What are retrocessions?

Asset managers and banks typically conclude commission agreements with providers of investment products (investment funds, structured products) that guarantee the asset manager a kickback whenever his clients buy products from the manufacturer. This is often the case even if the client has delegated the investment decision and the implementation of the portfolio to the asset manager, i.e. if the asset manager himself buys such products for the client at his own discretion. Such kickbacks are also known 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 indirectly participates in the often high total expense ratio (TER) and, in the case of investment funds, also in the issue surcharges and redemption commissions. Front-end loads and redemption commissions can easily 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 (TER), which leave little room for retrocessions. In addition, ETFs are bought and sold directly on the stock exchange, where there are no front-end loads and 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 generally remunerated on a performance-related basis, i.e. ultimately according to profitability for the company.

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