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TIAA Accused of Aggressive Sales Tactics

October 24, 2017

Two legal complaints accuse the Teachers Insurance and Annuity Association of aggressive sales practices and encouraging its financial advisors to put clients into higher-fee products and services, the New York Times writes.

The complaints, which include a lawsuit by TIAA employees who have funds managed by the firm and a pending whistle-blower complaint filed with the SEC, say TIAA customers were pushed into potentially unsuitable, more expensive products to generate more fees for the firm, according to the paper. And while TIAA’s 855 financial advisors and consultants don’t get paid sales commissions, employees tell the Times and claim in the suits that the company doles out bonuses to its sales staff who manage to push clients into in-house products. One TIAA filing with the SEC confirms there are incentives to consultants who steer clients to TIAA products and services, according to the paper.

Ten former employees also tell the paper that management encouraged sales reps to meet high sales quotas by playing on customers’ “pain points” — such as not having enough to retire on.

The pending whistleblower complaint, meanwhile, claims that in 2011, TIAA began a scheme to push “unsuspecting” retirement plan customers from inexpensive self-directed accounts into TIAA-CREF-managed options, according to the suit seen by the Times. The complaint also alleges TIAA’s advisors were encouraged to push proprietary mutual funds, according to the paper.

Former employees tell the Times that TIAA turned to more aggressive sales tactics with the arrival of former Merrill Lynch executive Herbert Allison Jr., who became the firm’s CEO in 2002. At the time, TIAA was fighting to stop losing clients who withdrew their money upon retirement and took the funds to TIAA’s competitors, according to the paper. In 2004 the firm set up an RIA to offer private asset management and a year later formed the Wealth Management Group to offer managed accounts, which charge fees of up to 1.15%, according to the whistleblower complaint cited by the Times.

A spokesman for TIAA declined comment to the paper on the allegations that retiring clients were pushed into more expensive managed accounts.

But on Monday TIAA president and CEO Roger Ferguson issued a statement calling the Times article “grossly misleading.”

“We don't pursue growth at the expense of our clients' best interests,” he writes, adding that clients “don't even need to purchase TIAA-specific products to obtain our financial planning services.”

Ferguson also writes that while advisors do get annual bonuses they’re not tied to the profit TIAA makes off the products the advisors sell, but rather on the complexity and education related to the product. Furthermore, a “central team” reviews advisors’ recommendations of TIAA products to ensure client interests are put first, according to Ferguson.

By Alex Padalka
  • To read the New York Times article cited in this story, click here.