Direct and indirect remuneration of financial service providers

Behind the issue of retrocessions lies, above all, the question of conflicts of interest linked to the remuneration of the service provider. 

For nearly two decades, the Swiss Supreme Court has established a strict body of case law on retrocessions[1] : commissions received from third parties must be reimbursed to the client, unless the client has validly waived its right to restitution. Such a waiver requires informed consent, the requirements for which have gradually been tightened by case law (nature, ranges and methods of calculating retrocessions).

Philipp Fischer Partner, Lenz & Staehelin

Marine Largant Senior Associate, Lenz & Staehelin

Decision of 12 January 2026: a turning point for execution only relationships

In a highly anticipated judgment from 12 January 2026 (4A_149/2025), the Swiss Supreme Court clarified a question that had remained unclear.

In an execution only relationship, the bank is not required to return retrocessions received from third parties.

This decision is based on the fact that, in an execution only relationship, the service provider's lack of decision-making or advisory powers in principle excludes the risk of a conflict of interest, which is the decisive criterion justifying the return of retrocessions. 

Although this case law does not directly concern asset managers (who have a management or advisory relationship with their clients, but not an execution only relationship), it marks a new stage in clarifying the legal regime applicable to retrocessions depending on the type of financial service provided. Above all, it confirms that the obligation to return retrocessions is based on the existence of a risk of a conflict of interest, which must be assessed on a case-by-case basis. 

The rules on conflicts of interest in the financial sector have developed mainly through civil case law in the law of the mandate. They are based on the agent's duty of loyalty towards their client (Art. 398 CO) as well as on the obligation to give an account for their activity and return any benefits received in the course of the agency relationship (Art. 400 CO). These principles have served as the basis for the Swiss Supreme Court's case law on retrocessions. 

In light of this case law and European law, the Financial Services Act (FinSA) subsequently codified into administrative law a specific framework for the management of conflicts of interest based on three principles (Art. 25 FinSA): (i) organisational measures must be put in place to prevent conflicts of interest; (ii) where conflicts cannot be entirely avoided, measures must be put in place to prevent any detriment to the client; (iii) where a detriment cannot be avoided, the conflict of interest must be fully disclosed to the client.

With regard to retrocessions, Art. 26 FinSA provides that they may either be returned to the client or retained by the service provider, provided that the client is expressly informed in advance and waives its right to a refund. 

The table below provides an overview of the current situation, from the perspective of the Swiss Code of Obligations ("CO") and the FinSA. 

It should be noted that the aforementioned decision of the Swiss Supreme Court has no consequences on execution-only relationships entered into with Swiss pension funds. These are subject to specific provisions stipulating that any retrocession or similar financial benefit must be returned to the pension fund.

New challenge: in-house products

Now that the issue of retrocessions in relation to the three types of financial service has been clarified from a civil law and regulatory perspective, attention may turn to a specific case of conflict of interest, namely that which may arise in relation to investment in in-house products. 

These investments particularly concern asset managers who offer collective investment schemes for which they carry out management activities. 

In this context, the asset manager receives both direct remuneration at the client account level for the management/advisory mandate (fixed remuneration on invested assets and/or variable performance fee) and indirect remuneration at the product level for services related to the collective investment scheme (management fees for the analysis and selection of investments; distribution fees for the promotion of the investment)[2] . 

The use of an indirect investment must be justified by the investor's interests, which would not be the case, for example, if the investor could have achieved the same return at lower costs through a direct investment. 

Another example that can be considered is one in which the unit class chosen by the manager is not suited to the investor's profile (investment of pension fund assets in a 'retail' class with higher costs[3]). 

In such cases, the manager must consider whether (and document): 

• The investment was made solely in the client's best interests or (also) in the manager's own interests, i.e. incentivized by the reception of indirect remuneration;

• He has properly informed the client of any conflicts of interest relating to the investment. 

If the asset manager has the option of investing in both selected third-party products and internal group products (mixed approach), it must be able to justify its choice to invest in the latter, which must appear reasonable and justifiable according to a set of objective criteria in comparison with the selection of third-party products that could also have been chosen or recommended[4] . In this context, FINMA Circular 2025/2 requires the establishment of a predefined selection process based on objective criteria. 

If the asset manager invests exclusively or primarily in in-house products (closed architecture), it must inform the client of the characteristics, advantages and disadvantages of this approach, particularly in terms of diversification and costs. The client must therefore understand that its portfolio will consist mainly of in-house products. However, this transparency does not relieve the service provider of its duty of loyalty: even in a closed architecture, the selection of in-house products of insufficient quality or that are disadvantageous to the client could be contrary to the obligations arising from the law of mandate. 

In practice, service providers frequently adopt a so-called semi-open approach, which involves offering only their own products for investment themes where they have in-house products and using third-party products for the remainder.

The use of collective investment schemes in asset management and advisory relationships raises significant issues regarding conflicts of interest and transparency. Whilst these instruments offer diversification benefits for the investor, they also generate layers of additional remuneration that can sometimes be difficult for clients to identify. The combination of direct fees at the mandate level and indirect fees at the product level creates a risk of conflict of interest, and the service provider must be able to demonstrate that the selection of investments is guided first and foremost by the client's best interests. This requires both appropriate organisational measures (objective selection processes, a ban on incentives that encourage conflicts of interest, and segregation of duties) and transparent disclosure to the client.
 

Biographies

Philipp Fischer holds a Bachelor of Laws degree from the University of Geneva (2004) and was admitted to the Geneva Bar (2007). He earned a Master of Laws (LL.M.) from Harvard Law School (2009). After working at law firms in New York, Zurich, and Geneva (2010–2016), he co-founded the firm OBERSON ABELS SA in 2016. As of July 1, 2025, he is a partner at the firm Lenz & Staehelin. He practices banking and finance law, as well as data protection law.

Marine Largant holds a Master’s degree in law from the University of Neuchâtel (2012) and was admitted to the Fribourg Bar (2015), having completed the first part of her studies in France. She worked in the legal department of a major audit firm in Geneva (2016–2019), then as an associate at the law firm OBERSON ABELS SA (2019–2025), specializing in particular in data protection law. She has now joined the firm Lenz & Staehelin, where she serves as a senior associate in the Banking and Finance department.

[1] For an overview of the case law in this area, see ad Art. 26 FinSA, Fischer, N 6 and seq. 

[2] For an overview of the different types of remuneration for financial service providers, see FISCHER, Philipp, MENTHA, Yvar, PITTET, Sébastien, Conflits d'intérêts dans la sélection de placements collectifs de capitaux in Schweizerische Zeitschrift für Wirtschafts- und Finanzmarktrecht, 2025, vol. 97, no. 3, pp. 238–253 (hereinafter "Conflicts of interest in the selection of collective investment schemes"), p. 241. 

[3] Swiss Supreme Court 4A_350/2023 of 21 November 2023, in which the Swiss Supreme Court condemned an asset manager for, notably, having intentionally subscribed to excessively expensive share classes, whereas the service provider would have had the option of subscribing to so-called institutional share classes, which are therefore less expensive. 

[4] Conflicts of interest in the selection of collective investment schemes, p. 245.