Retrocessions

Retrocessions (or retros for short) are kickbacks in the financial sector. Typically, asset managers and banks conclude commission agreements with providers of investment products (investment funds, structured products) that guarantee the intermediary asset manager a return whenever his clients purchase products from the manufacturer. This is often the case even if the client has delegated the investment decision and implementation of the portfolio to the asset manager, i.e., if the asset manager purchases such products for the client at its own discretion. Such kickbacks are also referred to as retrocessions.

Which products are affected by retrocessions?

High-margin investment instruments such as active investment funds, hedge funds, and structured products are particularly lucrative.

Through retrocessions, the intermediary party indirectly participates in the often high total expense ratio (TER) and, in the case of investment funds, also in the front-end loads and redemption fees. Front-end loads and redemption fees can account for up to five or six percentage points of the investment amount, which makes them particularly susceptible to such deals.

Passive ETFs are less affected, as they typically have low total expense ratios (TERs) that leave little room for retrocessions. In addition, ETFs are bought and sold directly on the stock exchange, where there are no front-end loads or redemption fees. If the asset management bank also offers its own products, there are no retrocessions, but the conflict of interest is of course the same. Client advisors are usually remunerated on a performance basis, i.e., ultimately according to the profitability for the company.

Note: True Wealth does not receive any kickbacks or retrocessions and does not work with hidden fees.