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Brokerage Firm Penalized for Violations of Regulation Best Interest


The Securities and Exchange Commission (SEC) has imposed penalties on a brokerage firm for alleged violations of Regulation Best Interest (Reg BI).

The subsidiary broker-dealer of Teachers Insurance and Annuity Association of America (TIAA) has agreed to pay over $2.2 million to settle charges related to its failure to comply with Reg BI. These charges stem from recommendations made to retail customers regarding the opening of a TIAA Individual Retirement Account (IRA), as announced by the SEC on Friday.

As per the SEC, the broker-dealer provided TIAA IRA customers with two investment options: a core menu of pre-selected investments and an optional brokerage window. It was discovered that certain mutual funds and other investments were available through both options, but with varying share classes and costs.

According to the SEC order, certain TIAA customers who invested in specific mutual funds incurred higher expenses compared to those who opted for lower-cost share classes within the brokerage window. The firm failed to disclose the availability of more cost-effective alternatives and neglected to disclose the associated conflict of interest, according to the SEC.

Interestingly, more than 94% of TIAA IRA customers solely invested through the core menu, resulting in nearly 6,000 customers collectively paying over $900,000 in expenses. These expenses could have been avoided had they purchased substantially equivalent funds through the brokerage window, as highlighted by the SEC.

Alleged Reg BI Violations Lead to Settlement with TIAA

The Securities and Exchange Commission (SEC) has announced that TIAA-CREF Individual & Institutional Services, a subsidiary of TIAA, has settled allegations of Reg BI violations. The violations took place between June 2020 and November 2021, according to the SEC.

Under the settlement, TIAA-CREF will pay a civil monetary penalty of $1.25 million and will also surrender $936,714 in profits from the policy, including interest of $103,424. It’s worth noting that TIAA-CREF consented to the SEC order without admitting or denying the findings.

Reg BI, or Regulation Best Interest, was implemented by the SEC in 2020 with the aim of safeguarding retail investors. It requires broker-dealers to act in the best interest of their customers when making recommendations. The SEC’s enforcement action against TIAA-CREF demonstrates its dedication to upholding compliance in this regard.

Thomas Smith, Associate Regional Director in the SEC’s New York Regional Office, emphasized the significance of Reg BI, stating, “Reg BI protects retail investors by requiring broker-dealers to act in the best interest of their customers when making recommendations, and today‚Äôs action demonstrates our commitment to ensuring compliance.”

In response to the settlement, a TIAA spokesperson indicated that the firm is pleased to resolve the matter and has taken steps to enhance its processes and procedures in accordance with the SEC’s concerns.

The enforcement of Reg BI has been a focal point for both the SEC and Finra, a self-regulatory organization responsible for overseeing broker-dealers. As the SEC continues to monitor compliance with Reg BI, it is clear that adherence to these standards is crucial for industry participants.

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