Saints and Sinners

Sometimes the people and organizations we look up to turn out to have the same flaws as the rest of us.

“The Reward of St. Sebastian.” Source: Wikipedia

It’s natural to want to admire others, to look for role models and examples that we can learn from. Most of us grew up admiring parents, teachers, coaches, and other adults who looked out for us. The same holds for organizations. Some seem to stand out as models of selfless service, and we idolize them.

So it can come as a shock when it turns out they’re subject to the same frailties and failings as everyone else. Such is the case with TIAA, formerly known as TIAA-CREF, originally the “Teachers Insurance and Annuity Association.” Founded almost 100 years ago with a $1 million grant from the Carnegie Foundation, TIAA initially grew by selling annuities to teachers and college professors that provided a steady stream of retirement income. In the early 1900s, most teachers didn’t have pensions.

Source: TIAA

In 1997 Congress revoked TIAA’s nonprofit status, noting that other mutual insurance companies pay taxes. TIAA then set up a Registered Investment Advisor and Wealth Management group to provide managed accounts for clients. They’re now one of the largest money managers in the world, with over $1 trillion in assets. But they still market themselves as a different kind of manager, a mission-based organization with a nonprofit heritage. Many of their customers – educators and public service workers – revere the organization.

But a whistleblower complaint and an investigation by the New York Attorney General may tarnish that halo. While the company claims not to pay sales commissions, they do pay bonuses based on sales goals. Advisors are pushed to put investors into proprietary mutual funds and complex annuities. The more complex products generate higher bonusses. Those who failed to meet their sales goals are “managed out” of the organization.

The complaint also refers to ways that associates steer retirees out of institutional plans, which have fairly low administrative costs, into managed accounts that charge more standard fees. There may be good reasons to move from a collective to an individual account, but the costs and benefits need to be explained – all the costs, including those embedded in the mutual funds that are used. If advisors don’t make those clear, they’re not doing their job.

“The Fall of Man” by Cranach. Source: Wikipedia

There’s a moment most of us have growing up, when we realize that our heroes are still human, that the folks we idealized aren’t as ideal as we once thought. The financial world can be treacherous, filled with biased advice, hidden costs, and onerous fees. Temptation is as old as humanity, and no one is immune. Anyone who says otherwise is probably selling something.

Douglas R. Tengdin, CFA

By |2017-11-16T07:26:34-04:00November 16th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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