Once the gold standard for fund governance, TIAA-CREF no longer deserves its designation as the industry's shareholder-friendliest firm, according to Christopher Davis, an analyst with Morningstar in Chicago.

Davis cites the organization's recent management fee hike. After getting a no-vote from shareholders last fall, TIAA-CREF decided to poll them again in January to get it pushed through. "While we once regarded [their] culture as one of the fund industry's best, that's no longer the case," Davis said.

What went wrong? Davis points to the hiring in 2002 of former Merrill Lynch CEO Herb Allison as its new chief executive. It was thought that Allison's grooming as an executive of one of Wall Street's most powerful investment banks wouldn't fit with TIAA-CREF, a not-for-profit money manager for school teachers.

Those fears have been realized, according to Davis.  Allison not only pushed the fee hike through on some funds (word is that if the re-vote failed he had a plan to fold the funds into another group of funds that does charge a higher fee), but he also implemented 12b-1 marketing fees on others. When they kick in next year, Davis offered, those funds will no longer be a bargain.

The independent directors on TIAA-CREF's fund boards should also shoulder some blame, Davis said, as they rubber-stamped the 12b-1 fees.

"Having independence clearly isn't the same thing as asserting it," Davis said.

TIAA-CREF, however, still does many things right, he offered. It doesn't roll out flavor-of-the-week funds that jeopardize the long-term goals of investors, it consistently preaches diversification and holding for the long-term, and hasn't altogether abandoned its well-known role as a corporate activist.

"Despite its admirable attributes," Davis added, "TIAA-CREF is headed in the wrong direction."

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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