You may have seen news that TIAA has settled with regulators regarding recommendations to open Portfolio Advisor managed accounts. We want to share with you what took place and what we've done to fix it, and to assure you of our unwavering commitment to helping higher-education and other not-for-profit employees retire with dignity and lifetime income.
TIAA-CREF Individual & Institutional Services (TC Services), TIAA's registered broker-dealer and investment adviser, has reached settlements with the New York Attorney General and the Securities and Exchange Commission. The settlements cover controls, disclosures and communications relating to recommendations made between January 2012 and March 2018 to individual clients to open Portfolio Advisor (PA) managed accounts with assets from TIAA-administered retirement plans. Specifically, the settlements found that TC Services did not correctly or adequately describe advisors' compensation, created confusion for advisors and their clients about the legal standard that applied to their PA recommendations, and did not provide complete, accurate fee and performance information.
We regret the times that we did not live up to our clients' expectations of us. If we do something that causes concern for our clients, we own it. That's what we are doing here, and we are reaching out to affected clients and addressing any questions or concerns they have.
The settlement payments being made by TC Services total $97 million, which includes a $9 million SEC civil penalty, plus reimbursement of a portion of the affected clients' Portfolio Advisor account fees and interest on those fees. It's important to note that the entire $97 million will be returned to the eligible PA clients.
As part of our continuous improvement, we began making enhancements to training, controls and disclosures, and modifying advisor compensation, before and since regulators began their investigations. Some of TC Services' most significant improvements are recognized in the settlement agreements. For example, the settlements point to how TC Services:
- Voluntarily elevated all managed account recommendations to an investment advisory service under the fiduciary standard of care, a decision that was not required by regulations and that exceeds investment industry standards for broker-dealers; and
- Modified the advisor compensation plan so that advisors no longer receive differential compensation for assets in managed accounts as compared to plans.
Additionally, TC Services has:
- Increased training and oversight, and further strengthened an existing conflicts management program with a Conflicts of Interest Officer role responsible for ensuring that conflicts related to advice are identified, disclosed and mitigated;
- Enhanced sales processes and introduced a new client engagement model; and
- Augmented technology and processes to increase supervision of advisors and transactions.
We will continue to make ongoing improvements and investments in our oversight processes and controls and client communications.
We have confidence in what we do and the changes we've made, and we stand by the products and services we offer our clients. And after the improvements we have made, we are confident that our wealth management advisors will continue to provide the high-caliber service that will assist clients in achieving their retirement and other financial goals. Our advisory services help individual clients meet their holistic investment and retirement needs, including through low-cost access to optional asset management services such as managed accounts. Managed accounts can be a good alternative for a portion of our individual clients who want the peace of mind that comes from having retirement savings professionally managed. We are also proud to offer services to help clients manage their assets in plan, offering a self-directed approach and guiding them through the resources that are available to support their investment efforts.
TIAA remains steadfast in our commitment to helping our clients create secure, successful retirements and long-term financial success, as we have for more than 100 years. We are grateful to serve them. Thank you.