A joint task force from the Bank of Israel, the Israel Securities Authority, and the Treasury has proposed major changes to how banks earn money from investment advice. The report, released Wednesday after work that began in February 2024, says the current system lets banks quietly collect a 0.35% annual fee through mutual fund management charges, without customers realizing it.
Under the existing arrangement, investors who come to a bank for guidance are often steered toward mutual funds, especially active funds, because banks receive a commission only when clients are sent into those products. The task force says this creates an inherent conflict of interest, since bank advisers may prefer active funds even when passive funds, such as those tracking the TA-125 or the S&P 500, may suit the customer better.
The report also says access to bank investment advice has become increasingly restricted. Although the official threshold starts at 50,000 shekels, industry sources say banks effectively reserve advisers for clients with at least 1 million shekels to invest. Smaller investors are left to seek advice elsewhere, often from social-media influencers on TikTok and Instagram, which regulators view as riskier.
To change this, the authors recommend making the advisory fee transparent and allowing banks to charge it directly to clients. That would let outside providers, such as independent advisers and agents, compete for customers on the same basis. Some changes could be implemented quickly by the Bank of Israel’s banking supervisor, but the fee structure for mutual funds would require legislation and Knesset approval. Even so, the report notes that two-thirds of surveyed clients said they would not be willing to pay directly for advice, which could leave the current system largely intact if direct charging remains optional.
