TIAA Relied on Reputation as a “Trusted Partner” and “Objective” Financial
Advisor toPressure Clients Into Paying Hundreds of Millions in Fees
Victims of Fraud Included Teachers, Public Sector
Employees,Medical Professionals, and Others
AG James and SEC Secure Significant Relief for Investors and Reforms at TIAA
NEW YORK – New York Attorney General Letitia James today announced that . 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.
“For years, TIAA put profits over people, taking money from people’s hard-earned retirement funds,” said Attorney General James. “TIAA made hundreds of millions of dollars misleading clients and pressuring them into higher-cost investments that picked away at tens of thousands of investors’ retirement accounts. TIAA relied on its reputation as a trusted and objective financial advisor to profit off of clients through fraudulent and manipulative sales practices. We’re finally making things right by returning $97 million back into investors’ pockets and locking TIAA into significant reforms to ensure this type of fraud never happens again. New Yorkers can always trust my office to go after corporate greed.”
“AARP commends the Office of the New York Attorney General for standing up for retirees and near-retirees, and for calling out and stopping this kind of fraud and underlying conflicts of interest,” said AARP New York State Director Beth Finkel. “New Yorkers need to have confidence in professionals who handle their hard-earned savings, and this settlement should help those who were victimized.”
For more than 100 years, TIAA has helped provide investments and financial services for those working in academics, government, medicine, and cultural and other nonprofit fields — describing its mission as “serving those who do good in the world.” But by 2011, TIAA faced several challenges to its institutional business, leading the company to stray from its mission of serving its investors.
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.
The OAG wishes to thank the SEC’s Asset Management Unit for its cooperation in this matter.
The OAG’s investigation was conducted by Assistant Attorneys General Jesse Devine, Jaclyn Grodin, Jeffrey Novack, and Jonathan Bashi, as well as Project Attorney Stephanie Torre and Legal Assistant Pascual Noble, and former Assistant Attorney General Jonathan Zweig — all of the Investor Protection Bureau — under the supervision of Bureau Chief Peter Pope, Acting Deputy Bureau Chief Shamiso Maswoswe, and Senior Enforcement Counsel for Economic Justice Kevin Wallace. Senior Data Analyst Akram Hasanov provided additional support, under the supervision of Director Jonathan Werberg and Deputy Director Megan Thorsfeldt — all of the Research and Analytics Department.The Investor Protection Bureau is a part of the Division for Economic Justice, which is overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.
