The Opaque Practice of Swiss Banks and Asset Managers regarding Retrocessions

A central aspect of the business practices of Swiss banks and asset managers concerns retrocessions, which, simply explained, describe commissions that banks or asset managers receive from third parties for fulfilling financial services for the investor. For some time now, this business model has drawn increasing criticism on both national and international levels. However, in practice, Swiss banks and asset managers continue to collect and unjustly withhold retrocessions.

Retrocessions are quite common in the financial sector and are often considered hidden "kickbacks." Yet, banks' duty to transparently inform their clients about this additional source of income and to effectively allow them to waive it is largely neglected. Various court decisions confirm that retrocessions received in the context of asset management and investment advisory mandates must be returned to the client. Even in the case of execution-only relationships, where the client gives direct instructions for financial transactions, cantonal courts have repeatedly affirmed the duty of disclosure.

Although the obligation to return retrocessions is fundamentally affirmative, the client can waive their claim if the Federal Supreme Court's requirements for such a prior waiver are met. Besides truthful information from which a corresponding intent to waive can be derived, the Federal Supreme Court requires disclosure of the magnitude in a percentage range of the managed assets as well as the disclosure of the key points (Eckwerte) of existing retrocession agreements with third parties. These criteria must be cumulatively fulfilled and create the necessary transparency for the client to grasp the total costs of their mandate and recognize the specific incentive structures.

However, practice shows that the terms and conditions of Swiss banks and asset managers regarding retrocessions are often vaguely and opaquely formulated. The required transparency towards clients is often insufficient, and compensations, which are not directly debited from the client but obtained through indirect means and other sources, are rarely clearly and explicitly disclosed in documents. This, in turn, means that investors are very likely to have a claim for reimbursement.

This opaque practice of Swiss banks and asset managers concerning retrocessions raises serious questions regarding their transparency, integrity, and customer orientation.