A good thing about MFOs is that they can deliver almost any service in investment through a vast network of partners. They have access to private deals, newly starting funds, closed hedge funds, and venture capital.
Even though new MIFID rules in Europe made it impossible for regulated investment products, the investment universe is full of private deals and unregulated investment mandates where retrocessions are flourishing. Things are worse outside of the EU in countries like Switzerland or the Middle East, where there is little protection against retrocession practices, even for regulated investment products.
Here are a couple of examples that we see in real life. A Swiss-based MFO advertises an investment to a newly created bond fund. Upon bringing 'start-up capital' to the fund, it receives a 50% retrocession from the fund's fee for a lifetime. Needless to say, these rebates are not passed to the final client, thus, creating a conflict of interest.
A good practice would be to oblige MFO to disclose all retrocessions before the relevant deal or avoid a deal with a retrocession fee structure altogether. It is also not a bad idea to ask them to disclose all retrocessions streams that have been received in the past.