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Reviewed by Nov 11, 2021| Updated on
Retrocessions points to the trailer, kickback, or finders fees that are to be paid by the portfolio managers to the distributors or advisers. The payments of this sort are made without the knowledge of the investors and are made from the amount that they are going to invest.
The retrocession is one of the most denounced arrangements of fee-sharing in the field of finance as the funds are going to flow back to the marketers in exchange for the efforts they have put in order to advertise a specific product. Hence, this is going to raise doubts over the ethicality of the advisor, whether or not if they are going to advise products without being impartial.
This fee-sharing deal is seen to encourage advisors to pitch funds or other financial products as they are going to get a fee in exchange. The advisor, not analysing if that product is beneficial for their client, will go onto insist them on investing.
For instance, banks typically pay the retrocession fee to the portfolio advisors that partner with them. The banks will, in turn, pay a fee or compensation to the advisor for helping them get a business of some sort. Banks are also going to receive the fee of retrocession from third parties, such as mutual funds for promoting and distributing particular investment products.
With continuous changes in the association of the service providers, the financial advisors may enjoy retrocession fee, which is going to benefit themself, and their clients may not necessarily benefit.