Israeli Investment Reform Complements 2005 Bekhor Overhaul to Boost Market Competition and Transparency
The 2005 Bekhor Reform dramatically transformed Israel's capital market by breaking banks' control over investment funds, pension funds, and brokerage services, thereby benefiting savers and the market overall. Prior to the reform, banks managed nearly the entire financial chain, creating conflicts of interest. Despite initial opposition fearing job losses, reduced professionalism, and higher fees, the reform led to improved expertise and halved management costs for investors.
Recently, a new report proposed an arbitrage reform aimed at reducing discrepancies between short- and medium-term savings products, such as provident funds and mutual funds, which are regulated differently and confuse consumers. This reform seeks to unify transparency and comparability of returns, risks, costs, and features, making it easier for the public to choose investment options. It also aims to raise awareness of alternatives that may yield higher returns than bank accounts or deposits.
A key element is the creation of a single investment account that can hold provident funds, savings policies, and direct securities investments, with a cumulative tax-advantaged deposit limit of 200,000 shekels indexed to inflation. The reform proposes tax deferral on capital gains within the account and additional tax benefits for savers aged 60 and above who withdraw funds as a pension. The plan excludes the four largest banks from operating the new investment account platform to protect smaller banks and investment houses.
While the reform is not mandatory and existing products remain available, insurance agents will need additional licenses to recommend the new account. The Israel Securities Authority plans to ease licensing requirements to facilitate this transition. Although the Capital Market Authority expressed some operational concerns and cost increase fears, the reform is expected to enhance competition, reduce fees by approximately 20-30%, improve service quality, and increase transparency.
The author, a founder and director of Meitav Investment House, emphasizes that this complementary reform is essential to complete the Bekhor Reform’s goals, strengthen competition, lower costs, and expand investment options for Israeli savers.
