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Regulation and Compliance > Federal Regulation > SEC

TIAA to Pay $2.2M for Reg BI Violations in IRA Program

By Melanie Waddell

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The Securities and Exchange Commission said Friday that TIAA-CREF Individual & Institutional Services LLC, a subsidiary of Teachers Insurance and Annuity Association of America (TIAA), will pay more than $2.2 million to settle charges that it failed to comply with Regulation Best Interest.

The SEC charges relate to TIAA’s failure in connection with recommendations to retail customers to open a TIAA Individual Retirement Account.

According to the SEC order, the TIAA IRA allowed retail customers to invest in both a pre-selected “core menu” of affiliated investments, including affiliated mutual funds, and, through the TIAA IRA’s optional “brokerage window,” a broader array of securities, including a variety of mutual funds, ETFs, stocks and bonds.

During the relevant period, the order states, “the brokerage window included the lowest-cost share classes of certain affiliated mutual funds offered in the core menu, but with the investment minimums waived.”

Due to the waivers, “customers could have purchased substantially equivalent, lower-cost share classes of these mutual funds in the brokerage window,” according to the SEC.

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 the SEC’s order, more than 94% of TIAA IRA customers invested only through the core menu.

“As a result, nearly 6,000 TC Services retail customers paid more than $900,000 combined in expenses that they could have avoided by purchasing substantially equivalent funds through the brokerage window,” the SEC said.

Thomas Smith Jr., associate regional director in the New York Regional Office, said Friday in a statement that “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.”

The SEC’s order finds that TC Services violated Reg BI’s general obligation as well as disclosure, care, and compliance obligations.

Without admitting or denying the findings, TC Services consented to the entry of an order that requires it to cease and desist from violating Reg BI, censures the firm, and orders it to pay disgorgement of $936,714 together with prejudgment interest of $103,425 as well as a civil monetary penalty of $1.25 million.

TIAA said it was “pleased to settle this matter and have enhanced our processes and procedures to address the SEC’s concerns.”

Melanie Waddell

@Think_MelanieW

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