SEC Fines TIAA Unit $2.2M for Violating Reg BI

The Securities and Exchange Commission said a TIAA broker-dealer charged some retail customers too much to invest in mutual-fund choices in an IRA.

By Rethinking65

A TIAA subsidiary must pay a $2.2 million fine to settle SEC charges that it failed to comply with Regulation Best Interest because some retail customers paid too much to invest in fund choices offered in a retirement account.

The broker-dealer TIAA-CREF Individual & Institutional Services LLC allowed retail customers two choices in how they could invest in its TIAA Individual Retirement Account. One option was through a pre-selected “core menu” of investments, including affiliated mutual funds. The other was through the TIAA IRA’s optional “brokerage window,” which included a broader array of securities, including mutual funds, ETFs, stocks and bonds.

The brokerage window included certain affiliated mutual funds but with the investment minimums waived. Because of those waivers, customers could have purchased substantially equivalent, lower-cost share classes of the same mutual funds through the brokerage window vs. the core-menu option, the SEC said.

The SEC said TIAA’s broker-dealer violated Reg BI because it didn’t tell customers they could have invested in the same mutual funds more cheaply if they went through the brokerage window. The B-D failed to comply with Reg BI between approximately June 30, 2020, and Nov. 1, 2021, the SEC order says.

More than 94% of TIAA IRA customers invested only through the core menu, the SEC said. As a result, nearly 6,000 customers paid about $936,714 more in mutual fund expenses by purchasing those core-menu funds.

Without admitting or denying the findings, TIAA-CREF Individual & Institutional Services consented to an order that requires it to cease violating Reg BI, censures the firm, and orders it to pay disgorgement of $936,714 along with prejudgment interest of $103,424.91, and a civil monetary penalty of $1,250,000.

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