Retrocessions in practice: implications for private banks and clients

Focus and scope#

This note distils the practical implications for private banks and clients that Abegglen draws (explicitly or by operational consequence) from the 2024 retrocessions jurisprudence and its surrounding doctrinal framework. [Abegglen pp. 7, 10–12]

1) Governance: treat retrocessions as a conflict-of-interest control problem#

Abegglen emphasises that even where a payment structure may be permissible, institutions must ensure that potential conflicts of interest are identified and managed so they do not materialise to the client’s detriment; otherwise, liability risk (e.g., damages) can arise. [Abegglen p. 7] He gives concrete operational illustrations: avoid using indirect investments if direct investments would be more advantageous for the client, and avoid selecting more expensive funds merely because they pay higher retrocessions when equivalent retrocession-free or lower‑retrocessions products exist. [Abegglen p. 7] He also points to remuneration governance as a control lever, suggesting that compensation of staff responsible for asset allocation in discretionary mandates should not be product-dependent but instead aligned with portfolio outcomes (e.g., performance). [Abegglen p. 7]

2) Segment the client relationship correctly (wealth management / advice / execution-only / custody)#

Abegglen’s two-step framework implies a foundational operational task: correctly identify the service relationship type before applying surrender/waiver logic. [Abegglen p. 5] He distinguishes (inter alia) discretionary wealth management (mandate law directly applicable), investment advice (mandate law directly applicable), execution-only (commission law with subsidiary mandate law), and pure custody (where he argues the conflict-prevention rationale and even FIDLEG applicability differ). [Abegglen pp. 5, 7] From a controls perspective, this segmentation matters because Abegglen reports that the Federal Supreme Court differentiated the information/waiver approach for wealth management versus advice/execution-only and cautioned against transferring wealth-management concepts “without further reflection”. [Abegglen p. 10]

3) Execution-only is not “risk free”: document routing incentives and edge cases#

While Abegglen’s position is that execution-only typically lacks a discretion space and therefore typically does not create the conflict-risk trigger, he explicitly recognises exceptional execution-only patterns in which conflict potential can arise. [Abegglen p. 7] The example he reports concerns incentives from an executing second broker paying a retrocession to the transmitting financial service provider where the second broker’s commission is passed on to the client as an expense; this may create an incentive to route orders to the broker that pays a kickback. [Abegglen p. 7] Operationally, order-routing arrangements and third-broker remuneration flows should therefore be mapped, assessed, and documented as potential conflict drivers. [Abegglen p. 7]

4) Implement a disclosure pack that courts can accept (and avoid impracticable extremes)#

Abegglen’s account of the February 2024 decision is practically significant: the Federal Supreme Court rejected demands to disclose retrocessions at the level of each fund / each retrocession agreement and accepted industry-standard disclosure as sufficient in the case. [Abegglen p. 10] He describes the accepted disclosure architecture as including bandwidths by product category, with an explanation of calculation basis (investment volume) and periodicity, and—in wealth management—an expression relative to managed assets. [Abegglen pp. 9–10] He also notes the Court’s practical reasoning: per‑fund ex ante disclosure is not feasible and would create an excessive information flood. [Abegglen p. 10]

5) Waiver drafting and AGB management: not “unusual”, potentially retroactive#

Abegglen reports that the Bern Commercial Court reasoned that retrocession waivers are not objectively unusual and can be agreed via AGB global adoption; the Federal Supreme Court followed this. [Abegglen p. 10] He further highlights the Federal Supreme Court’s acceptance of an explicitly retroactive AGB waiver (introduced via repapering) as admissible. [Abegglen p. 11] In practice, this elevates repapering quality: keep clean evidence of client communication, versioning of AGB, and the exact wording of any “future and past” waiver language (and the referenced annexes/factsheets) so that the time-layered disclosure history is reconstructable. [Abegglen p. 11]

6) Client inquiries: treat questions as part of the control environment#

Abegglen reports that in 2024 the Federal Supreme Court acknowledged that clients can request more detailed information and that the exact quantum can be obtained by asking. [Abegglen p. 11] He reads this as an emerging inquiry expectation (“question obligation”), which can become relevant if a client later challenges a waiver by arguing they did not know the exact amount. [Abegglen p. 11] Operational consequence: institutions should have a documented, repeatable process for answering retrocession inquiries (including evidencing when and how inquiries were addressed). [Abegglen p. 11]

7) Align civil-law implementation with supervisory expectations (without “word-for-word” rigidity)#

Abegglen discusses the interplay with supervisory law, including Art. 26 FIDLEG and the parallel insurance-supervision regime under Art. 45b VAG (effective 1 January 2024), as supportive of a conflict-of-interest centred approach. [Abegglen pp. 8–9] In his conclusion, he expresses the hope that FINMA, in its retrocessions oversight, will respect its competence boundaries and apply its supervisory guidance on Art. 26 FIDLEG in line with Federal Supreme Court case law rather than “word for word”. [Abegglen p. 12]

Takeaway#

Abegglen’s contribution points to a pragmatic compliance posture: treat retrocessions as an incentive-risk problem; segment relationship types correctly; implement court-accepted disclosure (bandwidths, basis, periodicity); document waivers (including repapering and retroactivity); and operationalise client inquiry handling—all while noting that execution-only surrender remains unresolved at Supreme Court level. [Abegglen pp. 7, 10–12]

References#

• Abegglen p. 5
• Abegglen p. 7
• Abegglen pp. 8–9
• Abegglen pp. 9–10
• Abegglen p. 10
• Abegglen p. 11
• Abegglen p. 12

Regulatory notice#

This publication is provided for information purposes only and does not constitute legal, tax or investment advice. It is not an offer, solicitation or recommendation. It is directed solely at qualified investors in Switzerland and is not intended for U.S. persons.