Lowering fees via Internet
The public debate about bank fees misses the real problem of fees in the financial markets in general.
A family's well-being wouldn't change one iota if the bank fees dropped from say NIS 35 to NIS 20. But the slightest change of a fraction of a percent in the annual fee that the financial system charges on long-term investments becomes a lot of money, and any chance of a discount is real news.
The mutual funds market is a great example. It is a giant market that rolls over some NIS 120 billion.
The average management fee at a mutual fund that focuses on shares is 2.4%. Many funds, mainly those of the good mangers that boast hefty returns, charge as much as 3.5% or even 4%. Those are high levels even by international standards, and because of the rules of math that govern long-term investments, they cause real damage to investors.
Fund manager argue that they have to charge high fees to cover their costs. They explain that abroad, the amount of money in such funds is much greater, so the managers can afford to charge lower fees.
That is a feeble excuse. The managers charge high fees because the public lets them.
But all is not lost. One of the main costs that the managers face is called the "distribution fee". They have to pay it to the banks that actually sell units in their funds, and it's a high one. The distribution fee runs at 0.8% a year in the case of stocks-oriented mutual funds, and 0.4% in the case of mixed (bonds/stocks) funds. It drops to 0.25% in the case of mutual funds that invest in bonds.
And the mutual fund managers had no choice but to pay the money. So they rolled it over onto fees they charge the public.
A new initiative may abolish the distribution fee, though. The initiative is the son of the Bachar reform, and it's to set up a website on which the public can buy and sell units in mutual funds, without paying any distribution fees.
That would mean mutual funds could lower their fees by 0.8%, saving the public billions of shekels. The ones who lose that income are the banks, and we can only hope that the Israel Securities Authority, which is one of the bodies promoting the website initiative together with the Association of Mutual Funds, won't fold under the pressure of the banks.