Israel's Big Pension Tender: Higher Management Fees Set as Agents Return to Game

Most of the winning funds in the latest default tender will let insurance agents market the funds for commissions

Israeli shekel coins
Oren Ziv

The latest tender to select default pension funds announced last week returns insurance agents to the game. While the previous tender, which set low management fees that didn’t leave the winning pension funds the ability to pay agent commissions, the new one set significantly higher management fees, enabling them to market themselves through agents.

The capital markets authority set minimal management fees of 1.5% of deposits and 0.05% of the principle in the tender, below which funds cannot offer even if the package is more attractive. The winners were Meitav Dash, which raised its fees for deposits and the principle from 1.31% and 0.01%, respectively, in the previous tender to 2.49% and 0.05%, respectively; Psagot (1.68% and 0.09%, respectively); and Althshuler Shaham and Hellman Aldubi (both 1.49% and 0.1%, respectively).

Notably, Meitav Dash focused on raising the management fee for deposits to be able to pay substantial commissions to insurance agents returning to the market. Insurance agents had given Meitav Dash the cold shoulder over the past two years, after it won the previous tender, because it wasn’t paying them commissions. Consequently, Meitav Dash lost an estimated 6 billion shekels in business to its competitors during this period.

Officials at Psagot, which was not one of the winning pensions in the previous tender, saw how Meitav Dash’s winning bid led to tension with insurance agents, and declared that it would continue working with insurance agents. Barak Soreni, Psagot’s CEO, sent insurance agents a letter after winning the latest tender stressing this policy. Hellman Aldubi made a similar announcement.

In contrast, Alshuler Shaham doesn’t intend to divvy out commissions so easily. The investment house that passed on the previous tender because of the low administrative fees, opted for a relatively lower commission this time that allows less flexibility for paying commissions.

Meanwhile, the insurance companies that manage the major pension funds are wary of Altshuler Shaham. It is sufficient to observe what Altshuler Shaham did to the provident and educational funds to understand that they have justified grounds to be afraid. Thousands of people saving for retirement move their savings over to Altshuler Shaham. Last year, it became the largest provident fund in Israel, and it did so solely through natural growth, without any mergers or acquisitions. The fear of a similar fate with pensions drives the major agencies and the agents who work with them not to sell their clients Altshuler Shaham’s pension fund, even though no one disputes that it is a good and deserving fund.

Still, Altshuler Shaham’s pension business is growing. Of the 3.2 billion shekels ($875 million) in pension assets it manages, 1.6 billion shekels were added over the past year. It’s the largest accumulation of all the small pension funds, despite Meitav Dash and Hellman Aldubi being the default funds. Meitav Dash added 1.3 billion shekels last year and now manages 8.7 billion shekels in its pension fund. Hellmann Aldubi’s pension fund grew last year from 500 million shekels to 1 billion shekels.

Thus, Altshuler Shaham officials realized last year that success won’t come through insurance agents, so they went with a lower management fee in the latest tender that doesn’t take them into account.