TIAA Whistle Blowers and Me: What It Means to You


Since TIAA-CREF stock funds are generally higher in expense than other low-cost options, conducted studies have important implications to clients.

TIAA, investing, personal finance, returns

Several studies have shown that there is a direct inverse correlation between expense and return.

My Story

Sometime around the 2008 financial crises, I wanted a Monte Carlo simulation on the personal investments of my husband and myself. This computer program measures risk in a portfolio under a series of hypothetical conditions. It helps determine likely outcomes as well as not so likely, but possible. Since I didn’t have the software, I sought out a person whom I thought would be relatively neutral and not push me to invest with his company after the report was produced.

I turned to TIAA CREF (now known only by TIAA) which seemed ideal for the task. TIAA is the Teachers Insurance and Annuity Association — College Retirement Equities Fund. It provides financial services for academic, research, medical, cultural and government industries.

The TIAA Representative and Me

The session between the TIAA representative and I went well, and he produced the Monte Carlo simulation as requested. For me, I expected that to be the end of our association — wrong. This man was impossible to shed.

Though it is true, I was appreciative for what he did, certainly I was under no obligation to him or his firm because of it. It seemed, however, he felt differently — it was as though I was being stalked. For two years, he called and e-mailed me, though I didn’t return either kind of message. I would guess he was hoping persistence would work — it didn’t. From my point of view, this man either didn’t have enough business, or he was desperate.

TIAA in the News

Just recently, I have reason to think some of it was the latter. New reports from insiders allege the company lost institutional business and then leaned on its personal advisors to make up the difference. They were asked to sell high cost managed accounts. In addition, the fees associated with the funds or annuities into which the money would be directed were charged as well, which means the customer paid twice.

Before the Whistle Blowers, there was my Column in PMD

For me, this new news was old news. As it turns out, I had written about TIAA costs for Physician’s Money Digest in 2009. In that column, I was already concerned about their fees which I knew because I had been on faculty at Indiana University Medical School and invested with them through the institution.

After being trained in the financial industry, however, I learned their structure wasn’t such a good deal and wrote about it. The column was entitled, “TIAA-CREF: Not for Everyone.” A segment is below —reading it, I believe, is helpful. It was published well before the whistle blowers brought this into light.

“Though TIAA CREF is low cost compared to many options, its charges are more than others in the low-cost category. For example, the CREF money market expense ratio is 0.47, almost one-half of a percent. Compare this to Vanguard’s Money Market Reserves (VMMXX) with an expense ratio of 0.28%. The return of each reflects the financial outlay from the client to the fund. TIAA-CREF’s yield as of 9/22/09 was .01%. Vanguard was 21 times that at 0.21%, as of the same date.

This relationship of higher expense and lower returns doesn’t stop at money markets. It permeates stock funds as well. Several studies have shown that there is a direct inverse correlation between expense and return.

Lower Expense Ratio Mutual Funds Outperform

Average Annual Pre-Tax Return (%)

< 0.65 (low expense)

12.7 (more return)



1.60 (high expense)

10.0 (less return)

Source: Stefan Sharkansy, "Risk Without Reward," July 2002,; *Data for larger capitalization US mutual funds

Since TIAA-CREF stock funds are generally higher in expense than other low-cost options (just like the money fund), studies like the above have important implications to the TIAA-CREF client. In general, a lower expense ratio means higher returns. For example, if an investor puts $10,000.00 in a mutual fund that has an expense ratio of 1.5% and the return is 10%, he has $281,000 in 40 years. However, if the expense ratio is 0.2%, the investor has $421,000 at the end of the same time frame. This difference of $140,000 is what the higher expense mutual fund puts into its pocket instead of the investor.”

Some Conclusions

So, as the title of my 2009 article suggests, TIAA is not for everyone. Those who are invested in it may want to examine what they are receiving for their money.

As to TIAA itself, the recent whistle blower accusations makes more and more investors aware of its alleged policies. If there is a sufficient transfer of accounts from TIAA because of it, the pressure on the company to be more transparent and lower fees could effect a change, which would be good for investors.


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