Israeli regulators are changing the procedure for charging commissions for transactions with securities

At the first stage, banks will have the right to charge clients a target commission for investment consulting services, and not as part of the account maintenance commission (as is the case in practice today).

The amount of the commission may vary depending on the nature of the consultation (for example, whether it is an ongoing or one-time service, a digital service or a service provided by a consultant).

Banks will offer the investment advisory service without necessarily linking it to other services, and it will not be a condition for managing a securities portfolio. Banks will also have the right to offer service packages, under which the client will pay a single aggregate commission for transactions with securities and financial assets.

In parallel, the group recommends changing the procedure for charging banks for maintaining investment accounts from a percentage of the account amount to a fixed amount in shekels.

It appears that thresholds will be set depending on the value of the portfolio, so that the tariff for clients with a low value portfolio of securities adequately reflects actual costs. The account maintenance fees charged under the new model are expected to be substantially lower than current ones, as they will not include investment advice as is effectively the case today.

Another change the group recommends is moving to a single, lower distribution fee of 0.2% across all types of mutual funds. The fund manager will pay this fee to the investment adviser or the bank’s advisory arm only for advisory purchase transactions – that is, only in cases where clients purchased the fund after advice. As an additional measure, it is recommended that banks be allowed to charge customers buying and selling fees also for active funds. That is, the recommendation is that clients can be charged an additional commission, which has not been charged so far. To complete this stage, amendments to legislation and regulations are required. The changes will not affect cash funds.

“In the long term, the joint working group believes that the most appropriate remuneration model for investor activity in the Israeli capital market is a direct remuneration model, in which all fees are paid directly by the investor,” the report says. “However, moving to a direct model poses a number of problems, the most significant of which are related to changing consumer habits: it is about the adoption of a new behavior model – payment for services that are currently paid indirectly. Therefore, the group proposes not to move to a completely direct model at this stage.”

The change in the mechanism is intended to create an incentive for banks to conduct investment consulting, as well as to encourage other structures, including insurance agents, who may want to enter the investment consulting market, thereby expanding the market for intermediary services in the field of investments.