Investment Houses Urge Regulator to Cut Bank Distribution Fees on Pension Products

The Association of Investment Houses recently appealed to the Capital Market Authority and the Banking Supervision Department to review the distribution fees banks charge on key public savings products, specifically provident funds and pension funds. In a letter sent to the Ministry of Finance, Capital Market Authority Chair Amit Ghall and Banking Supervisor Danny Hachiaushvili, Nimrod Sapir, CEO of the Investment Houses Association, called for a reassessment of the fee model paid to banks for pension advisory services, similar to changes made in mutual fund fees. Sapir argued that such a review could lead to significant improvements in pension advice quality, increased competition, and lower costs for savers.

The association highlighted that while management fees charged by institutional savings managers have significantly decreased due to competition, bank distribution fees have remained unchanged at 0.25% since their approval two decades ago. For example, management fees for provident funds dropped from about 0.9% in 2009 to roughly 0.5% today, yet banks still charge the same maximum distribution fee. This fee structure, the association claims, prevents banks from providing objective pension advice, especially regarding new pension funds selected as default options by the Capital Market Authority, which have management fees as low as 0.22%, below the banks' distribution fee.

The association stressed that in the complex and impactful pension savings market, banks are unable to offer genuine advisory services, focusing instead on simpler savings products like training funds where advisory fees are more aligned with management fees. Despite the appeal, legislative changes would be required to alter the fee model, making immediate reform unlikely, especially during an election period. The Capital Market Authority has previously expressed willingness to consider compensation model changes but has not responded to this specific request. Sapir concluded that it is time to update the nearly 20-year-old fee model established by the Becher Committee to reflect a competitive market and avoid misleading pension advisory services by banks.

No official response was provided by the Capital Market Authority or Banking Supervision by the publication deadline.