The banks have compensated themselves for most of their lost revenue from their mutual funds that they were compelled to sell, concludes “Globes” from an analysis of investment instruments in the mutual funds market. An analysis of the mix of mutual funds found that the changes in the market have resulted in the average commission charged by the banks rising from 0.41% of assets managed in 2005 to 0.45% of assets managed in 2006.
Since the mutual funds market totals NIS 120 billion, each extra 0.001% the banks in distribution fees amounts to NIS 12 million. Banking sources estimate that the average distribution fee will rise to 0.5% of assets managed, which means that the banks’ revenue from fees will reach half of the revenue in 2005, before the sale of the funds.
After the sale of their mutual funds, the banks’ source of revenue from the funds was the distribution fees they charge the funds’ producers (insurance companies and investment houses). The Bachar committee lost the bitter battle to set these fees through legislation, and the Ministry of Finance ultimately settled on a differential system of fees depending on the type of mutual fund. Shekel funds will pay the lowest distribution fee of 0.25% of assets managed; stock funds will pay the highest distribution fee of 0.8% of assets managed; other funds, especially foreign currency funds, will pay 0.4%. The ministry said at the time that the average distribution fee would be around 0.4% of assets managed.
The banks began to charge distribution fees under the Bachar capital market reform legislation during the first quarter of 2006. What developed in practice was a change in the mix of mutual funds over the course of the year. The proportion of shekel funds, with the lowest distribution fees, shrank, while the proportion of stock funds increased. The change was driven by large redemptions from shekel mutual funds and a corresponding increase in stock prices and a change in public demand, which boosted the assets managed by stock mutual funds.
An analysis by “Globes” of the banks’ financial reports for the third quarter of 2006 found that the banks collected NIS 172 million in distribution fees in April-September. The banks want the Ministry of Finance to amend the regulations that set distribution fees by either raising them or abolishing the barriers to free competition. Israel Discount Bank (TASE: DSCT) also recently announced that it planned to begin charging a free of the purchase or sale of mutual funds.
Published by Globes [online], Israel business news - www.globes.co.il - on January 23, 2007
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