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What is a Commission Recapture?

Malcolm Tatum
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Updated: May 16, 2024
Views: 27,786
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Commission recaptures are provisions that can allow investors to regain some of the resources that were paid out in the form of transaction costs or commissions on various investment activities. This represents a way for the investor to recapture a portion of those funds and have them applied directly to a pension plan or a mutual fund account. From this perspective, a commission recapture helps to grow the investment by making more resources available for investment.

The exact process that is used to recapture funds will vary from one situation to another. Depending on location and governmental regulations regarding investment trading, the brokerage that manages the pensions or mutual funds involved may have some input in whether or not to offer the option of a commission recapture. When the recapture is offered, there are usually conditions that must be complied with in order to earn the commission recapture.

Some firms may choose to extend the courtesy of a commission recapture based on longevity of the working relationship between the brokerage and the client. For example, a client who remains with the firm for a period of ten years may be rewarded with a rebate of a percentage of commission fees charged during those years. While the recapture will not equal the actual commission charges, the rebate will at least partially cover those previous fees.

Other factors may also apply when it comes to a commission recapture. The client may be required to reach a certain level of resources in his or her account in order to become eligible for a recapture. In other instances, the client may be required to invest in certain types of stocks or securities in order to qualify for a commission recapture.

The exact terms for earning a commission recapture will vary. Investors would be well advised to discuss the matter with their broker and determine if this is possible with the account. If so, the investor can then obtain information about how to qualify for a recapture and determine if it is in his or her best interests to order the investment strategy to accommodate those qualifications.

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Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By HonorLamb — On Oct 30, 2014

Hi VioletPrince. Commission recapture is when a fund enters into a broker to rebate a portion of trading commissions directly to a fund. Basically, the broker is allowing the commission to be applied to the fund rather than keeping all of the commission. One method is that the rebated commission is allotted back to the funds as credit. Once the funds grow to a certain amount, the broker will pay the expenses of the fund to the vendors, upon direction of the investor, of course. I hope this helps a little. It’s still convoluted, but stocks always are.

By VioletPrince — On Oct 29, 2014

I was wondering about commission recapture, but am still confused after reading the article. Could someone break it down for me?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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