TIAA-CREF, once the gold standard of pension plan providers, has been ceding share in recent years to banks, brokerage firms, and other financial institutions.
Herbert M. Allison Jr., the New York firm's chairman and chief executive officer, said the loss of customers and crucial pieces of business are proof it needs to transform into a more diverse financial services provider while guarding its long-standing place of respect in the industry.
"I think the environment has changed and we have to adapt," Mr. Allison said. "We have offered our retirement plan for 87 years, and it has produced remarkable results, and we are very proud of that. The mission isn't changing, but we have to evolve."
He plans to introduce investment products, add to a new advice platform, and nearly double the company's national office network in an effort to retain and gather new assets. He will also add insurance and cash management products as well as brokerage services that offer advice.
"We are changing to better fulfill our historic mission," Mr. Allison said. "The needs of our clients have changed. They have more products to choose from, so they need more advice. They also need more products from us."
"We are moving quickly to become a more client-centric firm," he added.
The company now has about 40 local offices, up from the 23 it had two years ago, and ultimately plans to expand to 60 or more nationwide, Mr. Allison said. It opened 16 offices last year and will open six this year, he said. TIAA-CREF plans to open an office in Nashville Friday, and next week it plans to add offices in Coralville, Iowa, and Salt Lake City.
Mr. Allison said TIAA-CREF - which has lost 30 percentage points from its near-total share of the higher education and medical pension fund market since the 1980s, when tax law changes brought new competition into these segments - has seen pension assets grow 27.4%, to $330 billion, since he took the helm in November 2002. Market appreciation would account for 60% to 70% of this gain, according to the Investment Company Institute.
Mr. Allison, who joined TIAA-CREF in 2002 after 28 years as an executive at Merrill Lynch & Co., said he wants to rapidly increase the number of advisers and call center employees who work with customers. Two years ago, he said, 78% of TIAA-CREF's employees worked in the back office; now, about 30% of employees work with customers, and eventually he would like to increase that to 50%.
"We are reaching out more and initiating conversations with our customers about their financial needs," Mr. Allison said. "We are seeing a real positive reception from clients."
Brand analysts said TIAA-CREF faces some challenges as it seeks to communicate its new message to potential customers.
During 2004 TIAA-CREF's brand reputation declined slightly in a survey of executives by Corporate Branding LLC that measures familiarity with name, reputation, management, and investment potential.
"It is difficult to keep up with everyone around you," said Robert Passikoff, the president of Brand Keys, a New York branding company. "Once companies start trying to keep up, they will lose sight of what they were and their strengths."
Another challenge, said Mr. Passikoff, is that the company is "perceived as a niche player."
TIAA-CREF understands this and is addressing it, according to Stephanie Cohen Glass, the company's director of corporate media relations. The company "is working with its employees and its customers to evolve and change its [image] as a niche player," she said. It has also begun a television advertising campaign.
The brand's strengths are still evident in its core business, says Charles Wendel, the president of Financial Institutions Consulting, a New York branding and marketing firm. He said TIAA-CREF retains a good reputation with teachers, other educators, and administrators, giving it a strong foundation to build from.
"I don't see them falling off a cliff here," he said.
Mr. Allison said the company decided to begin overhauling its strategy in 2003 after surveying its employees. TIAA-CREF wanted to take an objective look at the company's stance in the marketplace.
Its pedigree - which includes its founding in 1918 by Andrew Carnegie and a customer roster that boasted Albert Einstein - was impeccable. But how does it stand in the first decade of this century? Mr. Allison said the internal review demonstrated a need to change.
"Employees wanted us to make changes and add a wider variety of products and services," he said. "They wanted us to provide advice about investing and retirement strategies in greater depth."
The transition has not been without some image bumps. For example, TIAA-CREF announced in July in a filing with the Securities and Exchange Commission that it would seek shareholder permission to increase fees on 12 institutional funds that are part of its relatively small mutual fund family sold to the public. The purpose of the fees, the company says, is to fund its growth initiatives.
That move netted it some criticism. A column in Forbes cast it as a sign that the company might be abandoning its traditional low-cost, investor-first model.
Mr. Allison disputed that characterization and said this month that the fee increases hardly compromised TIAA-CREF's low-cost philosophy. "Our prices were extremely low; now they are just low," Mr. Allison said. "We are still in the bottom quintile in terms of pricing for our funds. We believe, to stay faithful to our mission of offering the highest-quality products and services, we had to adjust our prices."
"We simply made these adjustments to grow our products and services," he said. "Our assets were growing, but our market share was declining. We were starting to see small annual outflows to our competitors."
Performance has been an issue. Lipper Inc., a fund-tracking company, ranked roughly half of TIAA-CREF's funds (and separate share classes within funds) in the third and fourth quartiles among their peers for the past two years, meaning more than half the competing funds performed better. On the other hand, the three share classes within TIAA's real estate fund were ranked first, second, and second in their category.
"At the end of the day it doesn't matter what else you offer, you have to have good products," said Burton Greenwald, a Philadelphia analyst at BJ Greenwald Associates.
The company is moving toward open architecture on its retirement plan platform - one way to put better-performing products in front of its customers.
Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said TIAA-CREF is a company with a strong franchise and asset base. It is trying to protect those assets, he said. "Really, they are doing everything to protect the base they already have," he said. "They don't want Merrill or Schwab to become the broker of choice and see assets disappearing when people retire. They are trying to retain assets and expand their reach into the household at the same time."
In response, Ms. Glass said, "Other people may speculate about our motives, but this is all about delivering the products and services that [customers] have told us that they want us to provide to them."
Last year TIAA-CREF introduced an advertising and branding campaign, a series of life-cycle funds, and a retirement plan platform, Open Plan Solutions, that bolsters a move toward open architecture. In 2006, the company plans to move the remainder of its 15,000 institutional clients and $350 billion of assets onto the platform.
It started the platform through pilot testing in July 2004 with TIAA-CREF employees. In November the testing moved to Purdue University and in May to the University of Richmond. By yearend TIAA-CREF expects to have moved a dozen institutions a month, or a total of $50 billion, to the new platform.
Mr. Allison said TIAA-CREF would offer advice for the first time on the platform. A partnership with Ibbotson Associates supplies the advice, he said.
The company introduced TIAA-CREF Asset Management in July, a separate wealth management platform that includes advice. This platform has attracted $125 million of assets under management.
"We want to move to more of an open architecture model," Mr. Allison said. "We are already offering some investment products from other firms and anticipate offering more of other companies' products and services. We want to offer a choice of our products and other products."
The company will roll out insurance products in the fall, he said, and add brokerage services with an advice component to the Open Plan Solutions platform.
The company also is offering a series of "bank-like" cash management products that include money market funds, and a debit card, he said, but has no plan to seek deposits or offer other banking features. "We want to focus on what we do best," Mr. Allison said. "We want to focus on our clients, what they need, and what is foremost in their minds."
Mr. Wendel, the consultant, said TIAA-CREF has adopted the model that all financial services firms use for growth - they are filling product gaps and cross-selling services to the customer base. Adding products to develop more firepower is a good start, he said.
"A lot of companies are emphasizing growth, but that is not good enough," Mr. Wendel said. "They have to develop a sales culture to surround this sales structure."
"I think that TIAA-CREF is excellent on service and not so much on sales," he said, "and that is true with most niche providers. They love to serve but are terrible at selling. The company is doing the right thing. They are hiring more aggressive people and making the company more sales-oriented. They are trying to change, but it is a difficult process."
Mr. Allison said TIAA-CREF would initiate products and services and transfer client institutions to the new platform during the next 16 months. The company wants to revolutionize itself without losing the strong market position it developed in the past 87 years.
"We are distinguishing between things that have to change and things that must never change," Mr. Allison said. "We don't want to change the values, ethics, objectivity, and the commitment to clients, but we have to broaden our product line and increase our services. We are working to insure that in years to come we can remain a respected leader in the industry."
