Israel Bans Mortgage Advisor Perks, Insurance Agents Next
Translated & summarized from Calcalist by baba
Israel's Capital Markets Authority has banned non-bank credit companies from giving perks to mortgage advisors, effective January 2027, to curb conflicts of interest. This move follows a two-year review and aims to prevent advisors from being incentivized to push loans. Regulators also see a need to reform insurance agent incentives, where similar conflicts exist, though past reform attempts have been blocked by industry lobbying. The authority's action is considered a significant first step towards broader financial intermediation reform.
The story in 5 lines · by baba
- Israel's Capital Markets Authority banned mortgage advisor perks from non-bank lenders starting January 2027.
- The ban aims to end conflicts of interest where advisors were incentivized by commissions and trips.
- Regulators also see a need to reform insurance agent compensation structures due to similar conflicts.
- Previous attempts to regulate insurance agent incentives were blocked by industry lobbying.
- The authority's action is seen as a crucial first step toward broader financial intermediation reform.
Israel's Capital Markets, Insurance and Savings Authority has finalized new regulations prohibiting non-bank credit companies from offering commissions, bonuses, and other perks to mortgage advisors. The ban, which takes effect in January 2027, aims to end what a senior authority official described as a "Wild West" environment where advisors were incentivized to push loans, particularly reverse mortgages for the elderly, in exchange for lavish benefits like overseas trips. The authority had been monitoring the non-bank sector for two years before deciding to intervene, balancing concerns about stifling a market intended as a bank alternative against the need for consumer protection.
The decision was driven by a realization that even with disclosure, clients tend to trust their advisors, and commission limits alone do not resolve the fundamental conflict of interest. The problem lies in what advisors are paid for, not just what clients know. The authority also released a draft regulation to apply similar rules to institutional bodies, though this is not yet final. The ban will cover indirect compensation through intermediaries and will restrict funding for professional training to exclude travel and hospitality.
Meanwhile, a consensus exists among regulators and the Ministry of Finance regarding the need to reform incentive structures for insurance agents, whose income is also commission-based from the institutions whose products they sell. While less visible to the client, these commissions are embedded in insurance premiums and management fees, creating potential conflicts of interest. Agents might be incentivized to favor products with higher commissions over those best suited for the client, or to facilitate unnecessary transfers between financial institutions. Ownership of agencies by institutional bodies can further bias sales towards their products.
Previous attempts to address these issues, including proposals for uniform remuneration, clawback mechanisms for early policy cancellations, and disclosure of agent compensation, faced significant opposition from the insurance agents' lobby. In January 2024, an agreement brokered by MK Eliyahu Revivo saw the shelving of some measures, including disclosure and clawbacks, which the Insurance Agents' Association at the time hailed as a victory.
The authority's move on mortgage advisors is seen as a crucial first step, preventing a similar problematic model from becoming entrenched. While not a direct copy, the goal is to ensure that agents are rewarded for service and client suitability, not merely for maximizing sales or transfers. The ultimate aim is a fundamental overhaul of the financial intermediation sector, ensuring that recommendations are not biased by the intermediary's financial interests.
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