Shlomo Nehama and Galia Maor are in fits of laughter. They read the interviews that Joseph Bachar and Eyal Ben-Chelouche gave last week, and they haven't been able to stop laughing since.
The press dubbed Bachar and Ben-Chelouche the "great reformers" the "casuists," the ones who brought the major banks down and left them bereft of mutual and provident funds. But the truth is that the banks will be leaving these reforms with vast profits that will make a joke of the whole shebang.
Seven regulators sat down, debated for ages, and concluded unanimously that banks should not be allowed to charge fund distribution fees. They put their case well and Bachar convinced the public. Bachar bothered to say that in meetings with American capital market experts, they told him that they were sorry that in the U.S. reforms - 70 years ago - they allowed distribution fees.
l Injustice No. 1: But then one day everything changed. Shlomo Nehama called on Benjamin Netanyhau and Ariel Sharon, and Galia Maor put on the pressure - and suddenly a new two-member committee emerged comprising Bachar and Ilan Cohen, his counterpart at the Prime Minister's Office. They reached the conclusion that actually distribution fees were a good idea, because it is hard to withstand pressure from the banks.
l Injustice No. 2: The name is also misleading. "Distribution fees" is clear cut. But Bachar, Cohen and Ben-Chelouche did not suffice with just a one-off fee. Their idea is that every year, like clockwork, fund managers will pay the banks a "distribution fee." To what can we compare this? Someone who sells his house, but despite this, every year collects rent on it.
One can understand that the banks deserve something for selling their funds, but that should be a one-off payment at the time of purchase, exactly like Supersol paying Osem for each bag of spaghetti. And don't forget that in addition to the "continuous distribution fee," the banks will also charge us annual "guarding fees" of 0.5 percent (for guarding nothing) and other charges for buying and selling (for the advice). All that's left now is for them to charge for walking in to a branch, sitting down and using their air conditioning.
l Injustice No. 3: Ehud Olmert, the fresh finance minister, is set to declare shortly how much the fees should be. Nehama and Maor have worked their persuasive powers on him. But remember when Bachar and Ben-Chelouche met with the fund managers, they said: "Trust us, the fees will be the tiniest smidgen of a percent." But the "tiniest smidgen of a percent" has turned into the greatest threat on the very essence of the fund sector.
When a fund manager today collects management fees of 2.5 percent to the customer, and then he will have to pay "continuous distribution fees" of 0.6 percent, this means that the bank is a partner to 24 percent (!) of revenues and almost 40 percent (!) of the profits. Is that not robbery?
l Injustice No. 4: In addition to all that, Bachar and Ben-Chelouche apparently are ready to let the banks charge these fees from the moment the law comes into effect, when they still own the funds. Logic tells us that first they should sell the funds, and then when the conflict of interest has gone, they can charge for the advice and the distribution. This will give the incentive to carry out the sale, or else they won't go through with it. But apparently the banks' pressure has bent the regulators' opinion.
So what can we do? How can we minimize the damage? How can we stop a sharp rise in fund management fees? How can we prevent the reduction in investment in the economy following the sharp rises?
All this rests in Olmert's hands. He must jump in to the very heart of the matter and set the fees at "the very tiniest of smidgens of a percent". Say a quarter of what the banks are demanding. Then he can prove he stands for the good of Israel and the economy. And not for the good of the banks.
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