The Upside of a Low Interest Rate World

Roger Ferguson, chief executive officer of TIAA, has been rebranding and expanding the retirement plan and insurance provider formerly known as TIAA-CREF. Ferguson purchased mutual fund company Nuveen Investments in 2014 and this year struck deals to buy EverBank Financial and technology firm MyVest.

Now that you’ve agreed to purchase a bank, where else would you like to expand?
At this stage, I think we’re not so focused on expansion. We’ve done quite a bit over the last several years. So I think 2017 for us will be a year of execution against the values and the vision that we’ve talked about.

How will low interest rates shape your investment and life insurance businesses as well as the larger industry in the coming months?
I do expect interest rates to remain relatively low by historical standards, even if central banks start to move off of these zero to negative rates in some places, or very, very low rates here in the U.S. We are very fortunate to have a relatively large exposure to alternative-asset classes—real estate, agriculture, timber. And those have performed well. Secondly, we’ve been lucky enough to find pockets of fixed income that have a little better return. But one has to be very, very prudent.

Do low rates have an upside?
A low interest rate environment has been, relatively speaking, a low default environment. And since we have corporate fixed income, the default rates have been relatively low compared to what one might have modeled otherwise. So there actually are some benefits from a low interest rate environment, assuming it’s associated with moderate growth as it has been here in the U.S.

The federal fiduciary rule for retirement accounts takes effect next year. Much of the financial-services industry opposed it, while you did not. Why?
We agree with the Department of Labor that advice on retirement plans, investment, and distribution should always be in the client’s best interest. We fully support the best-interest standard of the new rule, even as we recognize it contains some provisions that may require us to make some changes in the way we deliver advisory services.