TIAA subsidiary gets hits with penalty for SEC violations

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TIAA-CREF Individual & Institutional Services (TC Services) was hit with a $97 million penalty by the Securities and Exchange Commission (SEC) for inaccurate and misleading statements related to employer-sponsored retirement plans (ESPs).

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The SEC alleges that TC Services failed to adequately disclose conflicts of interest to thousands of participants in TIAA record-kept employer-sponsored retirement plans (ESPs). The $97 million will be distributed to investors affected by the misconduct. This action settles both the SEC’s case and a parallel action announced today by the Office of the New York Attorney General (NYAG).

Specifically, the SEC said TC Services and its Wealth Management Advisers (WMAs) 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.”

Further, the firm failed to adequately disclose compensation practices that incentivized the firm and its WMAs to recommend Portfolio Advisor for reasons other than a client’s particular investment needs. In addition, the commission said TC Services trained its WMAs to make representations that they offered “objective” and “non-commissioned” advice and acted in the client’s best interest, but this was not the case in practice.

“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,” Melissa Hodgman, acting director of the SEC Enforcement Division, said.

Without admitting or denying the findings, TC Services, a subsidiary of TIAA, agreed to cease and desist from committing any future violations, be censured, and pay disgorgement, prejudgment interest, and a civil penalty totaling $97 million that will be distributed to investors through a Fair Fund.

“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,” Adam Aderton, co-chief of the SEC Enforcement Division’s Asset Management Unit, said.

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