The STEP Journal article by Martin Straub quantifies the 'Retro Drag' — the cumulative performance impact of hidden commissions on investor portfolios over 20 years.
Approximately 2,500 independent asset managers (IAMs) in Switzerland manage some CHF 500 billion in private client assets. Annual retrocessions are estimated at approximately CHF 2 billion. A STEP Journal article by Martin Straub calculates what this means for individual investors.
The "Retro Drag" refers to the cumulative loss of return due to retrocessions over the investment period. The numbers are striking:
| Retrocession Rate | Retro Drag (20 Years) | Commentary |
|---|---|---|
| 0.00% | 0.00% | No retrocessions |
| 0.20% | 5.70% | Relatively restrained asset manager |
| 0.40% | 11.20% | Average asset manager |
| 0.60% | 16.48% | IAM pushing funds and structured products |
| 0.80% | 21.56% | IAM with active trading strategy |
| 1.00% | 26.46% | More common than you would think |
A mere 1% annual retrocession rate costs the investor a quarter of their real return over 20 years. As Einstein reportedly said: "Compound interest is the most powerful force in the universe."
A model portfolio of CHF 1,000,000 reveals the mechanics:
Total cost to investor: CHF 20,300 per year. Of this, CHF 10,050 as retrocessions to the asset manager — half of all fees paid.
Beyond the direct cost problem, there is a systematic incentive to overtrade: the more frequently an asset manager turns over an account, the more they earn. Studies consistently show that increased trading frequency further reduces returns.
Anyone who has had an asset management mandate with a Swiss bank or independent asset manager in the past ten years has very likely paid retrocessions. These can be claimed back — with LegaFund at no personal cost risk.
Download the full STEP Journal article as PDF →
Source: Martin Straub, "Retrocessions and undisclosed payments in Swiss asset management", STEP Journal, November 2010.
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Further reading you may find relevant.
The Financial Institutions Act and Financial Services Act fundamentally change the regulatory landscape for trustees in Switzerland — with direct implications for retrocession obligations.
Inflation-linked bonds promise to preserve purchasing power. Yet between the instrument's real yield and the return that reaches the investor lies a cost layer that is rarely disclosed in full.
Retrocessions on fund products create systemic conflicts of interest. An analysis shows how the practice works and why a ban is being debated.
Regulatory notice
This material is for information purposes only and does not constitute investment advice, an offer, or solicitation. It is directed exclusively at qualified investors and is not intended for US persons.
