TIAA Subsidiary Settles With SEC for $2.2M on IRA Recommendation Charge

The Securities and Exchange Commission on Friday announced that registered broker/dealer TIAA-CREF Individual & Institutional Services LLC, a TIAA subsidiary, will pay more than $2.2 million to settle charges it allowed customers to invest in IRA offerings without notifying them of lower-cost options.

The SEC charged TC Services under Regulation Best Interest, arguing that advisers failed to comply with the regulation intended to ensure customers are receiving the best guidance possible on their investments. According to the regulator, the TIAA subsidiary did not steer retail customers to the lowest-cost, comparable investment options in its TIAA individual retirement account.

The IRA allowed customers to invest in a “core menu” of affiliated investments, including affiliated mutual funds, as well as through an optional “brokerage window” with a broader array of securities, including a variety of mutual funds, ETFs, stocks and bonds, according to the regulator. The brokerage window, at that time, had the lowest-cost share classes of certain mutual funds on offer, but with the investment minimums waived—something the advisers allegedly did not properly point out to clients, according to the charge.

“Due to the waivers, customers could have purchased substantially equivalent, lower-cost share classes of these mutual funds in the brokerage window,” the SEC wrote. “The SEC’s order finds that TC Services violated Reg BI by, among other things, failing to disclose both that substantially equivalent, lower-cost share classes of affiliated funds were available in the brokerage window and the conflicts that created.”

According to order, more than 94% of TIAA IRA customers invested only through the core menu; that led to nearly 6,000 customers paying more than $900,000 combined in expenses that “they could have avoided.”

TC Services did not admit or deny the findings, according to the SEC. The firm consented to a cease-and-desist order from violating Reg BI and to payments of $936,714, together with prejudgment interest of $103,424.91 and a civil monetary penalty of $1.25 million.

“We are pleased to settle this matter and have enhanced our processes and procedures to address the SEC’s concerns,” a TIAA spokesperson said.

In making its determination, the SEC “considered TC Services’ prompt remedial efforts, that TC Services disclosed the issue to Commission staff who were in the process of examining” the services, the regulator wrote in the settlement order.

“Reg BI protects retail investors by requiring broker/dealers to act in the best interest of their customers when making recommendations, and today’s action demonstrates our commitment to ensuring compliance,” said Thomas P. Smith Jr., associate regional director in the SEC’s New York regional office, in a statement.

The Department of Labor’s Employee Benefits Security Administration is currently considering public commentary on a proposed retirement security rule, often called the fiduciary proposal, that would expand fiduciary duties for financial advisers in areas including rollovers from retirement plans.

Opponents have noted that the SEC’s Reg BI already protects savers by looking after their best interests. Proponents of the new rule say the protections do not go far enough, in part because advisers are not operating under Employee Retirement Security Act standards designed to protect retirement plan participants.