The problem is that for the majority of the public in Israel this gate is locked, since in order to receive consulting services, there is a minimum threshold that has gone up and up in recent years and currently stands at NIS 50-500 thousand (depending on the bank), when in practice the average bank account value is NIS 950 thousand.
The report states that “the trend of increasing the asset threshold as a condition for receiving consulting services makes it difficult to the point of placing a significant barrier in front of a wide variety of populations from investing in the capital market as an investment and savings channel.” This creates an absurd situation in which precisely clients from a low socio-economic status, who often need advice – will probably not put their money in investment portfolios. Although the banks provide the advice without directly charging costs for it, the relatively high commissions (buying and selling and shift fees) charged to the clients are an incentive to focus the advisory services on clients with relatively large sums of money.
For those who managed to get through the gate, personalized service to their needs and characteristics is not guaranteed: the advisory system in banks has been significantly reduced in recent years and decreased by 42% in 4 years, from 2,390 advisors to only 1,687 as mentioned above, so that on average, each advisor is currently responsible for 210 clients .
The data from the Securities Authority also shows that the advisors route the investors’ money mainly to mutual funds, where 67% of the purchase operations and 72% of the sale operations are carried out in these funds. In particular, it is evident that the advisors focus on active mutual funds: 74% of the activity in mutual funds dealt with active funds, and it seems that the advisors rarely advise on imitation funds. This is an interesting statistic because, as a whole, there is a growing focus on hedge funds around the world, while there is a deep and ongoing economic dispute surrounding the question of whether active management can lead to excess returns over time.
Although the consultation is provided free of charge, it is important to emphasize that the banks charge shift fees for the management of the portfolio and buying and selling commissions which are considered significantly higher than the commissions charged by investment houses. The Securities Authority data shows that on average about 11% of the activity in the accounts of the consultants was done without advice, so that in fact those clients could have done it in investment houses at significantly lower costs.
Within the active funds, the advisers’ preference for funds that mainly hold Israeli bonds is evident, the share of which is 58% of the total activity in the active funds. Also, the effect of the increase in interest rates during 2022 is also evident: out of the value of advised activity of NIS 70 billion between January and September 2022 , most of the funds in the advised accounts were directed to financial trust funds (NIS 11.2 billion) and structured bank deposits (approximately NIS 3 billion). It should be emphasized that the regular deposits do not require counseling.