Fines for Deceptive Investment Advice Spurs Debate

Critics fear proposed Knesset legislation could stifle financial press and hurt bank advisers.

Investment advisers who mislead clients will be fined up to NIS 500,000 according to a bill for regulating investment consulting.

The proposed legislation, which covers a broad range of general investment advice given through the media, Internet and other channels, defines "misleading" as advice or endorsements that include incorrect information or deceptive details.

The chairman of the Knesset's Finance Committee, MK Moshe Gafni (United Torah Judaism ), expressed support for the bill introduced by MKs Amnon Cohen (Shas ) and Faina Kirshenbaum (Yisrael Beiteinu ) in coordination with the Israel Securities Authority. But he called on the ISA to consult everyone involved, including banks' investment advisers, the Association of Banks in Israel, and the association of investment advisers and portfolio managers, to reach what he termed "a balanced situation."

"I feel there are many impositions here." Gafni continued. "I think much needs to be fixed. I oppose the high salaries of bank and company managers, and am annoyed with high management fees charged to customers, but nonetheless the right balance must be struck to avoid severe damage to the sector."

MK Cohen explained that the law is meant to protect the public, and in particular people seeking professional advice, and would be enforceable on anyone disseminating investment advice, such as that given in media programs and interviews.

Regulatory platform

"The bill is meant to create a platform for regulating the professions of providing general investment advice, investment bank analysis, and investment advice using the Internet or even the cell phone network as a platform," said Daniel Rimon, head of the ISA's legislation department.

Rimon justified the need for meticulously regulating the investment advice profession by recalling the incident involving Limor Gruber, a Psagot Investment House analyst who recommended her clients invest in Israel Chemicals stock while simultaneously conducting talks with the company over hiring her as manager of investor relations.

"It's imperative that the profession be regulated on all levels, including enforcement," says Rimon. "In Gruber's case there were various remarks made about the ISA's performance, including how long it took to carry out enforcement and the relatively small fine imposed on her."

"The bill requires anyone offering investment advice services to act solely in the client's interest and elucidates the prohibition against providing incorrect information," said Sarah Kendler of the ISA's investment department. "It is currently a crime under general laws but not under investment advice rules.

"Anyone talking about the market and giving recommendations in a media program or through the press, particularly an expert, is duty-bound to be honest in [providing ] details and declaring [any ] conflict of interest," stresses Kendler.

"He is also obliged to state that nothing said should be construed as personal advice but only as generalized recommendations," he said. "The background of the reporter or interviewee should also be mentioned, and if he's an expert involved in the field."

Danny Gigi, manager of Bank Hapoalim's pension, insurance and provident funds division, objected to several of the bill's provisions, saying these would hinder investment advisers at the banks when they were soliciting customers and providing consulting services.

Ehud Aloni, chairman of the association of investment advisers and portfolio managers, also took issue with the wording of several sections of the proposed law, insisting on changes.

"The law could hurt the business press since many financial reporters are experts and could risk sanctions and administrative measures taken by the ISA," Aloni said.