TASE CEO: Split investment consultancy from banks

• Published date: 24 January 2023

"There is a deep, built-in failure in Israel in the activity of the financial consultation service available to the general public," the TASE states, and illustrates the point using figures from the recently published Israel Securities Authority report on "The Activity of the Consultation Function at the Banks"

The report showed that the number of consultants licensed to provide investment advice had shrunk by 30% within five years, and that this business was highly concentrated, with 94% of the consultants working in the banking system, and in practice providing consultancy services to those with, on average, NIS 950,000 in their accounts.

"These figures, together with the huge current account mountain in Israel, one of the highest in the world and currently amounting to about NIS 520 billion, illustrate the substantive failure in the consultation function at the banks. The rise in interest rates over the past few months represented unambiguous proof that investment consultancy is not available to the general public, when appropriate financial conduct is critical and more than ever important to the ability of households to cope with the cost of living.

"A simple calculation shows that, in the current interest rate environment, an Israeli with a current account balance of NIS 100,000 loses passive income of NIS 4,000 annually, as inflation erodes the value of the money," the TASE explains.

"It's clear what isn't working"

Talking to "Globes", TASE CEO Ittai Ben-Zeev said that he expected that the widespread reaction would be "How can the stock exchange come out against some of its shareholders?", but that once people thought about it in depth, the TASE's stance would be clear to them.

"There are excellent consultants at the banks, but the focus is the method, and that's where there's a problem," Ben-Zeev says. "Since the Bachar reform of 2005, the consultancy function has not been perceived as a strategic line of business for the banks, and nor can it be, since Bank of Israel regulation does not allow the activity of the consultants to be measured.

"When you add this to the Consultancy Law, which is not adapted to the new worlds of accessibility, data, and analysis, together with the built-in conflict of interests at the banks arising from the fact that they don't have to pay interest on money lying in a current account, certainly at a time when interest rates are rising, all these things enable the banks to widen the financial spread on current accounts...