A retrocession is a kickback that “asset managers may be skimming off investments. While little known in the US, the practice has been an open secret in European private banking for decades—and it recently surfaced as a perk that Zurich-based Credit Suisse may have received from Bernie Madoff ’s feeder funds.
“How does this work? Essentially, bankers get rebates from fund managers they park money with—and pocket the commissions instead of passing the savings on to clients. Retrocessions typically match 25% of a fund’s management fee, says British hedge fund manager Fabien Pictet. So on a $2 billion investment, a management fee of 2%, or $40 million, would yield a $10 million kickback.”

1. A retrocession is like getting a sales commission and thus should be allowed.
2. This is another way that bankers are taking advantage of investors. Commissions should be passed to investors and not kept by bankers. This practice should be against the law.
3. Bankers should be required to disclose this issue to potential investors and then let individuals decide for themselves. A person may be okay with this practice because they have a long-term relationship with the banker.
4. Invent other options.