Retrocession—a term once reserved for niche corners of the finance world—is now a hot topic for Australian investors and advisers alike. As regulatory reforms and financial transparency take centre stage in 2025, understanding retrocession has never been more important. Whether you’re a retail investor, a financial adviser, or simply curious about how your investment fees are structured, grasping the implications of retrocession could help you make smarter choices and avoid unwelcome surprises.
What is Retrocession? Cutting Through the Jargon
Retrocession refers to the practice where a portion of fees or commissions paid by an investor to a financial product provider (such as a fund manager) are rebated back to the intermediary or adviser who sold the product. Essentially, it’s a kickback or rebate paid for bringing in business. In Australia, retrocessions have historically been used in the wealth management and insurance sectors, allowing advisers to receive ongoing payments for products they recommend to clients.
- Example: An adviser recommends a managed fund to a client. The fund charges the client a management fee. The fund manager then pays a part of that fee back to the adviser as a retrocession.
- Why it matters: This practice can create conflicts of interest if advisers are incentivised to recommend products that pay higher retrocessions, rather than those that best suit the client.
2025 Regulatory Landscape: New Rules and Greater Scrutiny
The debate around retrocessions has intensified in 2025, following global movements towards fee transparency and tighter regulation. The Australian Securities and Investments Commission (ASIC) has been vocal about its concerns, echoing actions seen in the UK and EU where retrocessions are largely banned.
Key developments this year include:
- ASIC’s 2025 reforms: New requirements mandate clear disclosure of all forms of remuneration, including retrocessions, in client agreements and statements of advice.
- Industry-wide reviews: Ongoing investigations into historical retrocession payments, with penalties for non-compliance and failure to disclose conflicts of interest.
- Push for transparency: Major banks and wealth managers have begun proactively phasing out retrocession arrangements to align with consumer expectations and regulatory pressures.
These changes reflect a broader trend towards fee-for-service models, where advisers charge clients directly for advice rather than relying on commissions or rebates from product providers.
How Retrocession Affects Investors and Advisers
The shift away from retrocessions is reshaping the financial advice landscape. Here’s what it means for different players:
- For investors: Increased transparency means you’re more likely to know exactly what you’re paying for advice and product management. However, the loss of retrocession revenue may push some advisers to raise their direct fees.
- For advisers: Those who relied heavily on retrocessions are reassessing their business models. Many are moving to flat-fee or hourly-rate structures, while others are exploring value-added services to justify costs.
- For product providers: Fund managers and insurers are reviewing their distribution strategies, often offering lower product fees in the absence of retrocession payments.
Real-world example: In early 2025, a large Australian superannuation fund announced the elimination of all retrocession arrangements with external advisers, resulting in a reduction of product fees for members and a migration of advisers to transparent, client-paid fee models.
What Should Investors Do Next?
As an investor, now is the time to:
- Review your fee disclosures: Check your most recent statements or agreements for any mention of retrocessions or third-party payments.
- Ask questions: Don’t hesitate to ask your adviser how they are remunerated, and whether they receive any payments from product providers.
- Compare advice models: Understand the difference between commission-based and fee-for-service advice. The latter is increasingly becoming the norm in Australia.
- Stay informed: Monitor ASIC announcements and industry news for further updates, as the regulatory environment continues to evolve.
The Bottom Line: Retrocession’s Decline Signals a New Era
Retrocession may be on the way out, but its legacy is driving a transformation in how Australians pay for financial advice. With increased scrutiny and regulatory change in 2025, transparency and trust are now at the heart of the adviser-investor relationship. By understanding retrocession and its implications, you can make more confident decisions about who you work with—and how much you pay for financial expertise.
