The chairman of the Israel Securities Authority harshly criticized the banking industry Monday for being greedy with the commissions they collect for selling mutual funds.
Shmuel Hauser said the high rates keep other investment products as well as foreign mutual funds out of the market.
"A well-planned and orchestrated campaign against the initiative to lower brokerage commissions is being waged; the banks are employing batteries of lobbyists and PR people to thwart the sorely needed lifting of barriers," Hauser told the Israeli Corporate Finance Conference hosted by DC Finance in Ramat Gan.
The banks serve as middlemen by selling mutual funds, for which they charge a commission to the investment houses running the funds. The investment houses bundle this into the management fees they charge investors. Since 2005 the banks have charged the maximum commissions allowed by law - 0.125% to 0.8%, depending on the type of fund. These rates are due to be cut in half by a reform in the works.
In the meantime, fees charged by fund managers have dropped over the years, while commissions paid to the banks haven't budged. As a result, the commission component of the fees has risen by about one-third.
Hauser complained about the lack of competition in this field, pointing out that no bank had cut rates since 2005.
One of the moves Hauser said he had been pursuing over the past few weeks is doing away with the barrier called brokerage commissions. He estimated that the measure would save customers more than NIS 100 million a year and allow new products as well as foreign mutual funds to enter the market, boosting competition," he said.
"Charging the public unjustified commissions can't be allowed to go on. To my dismay, the banks use every means to hamstring a move meant to eliminate barriers, develop the market and lead to the marketing of cheaper and more diversified products."
Foreign mutual funds can't enter the Israeli market and compete with local funds unless commissions are reduced, said Hauser. Hence the reform being pushed through by the ISA.
"Access to foreign funds can be possible via the banks' counseling frameworks," said Hauser. "Under this model, the ISA wouldn't be involved in screening, setting conditions on product recommendations, or granting permits or approvals of any kind. Full responsibility would fall on the counseling organization."
According to the Association of Banks in Israel, "Attempts to reduce management fees are justified, but the way to do this isn't by lowering amounts paid by investment houses to banks.
"Studies show that, while the investment banks are collecting relatively high management fees compared to the rest of the world, they pay banks commissions that are below conventional rates. The correct method is to boost competition by introducing foreign funds. Lowering brokerage commissions would be detrimental to objective counseling at the banks."