Supervisor of the Capital Markets, Insurance, and Savings Dorit Salinger has capped direct expenses, also known as double management fees, charged by investment institutions at 0.25% of assets managed. The fee is in addition to the financing expenses on loans for infrastructure projects. This is the first restriction on these direct expenses, which investment institutions have increasingly used in recent years.
In March, Salinger sent the new regulations capping the double management fees to Knesset Finance Committee chairman MK Nissan Slomiansky (Habayit Hayehudi).
An examination by "Globes" found that the importance of the Ministry of Finance's cap is in its existence, rather than the rate, which will not greatly change the current market conditions, as the cap leaves room for raising double management fees by most investment institutions. Except for Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) and Excellence Investments Ltd. (TASE: EXCE), most large investment institutions, which use this device, have been below the cap for years.
However, Salinger's step will likely bring to an end to the steady rise in double management fees by the largest investment institutions, even as it allows many other institutions to charge millions of shekels from savers.
Altogether, insurance companies, investment houses, pension and provident funds, collected nearly NIS 1 billion in double management fees in 2013, on top of the billions of shekels in regular fees collected from policyholders. The average double management fees charged by the four biggest insurance companies - Migdal, Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), Excellence controlling shareholder The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5), and Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) - was 0.21% of account holders' assets managed in 2013, amounting to NIS 372 million. Migdal alone collected NIS 176 million, and Clal Insurance collected NIS 94 million.
Psagot Investment House Ltd., Israel's largest investment house, collected NIS 54 million in double management fees from provident fund account holders in 2013.
The investment institutions use the proceeds from the double management fees to finance deals through third parties, such as payment of brokerage fees, custodian fees, management fees on investment funds and foreign mutual funds, rating costs, and expenses on loans (including expenses related to debt settlements and collection of problem debts), lawyers' fees, etc.
Published by Globes [online], Israel business news - www.globes-online.com - on April 16, 2014
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