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TIAA-CREF in Cross-Sell Deal as 529 Market Share Falls


TIAA-CREF's deal to acquire a provider of planned-giving services to colleges and other not-for-profit entities may help it improve cross-selling to institutional clients, analysts said, as its market share dwindles in the college savings market. Analysts said the New York company may be focusing on institutional customers because it has had a difficult time retaining share with retail customers saving for college. TIAA-CREF's 529 college savings business has lost three states and nearly half its market share in the past two years.

TIAA-CREF was one of the early entrants in the college savings market and has been managing programs since starting its first in New York, in 1998. But since 2003, TIAA-CREF's share of this market has slipped from 15.4% to 8.46%, according to Morningstar of Chicago. It still manages 11 states' programs but has not begun a new one since Georgia's in April 2002.

Paul Van Heest, vice president of institutional product management at TIAA-CREF, said the announcement late last month of a deal to buy Kaspick of Redwood Shores, Calif., had nothing to do with its college savings business. "This was a really unique opportunity to add additional services for our core market and to provide additional value to our customers," he said. "It really had nothing to do with the losses in our 529 business."

TIAA-CREF lost its status as 529 program manager in New York in 2003, Missouri in January and California in April. In both New York and Missouri, TIAA-CREF was outbid by groups led by Upromise Investments, a loyalty card company headquartered in Boston with a college savings business that was acquired last month by SLM Corp. of Reston Va., the student loan giant known as Sallie Mae.

TIAA-CREF lost New York because Upromise offered better pricing, Missouri because Upromise offered lower fees and more investment options, and California because Fidelity Investments offered more investment options, analysts said. TIAA-CREF's contract in California expires in October, and the company will then lose $2.081 billion of 529 assets to Fidelity.

According to Morningstar data as of May 31, TIAA-CREF, which was the largest provider of 529 plans in 2003, had fallen to fifth place, with $6.28 billion of assets, including California's $2 billion. It trailed American Funds ($15.5 billion), Fidelity ($8.1 billion), Vanguard ($7.3 billion) and AllianceBernstein ($6.8 billion).

Pro forma at May 31, if the California assets were deducted, TIAA-CREF would remain No. 5, with a 5.66% market share, just ahead of No. 6, Merrill Lynch, which had $4.01 billion of 529 program assets and a 5.43% share.

Joe Hurley, the founder of the college savings plan website Savingforcollege.com of Pittsford, N.Y., said TIAA-CREF's deal for Kaspick, the planned-giving company, is not meant to distance it from the 529 program business.

"I don't see any evidence that they are turning away from 529s, but they have lost a couple bids and a couple major states," he said. "I think they are still looking for new management opportunities and they are still active in making changes to some of their existing programs, including adding new investment options in some of their programs. But clearly this is not their only focus."

Van Heest said TIAA-CREF wants to use Kaspick to offer more products to its roster of institutional customers. "The potential exists for more cross-selling," he said. "Many of our customers are already customers of Kaspick today. There is some great overlap here. We want to work to find the best way to serve our clients and provide more to clients gradually over time."

Kaspick, which has $3 billion of assets under management, is to operate as a subsidiary of TIAA-CREF. The deal is expected to close by Sept. 30.

Scott Kaspick, the co-chairman and managing director of Kaspick, said planned giving is a rather esoteric corner of the financial services market. His company supplies an array of services that create value for customers, he said.

"We have gotten a lot of great responses [to the deal] from our clients already," he said, "and we feel there is a lot of potential for growth."

Hurley said TIAA-CREF is wise to shore up its other lines of institutional business because it may lose more 529 assets. It manages Michigan's 529 college savings plan, but the $445.2 million-asset program is out for bid.

TIAA-CREF is not the only investment manager feeling pressure in the college savings market, however. In the past two years, nine states have changed providers, and five of these changes came in the wake of New York Attorney General Eliot Spitzer's investigations of mutual fund trading abuses.

Investment managers such as Upromise, OppenheimerFunds and Union Bank and Trust of Lincoln, Neb., are bidding feverishly for states' 529 programs as they come up for renewal.

"There will be a lot of competition for states as programs go up for bid over the next couple of years," Hurley said.

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