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Typically, asset managers and banks enter into commission agreements with producers of investment products (investment funds, structured products), which guarantee the asset manager acting as intermediary kickbacks each time its clients buy the products of the producer. This happens even if the client has delegated the investment decision and portfolio implementation to the asset manager, i.e., the asset manager buys such products for the customer at its own discretion. These types of kickbacks are also referred to as retrocession fees or inducements.
High-margin investment instruments, such as actively managed investment funds, hedge funds, and structured products, are particularly lucrative. Through retrocession fees, the intermediary indirectly shares in the total expense ratio (TER), which is often high, and in the case of investment funds, it also gets a cut of the frontend or backend load. Frontend and backend loads can easily amount to up to five or six percent of the total amount invested, and this makes them particularly susceptible to these types of deals.
Passively managed ETFs are less susceptible, because they typically have a lower total expense ratio (TER), which in turn provides little scope for retrocession fees. What is more, ETFs are bought and sold directly on a stock exchange, where frontend or backend loads do not exist. Although no retrocession fees apply if the bank managing the assets also offers its own products, the conflict of interest remains the same. Client advisers are often remunerated on a performance basis, i.e., ultimately on the basis of their profitability for the company.
The problem with retrocession fees is that they prevent asset managers from making their investment decisions independently and in the client's interest. For this reason, we do not accept retrocession fees and do not offer our own products.
True Wealth makes investment decisions independently of banks and securities dealers (brokers). We make our selections based on one aspect only: what is best for your assets.
Remark: The Basellandschaftliche Kantonalbank holds a minority equity stake in True Wealth. True Wealth makes its investment decisions fully independently, however.