Recently some allegations have been raised against one of the largest financial services companies on the planet, TIAA-CREF. For years, TIAA-CREF (now just TIAA) has operated as a non-profit helping to manage the retirements of teachers and other school-related employees. Now, however, TIAA operates as a for-profit organization and is under investigation by the state of New York for sales activities that aren’t what you’d expect from a company trying to win the hearts of teachers.

In this episode, we will explore what the allegations are, and how you can protect yourself from any predatory practices. This is an episode especially for teachers and retired teachers (including other school personnel). If you know someone that might be affected by this, you should send them the link to the show.

Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and elder law attorney and Certified Financial Planner™. Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.

For more information, visit Medina Law Group or Private Client Capital Group.

Announcer:  Welcome to “Make It Last,” helping you keep your legal ducks in a row and your nest egg secure, with your host Victor Medina, an estate planning and elder law attorney, and certified financial planner.

Victor Medina:  Hey, everybody, welcome back to Make It Last. I am your host Victor Medina, and I am happy to be joining you this Saturday morning.

I have got a show that I am really excited about because it’s all about teachers, and it’s for teachers in retirement. I can’t wait to tell you a little bit more about my family and how many people are involved in the education system over where I’m at.

Listen, if you’re just joining us for the first time, I want to welcome you to the show. This is a show where we explore a lot about retirement, both from a legal, financial, and tax perspectives. I try to go through as much of the knowledge that I have to share with you so you walk away with something educational and actionable when you’re done at the end.

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We broadcast this on Saturday mornings. I tell you, about a week and a half ago, I took a trip with my wife away, our first trip in any number of years. We’ve got kids. [laughs] It’s not a practical thing to do to go away as often. I was really fortunate to have my parents watch the kids.

The reason why we were able to go away in the middle of November is that, if you weren’t aware, the state of New Jersey basically closes down for the Thursday and Friday in November following Election Day. It’s across the state. Disney calls it Jersey Week.

One of the reasons why it does that is because the Educators Association, the union that represents teachers, is negotiated these two days where holds its annual conference down in Atlantic City as days that are off the schedule on the calendar.

It’s been in there for ever and ever and ever. It gives us the opportunity, at least as a family, my wife and I ‑‑ because she works for a school system ‑‑ to basically get out of town, and we do.

It got me thinking because so much of my life intersects with the world of education and teachers. My parents divorced, and they remarried. I like to consider myself as having four parents. All four of my parents were in education. There’s a special ed teacher, a school psychologist, a librarian, and a sociology professor. Each of them were involved in a school system.

My sister is a public school teacher in New York City. She’s got a Special Education Certification. My wife is a school psychologist.

In fact, for those of you that know me well, you know that my mom introduced me to my wife, which means that she got the seal of approval from the beginning. [laughs]

In any event, my life intersects with the school system. One of the more interesting developments is that before I was a estate planning attorney and financial advisor, I had practiced representing public school districts.

I would be the attorney that would work for the school districts, representing the board, representing the administration. A lot of interaction with the world of school, public schools specifically.

One of the things I got to do is I got to hold educational seminars for the business administrators for these districts. It was a role that I had. I had gotten a little expertise.

I helped build buildings and whatnot with them. Obviously, that the attorney [inaudible 3:33] hammer or drop the plants or [laughs] find the money. I helped them in a very small way being their lawyer, in any event.

I got to know the business office and I got to know the financial side. It was a great way of marrying these two passions that I had, helping people with finances and making sure those things were in order in the school law.

Lo and behold, fast forward, and many of my clients that are on the estate planning and financial planning side are people who were teachers or former teachers. I get them and they get me. We have been working together for a while. About two‑and‑a‑half, three years ago, “New York Times” ran an article about a company called AXA.

One of the things that they talked about was how AXA had been selling a lot of bad products to people within the annuities. There was an investigation basically in the article that talked about one or two products that were sold over and over again and the amount of fees that were in there.

Usually, AXA advisors would come in after people were ready to roll their investments out of the 403(b). They came in after retirement. Just recently, a news article came out in New York Times. This is right during the Jersey Week. It happened in New York but happened during the time of Jersey Week. It addresses some practices by TIAA or TIAA‑CREF.

I want to set the stage for all of this and talk to you. If you were a teacher who is currently employed and contributing to a 403(b), or if you are a retired teacher and you have your money in TIAA ‑‑ retired educator anywhere. I’ve got clients that are Princeton University employees and they have got large TIAA accounts ‑‑ this is going to be an important episode for you.

As I said, I want to set the stage for you, for you to understand who all these players are. In the next segment, I will talk about what the lawsuit alleges.

In the last segment, I’ll talk to you a little bit about what you can do to help protect yourself. For you to understand where we are, let’s first start and talk about a retirement account classification called a 403(b). 403(b) is very similar to a 401(k) in this way, they are both governed by a portion of the code, the IRS code.

It is a way of having tax‑advantage retirement. Like a 401(k), you can make a salary deferral into the plan and not pay any income tax on it. You can save the money and not pay any income tax. It grows tax‑deferred and then when you take the money out, it’s taxed as income.

The 403(b) had a lot of iterations over the law changes. We think about this as one thing. In the beginning, it was categorized as a tax‑sheltered annuity. Since 1974, these accounts are no longer restricted to annuity, and you can participate in things like mutual funds. Although a lot of people do have annuities inside of it.

The 403(b) has a plan document that is adopted. While it is governed within the tax code, it does not have to be a qualified plan, which is something that would be governed by Orissa.

The reason why that’s important is because if you remember my big long discussion on fiduciary relationships on your retirement account, it doesn’t have to apply to a 403(b).

It’s not ERISA‑governed, therefore it’s not under the Department of Labor. Long story short. One of the bigger organizers of 403(b) is called TIAA. It used to be TIAA‑CREF. What that stood for was the Teachers Insurance and Annuity Association, and then the C‑R‑E‑F is the College Retirement Equities Fund. It’s now just known as TIAA.

It has about $938 billion in assets under management. It covers over five million active or retired employees and over 15,000 institutions. It’s headquartered in New York City. It’s got major offices across the country. Here’s the most important part before we take a break. Until the year 2010, it was a non‑for‑profit corporation.

Since 2010, it has shifted its model, and it is now a for‑profit financial services corporation. It has a long history working for non‑for‑profit. It talks about its history because it was started in 1918. Right now, it’s a for‑profit company.

So much so that in June of 2016, TIAA‑CREF instructed employees to “avoid accidentally implying that you may be acting as a fiduciary and not to” reference the participants best interests or discuss their not‑for‑profit heritage.

Victor:  What it means as from 2017, all of the communications from the TIAA‑CREF basically say, “Treat us like every other financial services company out there,” which means we’re not responsible for our customers going forward. If that doesn’t put a chill in your spine, you’re not awake at this point. Go get some more coffee.

When we come back from the break, I’m going to talk to you a little more about TIAA‑CREF. I’m going to talk to you about the lawsuit that was filed. I’m going to talk to you about what you can do to protect yourself. Just stick with us. We’ll be right back with this.

 

Victor:  Hi, everybody, welcome back to Make it Last. I’ve got this episode today really focusing on teachers who are retired or who are looking towards retirement. We’re focusing specifically on a company called TIAA‑CREF, and we are exploring a new lawsuit that was filed by the New York Attorney General.

It’s not a lawsuit yet, but it’s a subpoena, that’s in the court system. We just spent the last segment talking briefly about 403(b)s and TIAA‑CREF, and explaining a little bit about it.

I’m going to talk to you a little bit more about the subpoenas and what they are alleging. In the next segment, I’m going to talk to you about what you could do to protect yourself.

The world of investment advice is a treacherous place to be, because investors are constantly confronting biased advice. You really don’t know unless somebody takes a fiduciary plunge or somehow is governed by a fiduciary obligation the way a lawyer would be, the way a doctor would be.

You have no idea if that person is acting in your best interest and in fact, most of the information is shrouded and protected so that you can’t see things like hidden cost and onerous fees and so on and so forth.

One of the largest organizations is TIAA, or TIAA. I’m going to do that all episodes. It stands for Teachers Insurance and Annuity Association. If you look on their website, it calls itself a mission‑based organization with a nonprofit heritage.

In 2010, it became a for‑profit company. Until this time, TIAA has enjoyed a reputation as a selfless steward of its client’s assets for almost a century. It was started in 1918.

Most of TIAA’s clients are educators, researchers, public service employees, and most of them are inexperienced with finances. It’s not a financial industry. They don’t work in a financial world.

They are used to trusting TIAA. The fact that people love TIAA is not an overstatement. Now, their image of this benevolent provider of investment advice is in question.

Several legal filings, including a lawsuit by TIAA employees with money under the company’s management, and a whistleblower complaint by number of former workers, says that it pushes products on to customers that don’t add value and may not be suitable, but generate higher fees.

That would absolutely violate legal standard with the fiduciary. It just can’t happen, it absolutely cannot happen, and yet here we are.

TIAA has 855 financial advisors, and while its consultants do not receive sales commissions, their salespersons are rewarded with bonuses when they steer customers into more expensive in‑house products and services.

The thing about the 403(b) world, managing this is…Remember that you are captive. You can’t take investments and go out into the general world and just pick out any investment that you want outside of there. You have to, have to, have to pick from the menu of stuff that they have.

They have almost $1 trillion of assets under management. They are one of the largest organizations managing people’s money. As I said in the last segment, they have almost five million clients.

Pushing people into higher investments is the world of large investment brokerage houses. JPMorgan Chase, Morgan Stanley have gotten to trouble with aggressive sales practices.

Until recently, TIAA‑CREF has seen as a different animal. These allegations are basically saying that they are steering these people into these more expensive investments that don’t add any particular value.

There has been a filing with the SEC, and in that complaint, this has been reported by the New York Times.

It says that TIAA has been conducting a fraudulent scheme since 2011 to convert unsuspecting retirement plan clients from low fee self‑managed accounts into TIAA‑CREF managed accounts that were more costly. Advisors were pushed to sell proprietary mutual funds to clients.

Remember, in a prior episode, I talked to you about proprietary investment products. I told you that one of the issues with that is that they control the amount of the expenses that are in there.

You can’t necessarily control that with a low expense. The complaint alleges that the more complex a product, the more the employee earned by selling it.

Basically, the complaint said that anybody that didn’t follow that was a processed out. Just on November 9th, The New York Times put an article out basically saying that the New York Attorney General has subpoenaed TIAA seeking document about its sales process.

The subpoena basically raised questions about their selling techniques, it follows on the complaint with the SEC, it basically is following on an investigation.

They’re going to disclose this information, but here’s the thing. I have personally reviewed accounts for people with investments at TIAA. I am in no position to tell you whether or not as an organization they’re doing anything bad.

In reviewing these clients’ accounts, almost to no exclusion, when I reviewed them, I find that they are inexpensive investments relative to what their choices are.

They have been sold variable annuities, they have been sold expensive funds. I looked up the funds and the funds have expense ratios that are way out of whack for what a diversified portfolio should look like.

It’s sad. That’s what I’m going to comment on. It’s really sad because here are these teachers, these people that are like my family.

These people that are my brother, my sister, my parents, my wife who spoke with somebody that looks like they are representing their best interest because they are there on behalf of the school district.

They have those close‑on of legitimacy and they are being sold bad investment products, things that they have no way of knowing whether or not they’re good or bad.

When we come back from this break…I’m upset. I mean you tell that it makes me angry.

Victor:  When we come back from this break, I’m going to talk a little bit more about what the allegations are, how you can protect yourself, and what you can do to look at the investments that you’re being sold, and whether or not they make sense, and then what actions you can take if you’re not happy with that.

Stick with us. We’ll come from this break talking a little bit more about teachers’ retirement and how to protect yourself. We’ll be right back.

 

Victor:  Everybody, welcome back. We’ve been talking about a teacher’s retirement, specifically exploring a new set of allegations against TIAA, formally known as TIAA‑CREF, which is a reputation today to follow and collect, following maybe looking out for their customers. More recently, the allegations where they called it as a question.

Remember that TIAA basically is this organization that manages about $1 trillion representing public school teachers, public employees, administrative, professors, so on and so forth.

Started in 1918, as a non‑for‑profit with a grant by the Carnegie Foundation. Basically, they’re to cover teachers that don’t have traditional pensions. Until 1997, TIAA remained non‑for‑profit.

After 1997, Congress revoked its tax exemption. If you look all over their materials, it will say how they had a non‑profit heritage and a mission‑based organizations, but in the materials that were provided to the New York Times as part of its investigation, we got a couple of things that really make us angry.

Some documents that talk about how their advisor should be probing the clients to get them to act on an investment recommendation. They say, the title one [inaudible 20:11] the probing sequence, making the clients feel the pain. “If they cry, they buy.”

This is stuff that was out in 2012 and real issues about the way that continues on. Here are ways that you can protect yourself going forward. If you’ve got a TIAA‑CREF account, if you set there as part of the people that just absolutely believed in the company and thought they could do no wrong.

You get a statement. You get statement every quarter. You get a statement monthly sometimes. Within that statement, you’re going to have your investments in there. You’re probably going to have some investments basically that are going to be listed as a menu of options.

One of the things you can do is you can go ahead and look at your investment options, and try to figure out whether or not your stuff is expensive.

Most of the investments that you have, some have some code because all of these securities have to be registered with the Securities Exchange Commission. What you can do is, for instance, enter in the mutual fund code into Morningstar.

I have a software program that makes it a little bit easier for me to do that for our clients, and we’ll do that regularly. We put their investment portfolio into, analyze it, and it will pull the stuff out because the software basically goes out and grabs that public information.

If you want a Morningstar and you put in the ticker symbol, you just do a general search with a ticker symbol, you’ll be able to find the expense ratios for that, including things with variable annuities, those are securities that are registered as well. Those ones will have their expense fee schedule.

As you know, if you’ve been listened to for any kind of a length of time, you know that I absolutely hate variable annuities. I think that they are the worst investment product that was ever created, especially anything sold out after the mid‑1990s. There’s a whole academic reason why the structure and the chassis of that change and why pre‑mid 1990s was maybe an OK vehicle, but afterwards, it’s just not good.

One of those reasons is because of the high expense fees that are there. You can look at it mortality and expense ratio. You look all this stuff up and figure out how much the expense is really are to run these.

The expense ratios are really one of those ways that people hide the fees that are generated as revenue for the company. If you look at the filings for TIAA‑CREF, they made $37 billion in revenue. Wait, let’s do that one more time, $37 billion in revenue.

One of the ways why the…how does that…by the way, $2 billion in profit, tell me that this was a non‑for‑profit organization.

$2 billion in profit. In any event, the high expense ratios that are associated with that are definitely one of the ways that they hide the fees that they are generating for putting people’s accounts, and grab that money that should be yours.

Looking up the expense ratios is definitely one way that you can go ahead and look at your investment portfolio and figuring out whether or not you’re being taken advantage of. The other way you can do is look at the sales tactics that were being used before you made a product investment.

Now you’re not tied to being in an investment unless it’s a variable annuity with a surrender charge. Even then, we’re going to have a conversation about that, but you’re not tied to staying in that. You can allocate to that.

If you remember through sales tactic, if they were pushing it, investment is a way to help you protect your legacy, and feeling pain about whether or not you’d have enough to get in retirement.

All those things were manipulative. You may have been taken advantage of when it came to what you bought within your account. There are other issues that are related to being a teacher in retirement. You may have a pension that you have to deal with. You have income taxes, your pension is going to be fixed and it’s not going to increase with the cost of living.

You may have a limited period of time of health insurance, and when that runs out, you may need to make sure that either you are eligible for Medicare, or that you maintain your eligibility with a proper filing.

Lots of stuff to do in retirement beyond the investment, but because this show is really about focusing on the investment part, specifically with respect to the newest allegations against TIAA‑CREF or TIAA, you should be looking at your investment portfolio with them and always examining the expense ratios that are associated with the investments.

The investments themselves these days need not be expensive at all.

You might have a question, “Well, what is expensive?” Well, in my practice, staying away from the actual investments themselves, because it’s improper talk about them on the radio.

If you look at a portfolio that we would design the most expensive portfolio that we have, in other words, it holds all the asset classes that we think are important and a number of mutual funds.

The high expense ratio is 0.33 percent. It’s about a third of a percent annually as charges, it’s the operating expenses for the funds itself, and that’s a weighted based on the amount of. Most of the investment portfolios that we have are less expensive than that, but that’s the most expensive.

Look, you should use that as a barometer. Use my most expensive portfolios of barometer of what should be an average and acceptable. If you’re seeing half a percent, if you’re seeing, God forbid, over one percent in the investments that you have, you’re paying way too much, way too much for the investments that you have.

All of that money ends up being profit to the company. Sales bonuses to the sales agents that do it, maybe commissions that are being split. There’s absolutely no reason to be paying that much in your investments.

This is across the board. By the way, if you just listen to this and you tuned out because it’s for teachers, this is the same case in 401(k)s. It’s the same thing in any investment portfolio that you have.

The TIAA and other organizations like that host 403(b) in their captive, the worst part about that is that until you retire, you really can’t make a proper change to move away. To move away to an independent advisor that’s going to give you the right investment portfolio, help you do your planning and get in, ride the ship.

For a couple of our clients where we are just their planners, we’ve given them an analyzed there, TIAA‑CREF options, and given them a portfolio that would be the least expensive and most diversified for what we have.

That’s a service that we offer as part of our planning services, even when we’re not managing people’s accounts. It does give us an opportunity to put them on the right track and then eventually when they retire, they move their money over.

I haven’t had one single client who started in TIAA‑CREF, keep their money there, after we explored what the options were in the comparative options were, and that’s across the board for most of the captive retirement accounts that we see.

All right. That’s been a lot. Look at your investment portfolio specifically if you are a TIAA‑CREF. Look at the expense ratios that are on that and start to get educated about it because unfortunately the system is not there to protect you.

You’ve got to protect yourself unless you’re working with an independent advisor like somebody in the way that we run things, and that would be the only other option.

All right. That was my rant for the day. [laughs] I want to thank you for listening. If you enjoyed the show, specifically this one is about teacher, share with a teacher friend. If you are a teacher, if you know teacher, if you know somebody that might be in public school system, absolutely share this episode.

You can do that by going to makeitlastradio.com/ep‑33. You can go into the site and you’ll search it. It’ll talk about teachers there.

You can always subscribe by going to iTunes and looking for Make It Last. Hit the subscribe button, and every episode, including this one, and all of the other 30 prior episodes that we have published will be available to you, can listen to them at your leisure. We have them all available on our website.

If you have any ideas for show notes, things that we can do, go ahead and send them to feedback@makeitlastradio.com. Love to hear your comments. If you’d like to share it at iTunes and rate it highly, please. Five stars would be great because it keeps it nice and high on the search results.

That’s it. I want to thank you for listening, again, especially on my rant today. [laughs] I take care a lot about teachers as you can tell me. It’s my family, and these are my [inaudible 28:36] that are around me.

A particular concern for my sister, who works in New York City and works with an organization that has money into [inaudible 28:45] . We’ve been able to advise her. I care about this a lot and I want to see people on the right path.

We’ll be back with you next Saturday morning, 7:30 AM. Every Saturday morning at 7:30 AM. This has been Make It last. This is the show that helps you keep your legal ducks in a row and your financial nest egg secure. There I nailed the tagline. I will see you next Saturday. Bye‑bye.

Announcer:  The following content reflects the opinions of Medina Law Group, LLC and Private Client Capital Group, LLC, and is subject to change at any time without notice.

Content provided herein is for informational purposes only and should not be used or construed as investment or legal advice or a recommendation regarding the purchase or sale of any security or to follow any legal strategy.

There is no guarantee that the strategies, statements, opinions, or forecast provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment.

Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. All investing involves risk, including the potential for loss of principle.

There is no guarantee that any investment plan or strategy will be successful. We recommend that you consult with a professional dedicated to your needs.

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