Banking
The distributor that lives on retrocessions
“Our network places third-party funds, and retrocessions keep the business going. We need a quality enhancement test that holds up, not a boilerplate paragraph in the policy.”
Inducements and retrocessions under MiFID II
MiFID II Art. 24 determines what your firm can live on: inducements are banned in independent advice and discretionary portfolio management, and allowed under conditions everywhere else. We help you put your model in order and prove it.
Do you know which inducements your firm receives (and is allowed to receive)?
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- MiFID II inducements regime
- Art. 24
- Services where inducements are banned
- 2 services
- PFOF ban
- Reg. 2024/791
- Transposition in Spain
- Law 6/2023
Services
Putting your inducements in order: what we do
From the inventory of third-party payments to the quality enhancement test: the six pieces of work that banks, EAFs and fund managers ask us for under this regime.
Policy
MiFID II inducements policy
We inventory every third-party payment and benefit your firm receives or provides, map each one against MiFID II Art. 24 and draft the policy: services affected, quality enhancement test, client disclosure and governance of new agreements.
Learn more →
Art. 24InventoryQualityGovernance
Model
Independent advice
If you present yourself as independent, third-party inducements cannot stay in your profit and loss account. We design the transition to explicit fees: product range assessed, refunds, contracts and client communication.
Learn more →
FeesRefundsBroad rangeEx ante
DPM
Discretionary portfolio management
In portfolio management the ban is total: whatever comes in from third parties is returned to the client. We review flows, fund share classes and mandates.
Learn more →
BanRefunds
Transparency
Costs and charges
Permitted inducements are disclosed to the client within the costs breakdown, ex ante and ex post. Without that piece, the whole regime falls short.
Learn more →
Ex anteEx post
Conflicts
Conflicts of interest
Being paid by the manufacturer whose products you distribute is the conflict of interest par excellence. Your conflicts policy must recognize it and manage it.
Learn more →
MapMitigation
Outlook
RIS: what’s coming
The EU Retail Investment Strategy is still under negotiation, and inducements are one of its pillars. We tell you what to watch.
Learn more →
In triloguesValue for money
Profiles
Who this regime hurts today
Four business models with the same underlying problem: proving that their third-party revenue fits within MiFID II Art. 24.
EAF
The non-independent EAF that wants to get its house in order
“We charge our clients fees and receive some retrocessions from fund managers. We want to know whether that mix is defensible, what we must disclose and whether it is worth making the leap to independent advice.”
Management company
The SGIIC under pressure from clean share classes
“Independent distributors and managed portfolios are demanding share classes without retrocessions. We have to rework our share class lineup and distribution agreements without breaking anything.”
Wealth
The wealth manager moving to fees
“We want to promote advised portfolios without retrocessions as a commercial advantage. First we need to secure the refunds to clients and make sure no inducement gets lost along the way.”
Before you get paid
Three ways to crash and burn with inducements
Supervisory cases on inducements rarely dispute the rule: they dispute your evidence. These are the most common failures.
Improper retention: receiving retrocessions in services where they are banned—independent advice or discretionary portfolio management—or passing them on late, without traceability or only “net” against your own fees.
An empty quality test: justifying the inducement with generic phrases (“broad range,” “digital tools”) without being able to show the additional and proportionate benefit received by the client who pays for it.
Inducements the client cannot see: third-party payments that appear neither in the ex ante information nor in the costs breakdown. The supervisor will read them as a hidden inducement, and so will the client’s complaint.
| Type of service | Inducements regime | What you must do in practice |
|---|---|---|
| Independent advice | Banned: neither accepted nor retained | Every third-party payment is passed on to the client as soon as possible and with traceability. The revenue model moves to explicit fees and clean share classes. |
| Discretionary portfolio management | Banned: neither accepted nor retained | Same rule as for independent advice: full refund to the client and portfolios built without any remuneration bias. Refund flows are documented. |
| Other services (non-independent advice, RTO, distribution) | Allowed only under conditions | The inducement must enhance the quality of the service to the client, must not prevent you from acting in the client’s best interest and must be clearly disclosed, ex ante and in the costs breakdown. |
Would your revenue model pass the Art. 24 test?
We draw up your firm’s inducements inventory, build (or take apart) the quality enhancement test, sort out refunds and fund share classes, and bring your client disclosures into line. All with evidence ready for the CNMV.
Frequently asked questions
Retrocessions and inducements: what firms ask us
What counts as an inducement under MiFID II?
Any fee, commission or non-monetary benefit that your firm pays to or receives from a third party in connection with the provision of an investment service. A fund manager’s retrocession to the distributor is the classic example, but placement agreements, contributions to events and tools made available to you also count.
The first deliverable of any serious review is a complete inventory of these flows: without it, neither your policy nor your client disclosures can be correct.
When are retrocessions banned?
MiFID II Art. 24 bans them in two services: independent advice and discretionary portfolio management. In both, the firm cannot accept or retain third-party inducements: if it receives any, it must pass them on to the client.
In other services there is no absolute ban but a conditional regime: enhancement of the quality of the service, acting in the client’s best interest and transparent disclosure.
What does it mean that the inducement must “enhance the quality” of the service?
It means that the client who bears the inducement receives an identifiable and proportionate additional benefit in return: for example, access to a broad range that includes third-party products, or monitoring services of real value, on the terms set by the applicable rules.
What does not work is a rhetorical justification. The supervisor expects a documented test for each service and each inducement flow, reviewed periodically, with the reasoning and the evidence of the specific benefit.
How are inducements refunded to the client?
In full and with traceability: the firm identifies what it has received from third parties on positions held by independent advice or discretionary portfolio management clients, transfers it to each client and informs them of it.
The points we always check: a reasonable frequency of payments, a documented allocation method, no “offsetting” against your own fees without transparency, and a complete record of the refund process.
What are clean fund share classes?
Fund share classes with no retrocession to the distributor built in: the client pays the reduced management fee and the firm charges for its service through explicit fees.
They are the natural tool for independent advice and discretionary portfolio management: if you build those portfolios with share classes that pay retrocessions, you create avoidable refunds and doubts about selection bias.
What must I disclose to the client about inducements?
Their existence, nature and amount—or the calculation method when the amount cannot be determined in advance—before the service is provided, and their inclusion in the costs and charges disclosure, both ex ante and in the ex post statement.
A permitted inducement that is not disclosed is no longer defensible: transparency is one of the conditions of the regime, not an extra.
Will Europe ban all retrocessions?
It is under discussion. The Retail Investment Strategy (RIS), proposed in 2023, opened the debate on new restrictions on inducements alongside the value for money and best interest pillars. The Council has already set its position and the trilogues are moving forward, with nothing yet in effect.
Operational prudence: there is no need to anticipate bans that do not exist yet, but you should put your inventory, quality test and transparency in order today. Firms that have this sorted will absorb any outcome at minimal cost.
What evidence does the CNMV expect on this regime?
A complete process that can be reconstructed: a live inventory of inducements, third-party contracts on file, a reasoned quality enhancement test for each service, client disclosures consistent with what is actually received, traceable refunds in the services subject to the ban and governance for approving any new agreement.
We set it up and audit it as part of our MiFID II compliance service.
Practical guide
Putting your firm’s inducements in order, from start to finish
This regime is not fixed with a paragraph in the policy. It is fixed with an inventory, a clear position for each service and a disclosure and refund process that runs on its own.
Inventory and classify
We identify every flow with third parties (received and paid), link each one to specific services and classify it: banned, allowed under conditions or minor non-monetary benefit. There are always surprises at this stage.
Decide on the model and document it
With the map in front of you, you decide which services are declared independent, which fund share classes are used, which inducements are kept with their quality test and which are eliminated or refunded. Everything is put in writing and approved.
Run the process and monitor it
Client disclosures aligned with reality, automated refunds where needed, governance for new agreements and periodic review of the quality test. Internal control samples the process and reports.
Putting your inducements regime in order in 10 steps
- Inventory of flows: list all payments and non-monetary benefits exchanged with third parties, with amounts, contracts and the service they relate to.
- Map by service: match each flow to the type of service (independent advice, DPM, non-independent advice, RTO, distribution) to determine its regime.
- Immediate clean-up: stop, or redirect to refunds, any inducements coming in under services where the rules ban them.
- Refund process: define how you identify, allocate and pay out to the client what you receive from third parties in independent advice and discretionary portfolio management, with a complete record.
- Quality enhancement test: document, for each service and flow, the additional and proportionate benefit the client receives; review the test whenever your offering changes.
- Share class lineup: review which fund share classes you use in each service and migrate to clean share classes where the model requires it.
- Client disclosure: align the ex ante information and the costs and charges breakdown with the inducements actually received, with no generic wording.
- Conflicts of interest: include inducements in the conflicts map and define safeguards against recommendation or selection bias.
- Governance of agreements: make sure no new agreement with third parties is signed without prior classification under the inducements policy.
- Monitoring and RIS: sample the process, fix deviations and follow the Retail Investment Strategy negotiations to anticipate adjustments.
Considering moving your business to fees? See our page on independent advice and, if you are setting up your own vehicle, the one on setting up an EAF.
Free resource · PDF
Download the MiFID II Checklist
The 10 conduct controls the CNMV expects to see working at an EAF or investment firm, with the typical evidence for each one. Ideal as a quarterly self-assessment with your team.
- The 10 essential conduct controls
- The evidence expected for each control
- 5 signs that a control exists only on paper
- Professional PDF · 5 pages · 11 KB
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Working glossary
The vocabulary of inducements
Nine terms worth using precisely when you negotiate with fund managers, draft the policy or answer a request for information.
RetrocessionFlow
The fee that comes back
The part of the product fee that the manufacturer passes on to the distributor or adviser. It is the typical inducement under MiFID II Art. 24.
Its regime depends on the service provided.
InducementConcept
Third-party payments and benefits
Fees, commissions or non-monetary benefits paid to or received from third parties in connection with an investment service.
Includes benefits in kind.
Quality enhancementCondition
The test that justifies the payment
The condition for retaining inducements outside independent advice and DPM: an additional and proportionate benefit for the client, documented.
It is reasoned service by service, not in the abstract.
RefundObligation
Transfer to the client
In independent advice and discretionary portfolio management, what is received from third parties is not retained: it is transferred to the client with traceability.
The payment process is documented.
Clean share classProduct
Funds without retrocessions
A fund share class with no inducement to the distributor built in. The natural basis for independent and managed portfolios.
Reduces refunds and bias.
Minor non-monetary benefitException
Small benefits, with rules
Benefits of minor significance (training, generic information) that are acceptable on the terms set by the rules, with transparency.
It is not a catch-all.
Open architectureModel
A range with third-party products
An offering that includes products from unrelated manufacturers. It is usually part of the quality argument and of the independent model.
It is proven with product range data.
RISOutlook
Retail Investment Strategy
EU package proposed in 2023, now in trilogues, with value for money, best interest and inducements among its pillars. Application still pending.
Draft your policies with this in view.
PFOFBanned
Payment for order flow
Receiving payment from venues or intermediaries for routing client orders to them: banned by Regulation (EU) 2024/791, with a limited transitional period.
Maximum transitional period: June 30, 2026.
Inducements playbook
The five obligations of the regime and how to prove them
Inventory and classification
All flows with third parties identified, linked to a service and classified under MiFID II Art. 24.
Up-to-date inducements register, contracts with manufacturers and minutes of the classification by the compliance function.
Ban in independent advice and DPM
No third-party inducement accepted or retained; anything received is passed on to the client without undue delay.
Documented refund process, statements of payments to clients and reconciliation between amounts received and amounts refunded.
Quality enhancement test
A specific and proportionate justification of the client benefit in each service where inducements are retained, reviewed periodically.
Test report for each service, evidence of the benefit (product range, tools, monitoring) and review schedule.
Client transparency
Existence, nature and amount (or calculation method) disclosed ex ante, and inducements reflected in costs and charges.
Pre-contractual information templates, ex ante and ex post breakdowns and samples of real communications.
Governance and monitoring
No new agreement without prior classification; internal control that samples the process and fixes deviations.
Agreement approval procedure, periodic review reports and a remediation plan with follow-up.
Signs that your inducements would not withstand a request for information
These patterns come up again and again in reviews of distribution and advice. Spot yours before the supervisor does.
- Nobody at the firm can list, today, all the retrocession agreements in force with their amounts for the last financial year.
- You receive retrocessions on funds held in discretionary portfolios or by clients advised on an independent basis.
- The quality enhancement test is a single text, with no data, copied into every annual review.
- The costs breakdown you give clients does not match the inducements shown in your contracts with fund managers.
- Refunds to clients are calculated “by hand” once a year and there is no reconciliation between what is received and what is paid out.
Related decisions
Your revenue model shapes everything else
Deciding whether you live on retrocessions, on fees or on a mix is not just a commercial matter: it determines your status as an adviser, your transparency obligations and your exposure to the European regulatory debate. These pages complete the decision.
Model
Going independent
Broad range, zero inducements retained and explicit fees: what the model requires and what commercial advantage it offers.
See requirements →
FeesRange
Outlook
The RIS, under negotiation
Value for money, benchmarks and inducements: what the Retail Investment Strategy proposes and how to prepare without overreacting.
Follow the file →
TriloguesMiFID III
Ban
PFOF and neobrokers
Payment for order flow now has an expiry date in the EU. What it means for execution platforms and their revenue.
See the impact →
Reg. 2024/791Orders
Insurance
Inducements under the IDD
If you distribute IBIPs or investment-type insurance, the inducements regime follows its own logic under the IDD. Do not mix the two without clear criteria.
Compare regimes →
IBIPsIDD
To apply this at your firm, start with our MiFID II compliance service, review the costs and charges disclosure that underpins transparency under the regime and, if the conflict is structural, the conflicts of interest map. EAFs also have their own services for EAFs page.
Contact
Book a call
Tell us how your firm is paid (retrocessions, fees, distribution fees) and we will review with you what is sustainable under MiFID II and what needs to be redesigned.
The MiFID II Art. 24 inducements regime, explained for firms
Few rules shape the business model of financial distribution as much as the MiFID II inducements regime. Article 24 of Directive 2014/65/EU—transposed in Spain through Law 6/2023 and its implementing rules—starts from a simple idea: third-party payments create a conflict between what is good for the client and what pays the firm. Hence its two-part rule: a ban on accepting and retaining inducements in independent advice and discretionary portfolio management, and conditional permission in all other services, provided that the inducement enhances the quality of the service, does not prevent the firm from acting in the client’s best interest and is clearly disclosed.
Where the total ban applies
In independent advice and discretionary portfolio management, the firm cannot keep fees, commissions or benefits from third parties: whatever it receives must be passed on to the client. The operational consequence is a traceable refund process (identification, allocation, payment and client information) and a clear preference for clean share classes of funds, which avoid creating refunds and dispel any suspicion of bias in product selection.
Where inducements are allowed, and under what conditions
In non-independent advice, reception and transmission of orders or distribution, inducements are acceptable if they pass three filters: they must enhance the quality of the service provided to the client with an additional and proportionate benefit, must not impair the duty to act in the client’s best interest, and must be disclosed in full—existence, nature and amount or calculation method—before the service is provided and within the costs and charges disclosure. The usual weak point is not the payment itself: it is the lack of a documented quality test that justifies it flow by flow.
The open debate: the Retail Investment Strategy
The RIS, proposed by the Commission in 2023, put inducements at the center of the European debate alongside value for money and the best interest test. The Council has approved its position and the trilogues are still moving forward, so the outcome and its timetable are still open. The prudent reading for a firm: do not anticipate bans that do not exist, but reach the finish line with your inventory, quality test and transparency already in order. In parallel, Regulation (EU) 2024/791 has already banned PFOF, with a transitional regime for the Member States that allowed it, limited to June 30, 2026.
How the CNMV supervises it and how we work on it
Inducement reviews reconstruct the entire process: contracts with manufacturers, amounts received, quality enhancement test, information given to the client and refunds in the services subject to the ban. Our work with banks, investment firms (ESI), EAFs and fund managers covers that same ground: inventory and classification of flows, an inducements policy that really works in practice, redesign towards fees or clean share classes when the model calls for it, and preparation of evidence for inspections and requests for information, as part of our MiFID II compliance service.
The regime, piece by piece
Business models and outlook
Official sources
Key legislation, linked to the official text:
- Law 6/2023 of March 17 on Securities Markets and Investment ServicesBOE · consolidated text
- Regulation (EU) 2024/791 of February 28, 2024 amending Regulation (EU) No 600/2014 (MiFIR)EUR-Lex · Official Journal of the EU
- Delegated Regulation (EU) 2017/565 of April 25, 2016 supplementing Directive 2014/65/EU as regards organizational requirements and operating conditions for investment firmsEUR-Lex · Official Journal of the EU
Legislation and links reviewed in .