Investment houses demand that the regulator cut distribution fees at banks

The Association of Investment Houses recently appealed to the Capital Markets Authority and the Supervisor of Banks, requesting to examine the distribution fees charged by banks on the public's central savings products — provident funds and pension funds. This was learned by Globes.

In a letter sent to the Ministry of Finance, Capital Markets Authority Chairman Amit Gal, and Supervisor of Banks Dani Hahiashvili, the CEO of the Association of Investment Houses, Adv. Nimrod Sapir, calls for a re-examination of the distribution fee model paid to banks for pension advice, as was done with mutual funds. This is something that could lead to "a significant improvement in the pension advice provided to the public, increased competition, and lower costs for the saving public."

The association notes that while there has been a significant decrease in the management fees charged by savings managers, thanks to competition between institutional bodies, the bank distribution fee has remained unchanged. Thus, management fees in provident funds stood in 2009 at about 0.9% of the savings amount, and they stand today at about 0.5% in advanced training funds and severance provident funds. This is while the distribution fee charged by banks has remained unchanged at 0.25% since they were granted permission to charge it two decades ago.

Prevents objective advice in pension funds

The association further notes that the collection of a distribution fee does not allow banks to provide the general public with objective pension advice regarding the new pension funds managed by investment houses. This is because in these funds, which were chosen as default funds by the Capital Markets Authority, a commitment was included to collect management fees from the accumulation at extremely low rates (0.22%), which are lower than the maximum distribution fee rate charged by banks (0.25%).

"Precisely in the relatively complex pension savings product, which has enormous significance for the life of every saver — their pension fund — it seems that the bank cannot provide real advice," write the Association of Investment Houses. "And this is while in simpler 'shelf' products such as advanced training funds, the average management fees allow for actual pension advice and the receipt of a distribution fee."

Despite the appeal, it is doubtful whether its request is expected to lead to the initiation of a move on the matter, since moves of this type require legislative changes. Although the Capital Markets Authority has expressed in the past a willingness to examine and change the compensation model for a variety of products under its supervision, it is doubtful whether they have the ability to examine requests of this type during an election period.

"The time has come to update the compensation model set by the Bachar Committee almost twenty years ago and adapt it to a competitive market," said Adv. Nimrod Sapir in a conversation with Globes. "This situation leads to an 'Isra-bluff' because although the service is called pension advice, in practice the banks do not provide advice regarding the public's pension savings but focus on other savings products."

No response was received from the Capital Markets Authority and the Supervisor of Banks by the time of going to press.