NEW YORK - A dean among defined contribution plan service providers is enrolling in the financial advice field.
The $200 billion Teachers Insurance and Annuity Association-College Retirement Equities Fund is training its 500 registered representatives to make asset allocation recommendations to its 1.9 million clients.
By the end of the year, the reps - who are encouraged to become certified financial planners - also will give advice on the company's financial offerings by telephone and in person.
The cost is folded into TIAA-CREF's 0.3% asset management fee.
Although executives say the service is targeted at only the fund's college and university market, they won't rule out possibly making it available to other individual investors. Nor have they ruled out recommending other financial firms' offerings.
A new threat
Such moves would pose a significant threat to big companies like Fidelity Investments, Boston.
The program is part of TIAA-CREF's long-term effort to reshape itself in the face of competitive threats.
In addition, Congress last summer stripped the organization of its 80-year-old tax-exempt status, on grounds TIAA-CREF has developed far beyond its original role as a provider of annuities to teachers.
Investment income pours in
Last year alone, TIAA, which provides fixed-payment retirement annuities, pulled in a whopping $6.5 billion in net investment income, up from $6.1 billion the prior year. Meanwhile, CREF, the equity side, had $1.3 billion in net investment income, up from $1.2 billion in 1995. TIAA is the country's third-largest life insurer, while CREF is the investment management arm.
All assets are internally managed, with the flagship CREF variable annuity boasting assets of $99.5 billion. The annuity, tied to stock investments, posted a 24.5% three-year annualized return as of Sept. 30, which matches the performance of the Lipper Variable Growth and Income Index for the same period.
Responding to complaints
A remake TIAA-CREF also has sought to remake itself in response to complaints in the 1980s that it was locked in an ivory tower - out of touch and offering too few investment choices.
"They find themselves in a situation where they need to do more than just open the door and let the monies come to them," says Mark Buccieri, vice president of marketing for the Legend Group.
Based in Palm Beach Gardens, Fla., the Legend Group is a broker dealer that specializes in the 403(b) market for defined-contribution plans offered to employees of non-profits.
TIAA-CREF's huge captive audience includes those working at or retired from 6,100 colleges, universities and related institutions.
Its phone centers in New York and Denver, staffed by registered reps, field 6,500 calls a day. In addition, it operates 11 regional offices.
Options beefed up too
In a largely successful attempt to keep a tight grip on its overwhelming share of the higher education market, the firm not has only added services, but also has beefed up its offerings.
In September it fired back at competitors like Vanguard Group and Fidelity by providing $300 million in seed money to launch a family of no-load mutual funds. It is marketing them to public school employees as well as to its higher-education constituents.
The changes have created a vastly different organization from the tax-exempt, non-profit insurance company founded in 1918 by the Carnegie Foundation for the Advancement of Teaching to provide insurance to college teachers and their families.
And the loss of the fund's tax-exempt status is expected to ratchet up the competitive pressures on it, spurring more aggressive moves into new markets.
TIAA-CREF bills the fledgling advice service as an effort to help clients sort through the maze of financial products introduced in recent years and to serve the growing number of investors who want more than the financial education it has long provided through campus and community seminars.
Willing to cooperate
At the same time, TIAA-CREF has stressed a willingness to cooperate with other investment professionals whose clients have assets with it.
Executives say reps often closely work with outside advisers to determine where TIAA-CREF products best fit into financial plans, and the organization holds seminars for advisers on its products.
"I don't think it's a market-driven move at this late date on our part," says Claire Sheahan, a senior vice president.
"It is something that has always been a hallmark of this organization, but it has evolved as our product mix and services have expanded."
TIAA-CREF formed an advice unit to train reps in 1993, but the effort picked up steam two years ago when it hired Joanne Bickel, a prominent certified financial planner, to develop the program's content.
Under her direction, the fund developed a system for guiding reps through the process of making asset allocation recommendations.
Using a software program that is being installed on TIAA-CREF's computer systems, reps will prepare a profile of individual investors, including their risk tolerance, and help them select from a series of model portfolios.
"You can't give one person one bit of advice and another a bit of advice off the cuff," says Ms. Bickel, explaining the effort to standardize the process of making asset allocation recommendations.
Already, TIAA-CREF is working to expand the service to such areas as investment strategies for retirees.
Crain News Service