Retrocession

In private banking and fund distribution, a retrocession is a payment from a fund house or product issuer to the bank, platform or advisor that sold or holds the product for you. It is not the reinsurance term of the same name: here it means part of the fee you pay on a product flows back to whoever recommended it. This entry is for families who hold investments at one or more private banks and want to check what they pay: the answer is in a report your bank already owes you every year.

How retrocessions work

Most investment funds charge an annual management fee inside the product. The fund house keeps part of it and passes a share to the distributor, often for as long as you hold the fund, which is why the same payments are also called trailer fees. Structured products can carry a similar margin, built into the price at issue. In the European Union these payments fall under the MiFID II inducement rules. Where they are disclosed, it is usually in the costs and charges statement or the fund documentation, rarely on the page you read when the recommendation is made.

What are retrocession fees?

Retrocession fees are payments a fund house or product issuer makes to the bank or advisor that placed your money in its product, usually as a share of the product’s annual management fee. You pay them indirectly, through the product’s costs, and they give whoever recommends the product a reason to prefer one fund over another.

Which services let the bank keep retrocessions

Whether a retrocession may stay with the bank depends on the service in your contract, not on the product. MiFID II, the EU directive that governs investment services (Directive 2014/65/EU), sets the rule for each case in Article 24. Our wealth management entry applies the same rules role by role: private banker, wealth manager, independent advisor.

The bank must tell you before it advises whether its advice is independent (Art. 24(4)(a)). If your contract does not say which of the four services you receive, that is the first thing to establish. A discretionary mandate is the service where you hand investment decisions to the bank; the ban on keeping third-party payments is one of the protections that comes with it.

How to find retrocessions in your annual costs and charges report

An EU investment firm that recommended or marketed your products, including the private bank that holds your portfolio, must give you information on all costs and charges at least once a year (MiFID II Art. 24(4)). Delegated Regulation (EU) 2017/565 turns this into an annual ex-post statement: it is owed wherever the bank recommended or marketed the products and has an ongoing relationship with you, and it must be personalised, based on the costs you actually incurred (Art. 50(9)).

Read it in this order:

• Total costs, shown both as a cash amount (in euros for a euro account) and as a percentage (Art. 50(2)). This is the figure to compare from year to year and between banks.
• Service costs and product costs. The statement aggregates what the bank charges for its services and what the products themselves cost to manufacture and manage (Art. 50(2)). Retrocessions usually sit inside the product costs: they come out of the ongoing charges of the funds you hold, so they are often not an extra line on your bill.
• Third-party payments received by the firm, which must be itemised separately (Art. 50(2)). This is where retrocessions appear. An amount here is what product providers paid the bank on your money; a zero only means something if the line is printed.
• The itemised breakdown. The statement may show aggregated figures only, but you are entitled to a breakdown on request (MiFID II Art. 24(4)). It shows the payments product by product.

Three questions that reveal whether your bank keeps retrocessions

Check the third-party payments line in your bank’s annual costs and charges statement. If it is missing, or shows only a total, ask in writing for the itemised breakdown MiFID II entitles you to. Then ask which service you receive: under independent advice or a discretionary mandate the bank may not keep retrocessions; under other services it may, if disclosed.

Send these three questions by email to your private banker and file the replies with the annual statement:

1. Which service do I receive under our contract: independent advice, non-independent advice, a discretionary mandate or execution-only?
2. Please send the itemised breakdown of last year’s costs and charges, including every third-party payment the bank received, in euros, per product.
3. For each fund I hold, is there a share class that pays no retrocession, and if so, why was it not used?

Written answers turn a conversation about trust into a document you can compare across banks and across years.

Why it matters at your size

A private banker can be courteous, competent and still paid by the products in your portfolio. The conflict is structural, not personal. For families with several million to tens of millions, the question is rarely the size of a single payment; it is whether the portfolio was built from what serves the family or from what pays the distributor. A discretionary mandate filled with in-house funds makes the question harder to see, and some multi-family offices carry the same model.

Independence means the advisor is paid by the family, and only by the family. That is the line we drew when Pedro Souto built PWA. PWA designs and runs the operating layer around private wealth, including fee and conflict reviews under Investment & Wealth Architecture and Wealth Planning & Structuring. PWA does not manage money, hold mandates, take commissions or give regulated investment, tax or legal advice. To find out what your current set-up pays and to whom, request a written second opinion.

Sources

• Directive 2014/65/EU (MiFID II), Article 24 (text read on the legislation.gov.uk mirror of the EU version): paragraph 4 on costs and charges information, aggregated, itemised on request and provided at least annually; 4(a) on disclosing whether advice is independent; 7(b) and 8 on the ban on accepting and retaining third-party payments for independent advice and portfolio management; 9 on the conditions for all other services. Checked 2026-10-06.
• Commission Delegated Regulation (EU) 2017/565, Article 50: paragraph 2 on aggregating service and product costs, itemising third-party payments separately and totalling costs in cash and as a percentage; paragraph 9 on the annual, personalised ex-post statement. Checked 2026-10-06.

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This entry is part of PWA’s plain-language glossary of terms used in modern family office architecture.