TIAA may be in hot water, according to a recent New York Times article. The New York attorney general has subpoenaed documents and information related to dubious sales practices at the insurance and investment behemoth. There is also a similar whistle-blower complaint pending with the Securities and Exchange Commission (SEC) filed by former TIAA employees that allege they were pressured to sell higher-revenue products that were more costly to clients but did not provide additional value. The complaint also claims that TIAA advisors were told to “tap into customers’ fears to get them to buy the products,” according to the Times.
TIAA handles retirement accounts for more than four million workers at 15,000 nonprofit institutions across the U.S., the Times said. The financial firm could face a civil or criminal suit under New York’s Martin Act, which gives the attorney general, Eric T. Schneiderman, the authority to bring charges against financial firms in matters related to fraud, deception or undisclosed conflicts of interest.
According to the Times, “Current and former employees who spoke with The Times said TIAA assigned its sales representatives outsize goals that were difficult to meet. Two of these people said TIAA had a saying about creating fear among clients to generate sales: ‘If they cry, they buy.’” A TIAA spokesperson said he never heard the phrase in his 10-year tenure with the firm, and that it “… is certainly not in keeping with our values or approved materials.”
It will be interesting to see how this plays out, and even more so if the allegations against TIAA for so-called fear-based sales tactics turn out to be true.
It may seem obvious, but it bears mentioning that the Department of Labor (DOL) fiduciary rule is indelibly changing the industry landscape. It seems how financial services firms sell their retirement planning products and services may be just as much the subject of regulatory scrutiny as what they sell to customers.
After all, firms like TIAA are more often than not considered fiduciaries under the DOL rule. That means they are required to act in the best interests of their clients by selling them products and services that improve their retirement plans — whether or not they generate additional revenue. Clearly, the accusations against TIAA indicate that the firm’s alleged actions were not in its clients’ best interests, and certainly outside of the law.
What should plan sponsors do now? Most importantly, don’t purchase any retirement planning solution based on pure emotion. If the person selling that product or service can’t, or won’t, clearly demonstrate how it benefits your plan and participants, and if you’re feeling intimidated or downright scared, take a step back, and/or put a halt to the sales process altogether. And it should go without saying — if someone makes you cry during a sales meeting, that should probably be a big red flag NOT to buy whatever it is that person is trying to sell you.
Big plan decisions need to be made with a rational mind, and ideally, by your retirement planning committee – not you or another individual alone. Keep in mind what’s best for your plan and participants. Even if you’re being courted by a salesperson from one of the biggest, most venerable firms in the country, If the product being offered doesn’t fit the bill — especially if you don’t feel right about it — shut down the relationship and move on.
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