Israeli Banks’ Hidden Investment Advice Fees Could Soon Be Exposed

A joint task force from the Bank of Israel, the Israel Securities Authority and the Finance Ministry has recommended a major overhaul of how investment advice is paid for in banks. The proposal, published on Wednesday after work that began in February 2024, aims to make the fees transparent so outside advisers can compete with banks and investment advice can eventually be opened to the wider public.

Today, banks earn a 0.35% annual commission from mutual fund managers, but that fee is buried inside the fund’s management charges and is invisible to customers. The report says this creates a built-in conflict of interest, because bank advisers are incentivized to steer clients toward active mutual funds, where the bank gets paid, even when passive funds tracking indexes such as the Tel Aviv 125 or the S&P 500 may be a better fit.

The article says many Israelis who have entered the stock market in recent years rely on social media advice, while those seeking professional guidance at a bank are screened by wealth. Officially, the advice threshold starts at 50,000 shekels, but industry sources say banks often refuse to assign an investment adviser unless the client has at least 1 million shekels. Smaller investors are therefore pushed toward TikTok and Instagram influencers, which regulators are also trying to curb.

The task force’s main solution is to separate the fee from mutual fund charges and allow banks to bill customers directly, so they can see what they are paying and compare offers. That change could be implemented quickly by the Bank of Israel’s banking supervisor, but broader changes to the commission system would require legislation in the Knesset. Even so, the report warns that two-thirds of surveyed clients said they would not agree to pay directly for advice, which may let banks keep the current opaque model if direct billing remains optional.