In October of 2017, The New York Times published an article titled “The Finger-Pointing at the Finance Firm TIAA”, The article went quite deep into the problematic practices and compensation model of TIAA as well as the challenges it was and still is facing.  

If you are doing due-diligence on TIAA, I highly recommend you read this article.  

The article stated: “TIAA typically acts as record-keeper to these institutions, administering accounts that allow beneficiaries to choose among an array of mutual funds and annuities. When TIAA is a plan’s record keeper, its in-house funds are typically among the investments offered. The company earns a record-keeping fee from these institutions, but it can also receive far more revenues when investors buy its mutual funds and annuities. Therein lies the potential for conflict at TIAA.” 

Nowadays, TIAA does a LOT more than just record keeping, it acts as the wealth manager/financial advisor for many employees at these institutions managing their assets outside the institutions’ 401ks, and when these employees retire, many roll over the money from their company’s 401k to TIAA’s managed accounts. 

As an investor, it is very important for you to do sufficient due diligence on a firm before you trust your life savings with them.  As part of your due diligence, you should read a firm’s regulatory filings with the SEC. In the financial service industry, a firm can do a lot of things that may make you raise your eyebrows, as long as they disclose them to the SEC. 

As of June 30, 2020, all Registered Investment Advisers are required to file a new document, form CRS, Client Relationship Summary, with the SEC. To investors, I think this is the best thing since sliced bread, because firms are required to answer questions about their conflicts of interest on this new form. 

This is page 4 of TIAA’s form CRS, to answer the SEC’s question “How do your financial professionals make money”, they state their wealth managers “ Have an incentive to encourage you to bring in and keep assets at TIAA, particularly for managed accounts offered by us and TIAA, FSB; after-tax annuities; and life products”. 

Why are they “particularly” incentivized to bring your assets to managed accounts offered by TIAA? You probably know the incentive behind encouraging you invest your assets in annuities and life products, but why managed accounts? 

Let’s pull out one of their other regulatory filings, Portfolio Advisor Wrap Fee Program Disclosure Brochure, and turn to page 7, it stated “APS (stands for Advice and Planning Services, TIAA’s division who offers the program)  has a conflict of interest in deciding to exclude Funds that result in additional trading expenses……. because doing so allows APS to minimize its own costs. By imposing this limitation, the Program excludes Funds that do in some cases have superior performance, lower expense ratios, and/or other potentially more favorable investment metrics, and would otherwise be selected for use in the Program by TIAA, FSB or the third party adviser if not for this limitation imposed by APS. The Program seeks to mitigate this conflict by disclosing it to you.” *

I would think funds with “superior performance and lower expense ratios are excellent funds. To reduce its own expenses, TIAA excludes these funds from their portfolios. Then what does it include instead? They seem to prefer the use of affiliated funds that create two levels of fees. On page 9 of the same document, under the tile “Use of Affiliated Funds and Two Levels of Fees”, it states” Funds that are sponsored, managed, advised or manufactured by TIAA affiliates, such as the TIAA family of mutual funds and the various registered funds of Nuveen Investments, Inc. (“Affiliated Funds”) are included in substantially all of the Program’s model portfolios”, Affiliated Funds can be selected for inclusion in a model portfolio even if they rank quantitatively lower in terms of performance and/or other investment metrics than unaffiliated Funds.” 

Why exactly are they so motivated to use their affiliated funds? TIAA explained it themselves, “TIAA and its affiliates have a conflict of interest in selecting Affiliated Funds for Program accounts because TIAA affiliates earn compensation for advisory, distribution and administrative services provided to the Affiliated Funds. This compensation is in addition to the Program Fee, resulting in the receipt of two levels of fees by TIAA and its affiliates.”  

So because of this conflict of interest, TIAA excludes funds that have superior performance and lower expense ratio and instead, use their proprietary products that rank quantitatively lower in terms of performance. 

And Proprietary products are not the only conflict that TIAA has. Let’s refer back to Form CRS. 

Recommend (or invest your assets in) third-party products that result in compensation to TC Services and/or TIAA affiliates over other third-party products that compensate TC Services and/or TIAA affiliates less. 

Offer a TIAA Bank cash sweep option or a limited selection of other cash sweep options that compensate TC Services and/or TIAA affiliates over other cash sweep options that compensate TC Services and/or TIAA affiliates less. 

It is quite a long list of conflicts of interest. 

What I have analyzed for you is all from their own regulatory filings and are just the tip of the iceberg. If you are considering investing with TIAA, please read its regulatory filings thoroughly. The documents can be found on adviserinfo.sec.gov