Look what has happened to the public's grasp of the Bachar team.
The committee headed by treasury director-general Joseph Bachar, which was impaneled to consolidate reform of the capital market and banks, has become "the team for separating the provident and mutual funds from the banks."
That is not happenstance. Forcing the banks to relinquish both the ownership and management of the provident and mutual funds is the heart and soul of the great reform that Finance Minister Benjamin Netanyahu seeks to lead, together with the Bachar team.
By demanding that separation, the team hopes to achieve five goals:
1. To reduce the banks' domination over the capital market by extracting a quarter-trillion shekels of the public's money from their control.
2. To stimulate the development of an ex-banking capital market. Allowing the banks to control the big money of the institutionals certainly hasn't achieved the development of financing sources outside the banks, as other countries have.
3. To eradicate conflicts of interest. The banks currently wear four or five hats in their capital market operations, which limits their scope and hurts their clients.
4. To give the banks incentive to provide fair advice, instead of automatically pushing the funds they themselves operate.
5. To give the provident and mutual fund managers incentive to improve their performance: captive customers will be a thing of the past.
Will all these aims be achieved? Is the Bachar team's model perfect? Far from it; but it is the first attempt by all the bodies responsible for the public's money to institute real change in the way things are done at the banks and in the capital market.
Opening the cage
But one has to worry about whether the Bachar team really can achieve those last two goals - to make the banks give good advice, and to set the customers free.
The great fear is that the second before, or after, the provident and mutual funds are severed from the banks, the banks will hasten to sign distribution agreements with the companies that buy their funds.
The agreements would be based on kickbacks that the funds' new owners would pay the banks for each customer they send over.
The ultimate result of the kickbacks is that the customers would remain captives of the banks. Again the customers would not be able to find out the real cost of the products they are buying. They would not be aware of the vested interests of the advisers pitching certain investment products in the guise of providing objective counsel.
Kickback agreements between the big banks and certain big money management firms could wind up preserving the current capital market structure. Instead of the banks withdrawing their monopolistic stipends from the captive customers via the management fees of the funds, they'd just get them as distribution fees, or whatever kicky name they invent for the kickbacks.
This is where the real revolution of the Bachar team's plan kicks in. One of the key recommendations in its report, which it finished writing recently, is to forbid the banks to accept kickbacks from the entities that will manage the provident and mutual funds, or any other financial instrument the banks market and distribute. The bank may take money directly only from the client. That's it.
Forbidding kickbacks is a revolution. The ban creates an entirely transparent marketplace in which the customer knows exactly how much and for what he's paying. Banning kickbacks renders the separation of the banks and the provident and mutual funds utter and complete. It is not only a separation in name: It also abolishes all those conflicts of interest.
In the new marketplace to be created by the death of the kickbacks, the banks will only be able to charge their customers for genuinely objective advice with genuine added value. Customers will get offers from banks that they can compare with offers from other banks. They can choose to invest in this or that provident or mutual fund directly, for instance via the Internet.
This new transparent mechanism will depress prices, and do more, too. It will force all the players in the marketplace to offer added value. They won't be able to fudge and blur their services and prices any more.
The Bachar team and Netanyahu know perfectly well that slaying kickbacks is the true revolutionary message of their reform. They also know that without it, a lot of the targets involved in severing the banks from their funds will be missed.
They know that, really, the real battle with Bank Hapoalim and Bank Leumi is over that. They also know that the director-general of the Prime Minister's Office, Ilan Cohen, is refusing to take a clear stand on the matter. And they know that the battle of the kickbacks is really the battle to release the captive customers.
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