Treasury Takes Aim at Insurance Agent Fees

The Finance Ministry is seeking to push down fees on pension funds, provident funds and life insurance plans by capping insurance agent fees - currently, the single largest component in the funds' fees.

Uriel Cohen

Insurance agents bring the pension funds most of their customers, and therefore the funds cannot do without them. The plan to create competition by allowing the banks to enter the pension advice field bore little fruit, and the banks play only a small role in the field.

Currently, insurance agents receive up to half of the management fees paid by every customer they bring. This means they're receiving up to 0.7% of the customers' deposits. This is the largest component of the fees charged by the pension companies.

The Finance Ministry's plan to push down fees includes capping what the agents may receive, most likely based on the size of the insurance or pension plan they sell. It is also seeking to reduce the agents' conflicts of interests, and will cap the financial gifts that the funds may pay the agents, to NIS 2,000 a year. It will also bar the funds from giving them non-financial gifts, such as vacations or flights abroad.

The ministry also wants to enable a single pension fund to pay more than one insurance agent when an existing customer switches to a new agent. Currently, pension funds may pay only the first agent who brought the customer, which means that if an existing customer goes to a new agent, the second agent won't receive anything if he recommends the customer stays with his current fund. Thus, agents frequently recommend to their customers that they switch saving plans - even when this is not in the customer's interest.

The reform would allow the funds to split the fee between two agents for up to three years.

Message of corruption

At the end of 2009, Harel Insurance rocked the pension savings market when it offered insurance agents a prize equal to 1% of the money they brought into its provident funds, education funds and pension funds - beyond the usual 50% of fees that they were already receiving. Market sources commented that the promotion terms were such that the company would not be earning anything from those new customers for at least two years.

But beyond the terms of the promotion was the imagery in the ads: Under the headline "Collection holiday" was a picture of a drunk, happy insurance agent, tossing handfuls of money skyward. "Beyond the content of the extreme promotion, the design of the posters was inappropriate," one member of the provident fund industry said. "This kind of image, of an agent spraying money like an oil rig, creates associations of covetousness and sends a message that the public's money is being handled corruptly."

Generally, the pension funds increase their incentives for insurance agents during the fourth quarter. They offer a variety of promotions in an attempt to get themselves a place at the top of the list of who took in the largest investments that year. In some cases the promotions are so aggressive that they seem to lack any financial logic.

But insurance companies and investment houses have their own logic, and they generally offer promotions for products with relatively high fees. The insurance agents thus make these products their focus. Harel's promotion, for instance, mandated minimum customer fees of 1.2%.

Have a Jeep

And it's not just Harel: Migdal Insurance launched its own promotion with an equally colorful headline around the same time. Sloganed "Even on the stock exchange they're asking who'll win," Migdal offered a trip to Burma (Myanmar ) and Cambodia to agents who brought in more than NIS 6 million to the company's provident and education funds. For the homebodies among them, the company offered NIS 20,000 instead. Agents who brought in NIS 12 million won a trip for two or NIS 45,000. The savings plans included in the promotion bore fees of at least 1.2%.

Clal insurance offered the agents home appliances and clothing: Agents who brought the company at least NIS 4.5 million would receive NIS 7,500 in store credit for the electric appliance store Traklin Hashmal, and NIS 2,000 for Golf & Co.

Phoenix offered a pair of tickets to Euro Disney. A few months later, it stepped up its promotion with a deal for insurance agency managers. Twelve managers of companies that brought Phoenix tens of millions of shekels were put up at the Plaza Hotel in New York, where they wined and dined with Phoenix's controlling shareholder, Yitzhak Tshuva. Menora Mivtachim Holdings flew its top agents to Champions League games in Barcelona and London. Non-soccer fans received a weekend in London that included a U2 concert and a show. Others were flown to Budapest, where the vacation included a Madonna concert.

Small investment houses also joined in the party. Six months ago, Infinity Investment House offered agents NIS 9,000 for every NIS 1 million they brought in, for funds with minimum fees of 1.1%. Shomera Insurance gave its top insurance agent a jeep, and ILD Insurance sent its top agents to Cuba and Palma de Mallorca.

So what's the latest promotion? Currently the agents are competing over a trip to Eastern Europe, which they can win if they bring in at least NIS 1.5 million for Meitav's provident funds by the end of the month. If they bring in at least NIS 2.5 million, they'll get to bring a partner. Also on the table: a NIS 1,500 to NIS 6,000 grant for every NIS 1 million they bring in.

These kinds of promotions generally offer larger prizes for investments in plans with higher fees. But sometimes the companies are just nice to their insurance agents. Migdal recently offered its agents a NIS 0.39 discount on every liter of gas, and a NIS 5 discount on every liter of diesel, regardless of how much money they brought in. And that's after it handed out iPhones.