In the investment industry, as well as in insurance and real estate, investors have direct contact with a figure called a product distributor, which can be a brokerage, investment platform, bank (which has a brokerage and platform) and investment advisors (known as independent investment agents). Like any intermediation, these agents are paid to distribute to the client the products that the industry develops, manages and makes available.
The remuneration of the distributor and its employees and partners, however, varies from product to product. An investment fund does not provide the same return to the distributor as a COE (Certificate of Structured Transactions) or a government bond. In the case of stocks, if the person does everything on their own through the home broker, it is a price, but if they ask for help from a professional, it is much more expensive.
Taking advantage of the new rules on remuneration transparency in the distribution of Anbima (Brazilian Association of Financial and Capital Market Entities) were finally published and became effective, the Value Invests researched, among the documents released by the segment agents, how remuneration is charged in each class of product and potential conflicts of interest.
However, here’s a caveat: those who expected to see percentages and details got to see ships, at least for the time being. The rule only asks for the “how” and not the “how much” is charged from the investor, average. It may be that this advance will be requested next year, as Anbima itself told the Value Invests.
See each investment product and how brokerages, banking platform are remunerated for distribution:
In general, there is no commission on the part of banks, platforms and brokers for the distribution of Treasury bonds (Treasury Direct).
- CDB, LCI, LCA, LF and savings
For fixed income products, for example, these agents are paid by “spreads” in sales of CDB (Bank Deposit Certificate), savings, (Real Estate Credit Bill), LCA (Agribusiness Credit Bill), Financial Bill (LF).
These spreads are the difference between the cost of raising these products (income paid to the investor by the financial institution) and the revenue obtained by the institution/brokerage/platform, with the allocation of these amounts.
Within private credit, there are three main types of securities: CRI (Certificate of Real Estate Receivables), Certificate of Agribusiness Receivables (CRA) and debentures. These securities are corporate debt, structured by securitization companies or by the companies themselves and sold in the primary (public offering) or secondary (the “second-hand” market).
In case of public offerings of these securities of corporate debt, the institution/platform/broker is remunerated by a commission, a percentage of the total volume distributed.
Already in the secondary market, the institution’s remuneration comes from the difference between the sale price and the purchase price of the security (spread).
Variable Income – Stock Exchange
The products traded on B3 and the BMF division, of the futures market (Shares, Options, Mini-dollar, Mini-Index, Dollar Contract, Ibovespa Contract, Donor Rent, Borrower Rent, Share Term, Margin Account, BDR, ETF) are targeted by brokerage fee, which varies by product and volume traded.
The COE (Certificate of Structured Transactions) has a portion of derivatives in its structure to leverage the result for the client and the Distributor is remunerated for a portion of the purchase price of this derivative.
- Investment funds in general
The remuneration of financial institutions, platforms and brokers for the distribution of investment funds ccorresponds to a percentage of the management fee on the financial volumes and a percentage of the performance fee linked to what exceeds the benchmark (“benchmark”) of the distributed funds. When there is no performance fee charged by the manager, the distributor does not receive this percentage either. This slice that remains with the distributor is called “rebate”.
Intermediation and structuring in public offerings
The remuneration of public offerings corresponds to the distribution fee paid by the customer, which represents a percentage of the value acquired, as well as the structuring fee, which may reflect a percentage of the offer amount paid by the issuer or at a pre-established fixed amount.
In detail, the remuneration is different for each type of performance of the broker/platform/bank:
Distributor: the remuneration is variable and totally dependent on distributor performance. This percentage may vary. according to the total distributed by it to investors (in this case, those who bought the paper)
Coordinator: the remuneration is negotiated with the issuer of the offer and is usually tied to the total success of the operation., being a percentage of the total volume of the offer, which may vary according to the type of offer, expected volume, complexity of the operation, etc.
In some cases a fixed minimum remuneration amount is also provided., depending on the complexity of the offer and the estimated time required for its completion.
Intermediation of operations in the secondary market: the remuneration corresponds to the brokerage fee or through spread.
Distribution of structured transactions: the remuneration corresponds to the distribution fee.
The companies make it clear in the documents that the investment recommendation is based on the client’s risk profile (calculated from the question of “suitability”) and based on your recommended portfolios, which are made by the allocation team and used at the end of the distribution.
Banks say, for example, that to avoid conflicts of interest, they do not impose targets on professionals in the distribution of investment products, and that the revenue generated by a given product does not influence the offer of products. There are those who reinforce (case of the Itaú, for example) that “in the remuneration of the commercial teams there is a relevant impact of factors such as customer satisfaction and the profitability of their investment portfolio”.
Large institutions have direct employees – street branch managers, private banking, and also offer investment structuring and portfolio management services for the more affluent (wealth), who have other collection models.
At brokerages and investment platforms, in addition to their own remuneration, some have employees who work on the trading desk (brokers) and in the customer service area, who are paid a fixed salary and, eventually, a variable (this is not clear in the documents), they also need to pay third-party distributors, investment advisors (AAI) and other institutions.
As the companies themselves make clear in the document, the remuneration of professionals directly involved in the sales effort varies by product distributed investment and/or distributed investment product modality.
They also reinforce that, if the company also provides investment fund management, trust administration and distribution services, there is independence between the areas and physical distance, in addition to segregation of functions, activities and teams. The remuneration of fund management professionals is different and disconnected from product distribution.
Generally, in all cases, the main company – bank, brokerage or platform – receives all the remuneration and then passes on the earnings, following rules that they themselves are free to establish. This applies both to products managed by the companies themselves or by third parties, as well as independent managers or other issuers of securities, for example.
— Photo: Getty Images