory services as part of the financial planning process TC Services offered.”3
WMAs were compensation more for rolling over assets into Portfolio Advisor than some alternatives. This created an incentive for some WMAs to present managed accounts as the only rollover option. TC Services also trained some WMAs in how to avoid discussing with clients the fees associated with the rollover recommendation. TC Services also didn’t adequately implement and enforce written policies and procedures designed to reasonably prevent violations of the Investment Advisers Act in connection with rollover recommendations. These actions by TC Services made the WMAs stated “fiduciary” role of working in the client’s best interest and providing objective advice improbable.
Without complete and accurate disclosure of their role and how the company incentivized the WMAs to steer clients into Portfolio Advisor, TC Services clients could not make fully informed investment decisions. As a result of the SEC’s enforcement action TC Service agreed to cease and desist from committing or causing any future violations of these provisions while neither admitting or denying the SEC’s findings.
TC Services also agreed to be censured, pay disgorgement, prejudgment interest and a civil penalty totaling $97 million. That civil penalty will be distributed from a Fair Fund to affected investors and will settle both the SEC’s case and a parallel action by the Office of the New York Attorney General.
The SEC was established to enforce the regulation of securities firms, by maintain fair markets to secure investor confidence. Due to broker negligence and unsavory financial advisors, vast economic losses can occur, affecting investors without their knowledge until it’s too late. The goal of Securities attorneys is to protect investors and collect money damages imposed by fraudulent stockbrokers. If you have questions about securities fraud, investment losses or the management of your investment accounts, contact us today. Our Michigan Securities Law Firm in Detroit is the ideal choice with more than 20+ years’ experience.
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1 Fiduciary by Julia Kagan, 4/6/2021
Link: https://www.investopedia.com/terms/f/fiduciary.asp
3 SEC Order in the Matter of TIAA-CREF INDIVIDUAL & INSTITUTIONAL SERVICES, LLC, 7/13/2021
Link: https://www.sec.gov/litigation/admin/2021/33-10954.pdf