The following are additional steps for publishing the draft said regulations to be promoted by the Authority:
- Charging the institutional body to offer a passive investment track, at a reduced management fee.
- Obligation of the institutional body to offer a negotiable investment route without direct expense commissions due to external management (except for buy and sell commissions similar to the situation in mutual funds).
- Allowing the institutional body to offer investment paths in differential management fees.
- Allowing the institutional body to offer an investment track in performance-based management fees.
- Increasing transparency for savers by obliging the institutional body to present to each saver the total cost of management fees, including direct expenses, in one number to be calculated from the accrual.
- Increasing transparency for savers by obliging the institutional body to present at the time of joining and in the framework of the annual reports, the total cost that is expected to be charged from it, at the level of the investment route.
- Increasing transparency to the public by expanding the data published by the institutional body in the asset reports, with an emphasis on expanding disclosures about non-marketable assets. And yes, expanding the detail about the direct expenses actually charged will be increased and will include the type of expense and its rate.
These measures, based on the conclusions of the final report of the committee published to the public in November 2021 and in particular the three main principles of the committee – simplifying the price by presenting one comprehensive and one-parameter price from the aggregation; Offering cheap savings products consistent with indices; And proposing savings tracks with performance-based management fees, constitute in practice an appropriate implementation of the committee’s recommendations. These measures are expected to increase competition in the industry, improve and refine the investment area, make it easier for the saver to understand the total costs charged to him in practice and in the future, and increase the supply of products offered to savers and comparable capabilities, based on full information and net return.
The measures mentioned above will be assimilated in the circulars of the Commissioner of the Capital Market, Insurance and Savings, and in the framework of additional legislation, as complementary measures to the rules proposed in the framework of the draft regulations published regarding the collection of direct expenses. The draft regulations and the complementary measures together constitute the proposed reform in this area, based on the conclusions of the final report of the Advisory Committee on “Direct Expenditure” (hereinafter – the Committee) published to the public in November 2021. The purpose of the reform, which concerns a number of different areas such as the supply of investment routes, the structure of management fees and transparency for savers, is to increase competition in the pension savings industry, along with improving and perfecting the investment area. The various. The reform is expected to yield savers a higher net return, depending on market conditions, while increasing their bargaining power.
The committee’s conclusions touched on a number of principles, and the main recommendations of the report include:
Change the structure of the management fee and transition, as far as possible, to presenting a single price known in advance as a rate from the accrual only; Establishment of low-cost index-tracking investment tracks; Enabling offering tracks with performance-based management fees; And improving the transparency of the information presented to savers.
The committee also found that the existing limit on direct expenses is arbitrary and ineffective, and that there is a need to make further changes and improvements designed to improve competition and transparency in the industry, so that the existing limitation becomes redundant. This is mainly by proposing mechanisms designed to ensure that the direct and indirect incentives of savings managers when they come to decide on investments in general, and investments involving high expenses in particular, will be as close as possible to those of the saver. The Authority accepted the Committee’s conclusions and after a lengthy thought process initiated the set of proposed steps to put into practice the principles inherent in the Committee’s recommendations.
Draft Financial Services Supervision Regulations on Direct Expenditure:
Adjusting the rules for collecting direct expenses in favor of bearing the return to savers
In the draft regulations, it is proposed that the existing limit (0.25% of total assets at the beginning of the fiscal year) has been replaced, which is arbitrary and not adapted to different investment routes, involving different types of assets and different hedges – the institutional body This step will allow entities to offer different restrictions adapted to the different investment paths. In addition, this step will allow a better adjustment to the customers’ tastes in the context of direct expenses and will allow competition to be produced in this parameter as well. Under the current ceiling, or instead to support the creation of a higher net return, using investment instruments from external managers, depending on the nature of the track and investment policy. The entry of new players will reflect the economic dominance of the proposed mechanism over the arbitrary mechanism that prevailed in the past, clearly in favor of savers – as the committee saw it and as the policy led by the Market Authority Capital in all areas of its activity.
Significant reform of investment paths in pension savings – the Authority is working to implement it in the coming months
To strengthen the proposed competitive mechanism in the draft regulations and in order to increase the bargaining power of savers towards the management companies – the Authority will require the managing bodies to offer a passive investment route and a negotiable investment route where there will be no direct collection of expenses at all. In addition, the Authority will allow the launch of tracks with performance-dependent management fees, as recommended by the Committee, when according to the Authority’s decision, in the spirit of the Committee’s recommendations – the management fees in these tracks will be “all inclusive” – that is, there will be no direct collection of external management expenses. This step will significantly strengthen the alignment of interests of the governing bodies with those of the savers and will significantly increase their incentive to achieve a high return for savers, subject to an appropriate adjustment to the inherent risks, when all direct expenses of external management fees in this route are based on The governing bodies themselves as an inherent part of the mechanism. The Authority expects that the institutional bodies that trust in the quality of their investment management will offer such routes and compete significantly for the acquisition of clients with adequate management fees and experience of achieving high net returns. This is a significant competitive element that has been absent from the market in recent years.
As stated, the Authority intends to oblige the institutional body to also offer passive investment routes, which include only certain types of direct expenses and a tradable investment route without direct expense commissions due to external management (yes it will be possible to charge direct expenses due to buying and selling commissions similar to mutual funds). It will also be possible to collect differential management fees for each investment route. Thus, savers will be able to opt for investment routes at low management fees and without external management fees. In addition, the Authority will make it possible to establish investment tracks in performance-based management fees, which will include the direct expenses component. In accordance with the committee’s recommendations, the structure of the management fee will be symmetrical, and the management fee will be charged according to the yield achieved, and no management fee will be paid for return losses, except for the possibility of collecting a minimum fixed management fee. The authority will also allow the offer of additional investment routes in accordance with the public’s tastes, but these will be in an easy-to-compare structure for savers. This step will be possible only after amending direct expenditure regulations, after which it will be possible to charge different levels of direct expenditure depending on the investment route. The authority also plans to improve the age-dependent default route so that it better reflects the expected maturity until retirement.
Presentation of the total cost of managing the funds in a single number – expected cost in advance and the costs actually charged
The Authority is working to publish instructions in the coming months to increase transparency for savers regarding the costs based on each investment route. The Authority will be required to present to each saver the actual total cost of the management fee, including direct expenses, in one number to be calculated from the accrual. Also, at the time of joining and as part of the annual reports, the saver will be accessed the total cost that is expected to be charged from him, at the level of the investment route. This will make it easier for savers to understand the total payment charged and make comparisons between the various routes and the various entities. In addition to these measures, the Authority plans to expand the data published by the institutional body as part of the asset reports, with an emphasis on expanding disclosures about non-marketable assets. Also, the detail about the direct expenses actually charged, type and rate, will be expanded. Finally, the Authority plans to continue to increase supervision and control of direct expenditures and strengthen its audit and enforcement in the field.