The brokerage subsidiary of U.S. pension giant Teachers Insurance and Annuity Association of America (TIAA) violated best-interest rules in their dealings with retail investors, the U.S. Securities and Exchange Commission (SEC) alleges.
TIAA-CREF Individual & Institutional Services LLC agreed to pay more than US$2.2 million to resolve allegations that it failed to comply with the SEC’s best-interest rules, known as Reg BI.
According to the SEC’s order, the firm had two channels for investors to use for their retirement accounts: its channel that provided a menu of proprietary investments, and a brokerage window that offered access to a broader array of securities, including mutual funds, ETFs, stocks and bonds.
While the firm’s proprietary funds were available through both channels, the investment minimums were waived in the brokerage channel. The SEC alleged the firm violated Reg BI by failing to disclose that the funds were available through the brokerage channel, which created conflicts.
Specifically, the SEC found that more than 94% of the firm’s customers invested only through the proprietary menu. As a result, 6,000 retail customers paid more than US$900,000 in expenses that could have been avoided by purchasing the same funds through the brokerage channel.
As a result, the SEC alleged the firm violated its obligations under Reg BI.
The firm settled the case without admitting or denying the regulator’s findings. It consented to an order that requires it to cease and desist from violating Reg BI, censures the firm and orders it to pay more than US$900,000 in disgorgement, more than US$100,000 in interest and a US$1.25-million penalty.
“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,” said Thomas Smith, Jr., associate regional director in the SEC’s New York office, in a release.