The investment business is offering yet another example prompting us to ask, “Where are the customers’ yachts?” This is a reference to the famous question asked by a brokerage firm customer when he was shown the collection of yachts owned by brokerage firm founders.
This time around, the customers who should be asking the question are those in TIAA funds which command 40 percent of the retirement plan market for teachers, nonprofit employees and other participants in various 403(b) plans. These plans for nonprofits are comparable to 401(k)s.
Started by the Carnegie Foundation more than 100 years ago, the company’s purpose was to provide a vehicle for college professors to generate financial resources for retirement. Everything was fine until 1997, when Congress revoked its tax exemption as a nonprofit. From there on out, its ownership is “murky,” to say the least.
Typing “Who owns TIAA” into a search engine will bring you to chat-room-like chains of comments and questions from frustrated searchers trying to figure out who actually owns and/or controls the company that manages $198 billion.
The company’s heavily publicized recent problems involving self-serving, commission-generating advice to clients — as revealed by whistleblowers — may have started when the new CEO came from Merrill Lynch in 2002. This is the same Merrill Lynch that later came within a hair’s breadth of folding into insolvency had it not been forced into the arms of the Bank of America — which in turn was pressured into taking on Merrill Lynch as a condition for obtaining the TARP funds from the government that the bank needed to stay afloat.
Just so you know, if those transactions had not been engineered during the crisis, customer securities held in street name — meaning in the broker’s name — at Merrill would have been backed by only $500,000 per investor by the Securities Investor Protection Corporation. Everything else beyond that cap would have been lost. Think about that and maybe read your brokerage contract for the first time.
But I digress … Back at TIAA, it appears that employees were pressured to sell expensive investment products, but it’s not clear who benefits (beyond the sales people) and by how much. The company shares are now owned by a trust, so why is there pressure to make money at the expense of their customers? What’s the incentive for a 100-year-old, formerly nonprofit entity to become some kind of a “growth junkie?”
“When you reach the fork in the road, take it” was the advice of Yogi Berra, and it would seem that a confused TIAA eschewed the option in ’97 to become a clone of Vanguard. The latter is now a giant cooperative with $3 trillion in assets, and is owned solely by those investing in its funds.
Instead, TIAA has saddled itself with a culture that more closely resembles the more rapacious subsets of the financial services industry.
These are the companies, by the way, that are doing everything in their power to delay the Labor Department’s date at which fiduciary standards apply to all advisers and vendors of retirement plan investment products. Fiduciaries are legally charged with offering all investment advice and products in “the sole interest of the participants of the retirement plan.”
The mutual fund industry happens to be one of the world’s most profitable. Margins are extremely high because buyers are not price sensitive. Nobody ever receives a bill or has to write a check. The charge for service is just automatically deducted from the account on a daily basis — death by a thousand cuts.
Yet, a missing full percent per year that could have been avoided adds up to what would have been 50 percent more money over 30 years. Those in TIAA funds or, worse yet, TIAA annuities would do well to explore some other options.
This Article Was Originally From *This Site*
Powered by WPeMatico