A subsidiary of the Teachers Insurance and Annuity Association of America (TIAA) agreed to pay more than $2.2 million as part of a settlement with the Securities and Exchange Commission (SEC) for not acting in the best interest of its retail customers regarding their retirement accounts.
TIAA-CREF Individual & Institutional Services (TC Services) violated Regulation Best Interest’s (Reg BI) disclosure, care, and compliance obligations, the SEC announced in a press release Friday.
The firm agreed to pay a $1.25 million penalty, disgorgement of nearly $937,000, and about $103,000 in prejudgment interest.
The details: Between June 2020 and November 2021, retail brokerage customers opening a TIAA individual retirement account were presented a pre-selected “core menu” of affiliated investments, the SEC detailed in its order. Also available was an optional “brokerage window” for customer investments.
Customers investing in certain core funds paid higher mutual fund expenses than if they had invested in lower-cost share classes of those same funds that were available in the brokerage window, the SEC alleged.
“As a result of TC Services’ violations, approximately 5,894 retail customers purchased higher cost share classes of certain affiliated mutual funds in the core menu,” the agency said. “In total, TC Services’ customers paid approximately $936,714 more in mutual fund expenses by purchasing those core menu funds.”
Compliance considerations: TC Services violated Reg BI’s disclosure obligation by failing to disclose lower-cost share classes of affiliated funds were available in the brokerage window and related conflicts of interest, the SEC said.
The firm’s alleged care obligation violations related to its not exercising reasonable diligence to understand the potential risks, rewards, and costs associated with its recommendations to open a retirement account, while its compliance obligation lapses stemmed from not having in place proper policies and procedures.
TC Services disclosed the matter to SEC staff during an examination and cooperated with the agency’s investigation.
“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 an emailed statement.
TC Services neither admitted nor denied the SEC’s findings.
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