To view this message as a file, click here.
Supervisor of Banks Daniel Hahiashvili: “The new fee model offers significant benefits for investors in the capital market and is grounded in the principles of transparency, simplicity, and clarity with respect to the services consumed. The model addresses the need to strengthen the alignment between the service provided and the fee charged in the management of securities portfolios. Formulated following intensive and collaborative staff work by the members of the team, the model appropriately balances the interests of the various market participants alongside the advantages and disadvantages of its different components. We are confident that this balanced solution will help strengthen the position of retail customers and serve as a lever for increasing competition in the industry.”
Israel Securities Authority Chairman Sefi Zinger: “The Authority has set itself the goal of using all the tools at its disposal to improve competition for consumers in all matters related to the management of their money in the capital market. The report includes a comprehensive consumer reform designed to create a fairer and more competitive capital market. It is unacceptable for small customers to de facto subsidize the services provided to customers with bargaining power. The new fee model puts an end to hidden fees and creates a clear alignment between the service provided and the consideration paid by the customer. Once the fee is transparent, power is returned to the consumer—who understands exactly what he or she is paying for and can genuinely negotiate or compare alternatives.”
Tal Yisraeli, Finance Coordinator at the Budgets Department: “A competitive and efficient market begins with the customer’s ability to see, understand, and compare what he or she is paying for. Removing barriers and standardizing compensation mechanisms will open the market to additional participants, strengthen consumers’ bargaining power, and support competition over time.
“From the perspective of the individual consumer facing the various intermediaries—banks and nonbank exchange members—a joint interagency team comprising the Bank of Israel, the Israel Securities Authority, and the Budgets Department formulated a securities fee model that will enable customers to understand what they are paying for and how much they are paying, and to easily compare providers. The adjustment is based on theoretical and comparative analysis, as well as on a survey examining consumer activity patterns and preferences. The model also preserves a diverse and competitive market that benefits customers, balancing the consumer response with the need to maintain competitive dynamics and a sustainable model for intermediaries, so that competition in the market will continue to strengthen alongside a broad range of service providers.”
A joint working team of the Banking Supervision Department at the Bank of Israel, the Ministry of Finance, and the Israel Securities Authority today published the final report on “Compensation Models in the Public’s Securities Activity.” The model, detailed extensively in the report attached to this announcement (in Hebrew), presents an update to the compensation method currently applied to activity in securities accounts. It is intended to update the existing compensation model in a manner that will help protect consumers and encourage competition among the various market participants. The new model contains numerous advantages, including simplification of the fee structure, increased transparency, and strengthened comparability and alignment between the service provided and the fee charged for it.
The publication of the final report marks the final milestone in the team’s work. This process was preceded by the publication of a public call for comments, an interim report, extensive consultations with various stakeholders, including parties active in Israel’s capital market, and an examination and analysis of the components of the current model. The team believes that adoption of the compensation model, as set out in the report, will strengthen competition among market participants, expand the range of services available to customers, enhance and broaden the investment advisory market to additional audiences, and improve investors’ ability to make informed and knowledgeable decisions.
Main Elements of the New Model
The compensation model is a unified model, the components of which are integrated with one another. The team’s recommendations will enter into force gradually over time, primarily for practical reasons distinguishing between recommendations that can be implemented relatively quickly and others that require more complex regulatory processes. As part of the implementation of each stage, the regulators will examine prevailing conditions and the market’s adaptation to the changes in the mechanism, in order to ensure that the model is implemented in the manner most beneficial to the market.
The team recommended that similar regulation be applied in the future to all market participants, including banks and nonbank exchange members.
Phase I – Investment Advice and Service Packages in the Banking System
Service packages – Banks will be permitted to offer customers service packages under which the customer will pay a single aggregate fee for activity in securities and financial assets.
Dedicated advisory fee – Banks will be permitted to charge customers a dedicated fee for advisory services, and will not be allowed to collect it as part of the securities custody account management fee. The characteristics of the fee may be tailored to the nature of the advisory service provided (ongoing / one-time, human / digital / hybrid, etc.).
Investment advisory services will be offered by banks without conditioning them on the purchase of additional services, and will not constitute a condition for the management of a securities portfolio.
Phase II – Change in the Fee Collection Mechanism for Transactions in Mutual Fund Units
Agency fee – In place of the distribution fee currently in effect, a uniform agency fee at a reduced rate of 0.2 percent of the value of the units purchased will be paid over the holding period, across all types of mutual funds, except money market funds. With respect to money market funds, it is proposed to retain the existing bank distribution fee model, given that they are part of the “money market,” and to adopt this approach across the broader market at a later stage. This fee will be paid by the fund manager to the investment adviser or the bank advisory system. The agency fee will be charged only for advised purchase transactions.
Purchase and sale fees – As a complementary step to the change in the distribution fee model described above, the mechanism for charging purchase and sale fees will be standardized with respect to transactions involving the purchase and sale of units in different types of mutual funds—namely passive mutual funds (open-ended index-tracking funds and exchange-traded funds) and active mutual funds, excluding money market funds. In other words, for any transaction involving the purchase or sale of a mutual fund unit (of any type, except money market funds), a purchase/sale fee may be charged to the customer.
To complete this phase, work will begin on advancing legislative and regulatory amendments.
Phase III – Securities Custody Account Management Fee
The securities custody account management fee includes custody and operational costs arising from trading in the capital market. The securities account management fee mechanism will be set as a fixed shekel amount, to be charged monthly for all of the customer’s securities holdings and financial assets, both domestic and foreign. In order to protect customers with low-value securities portfolios, and to ensure that the service tariff for such customers properly reflects actual costs, consideration will be given to establishing fee tiers differentiated by portfolio value.