Aggregated News From Investment Management Regulators

New ISA Initiative to Increase Competitiveness on the Mutual Fund Market: Fund Managers will be Able to Refund Management Fees

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Amendment to the Joint Investment in Trust Law will allow for better competition among Fund Managers for clients’ coverage; in March Knesset had approved another ISA initiative, in the same area, which allows Fund Managers to reimburse management fees to their clients.
Lately, the ISA had approved an amendment to the Joint Investment in Trust Law, which allows Fund Managers to refund management fees without it being perceived as a prohibited benefit, providing the refund is according to clear rules that will be published in the fund’s prospectus and report. The discount in management fees might be based on: the value of held units, length of period for which they were held or the identity of the distributor who holds them or through whom they were acquired. At the moment the regulation stipulates that no benefits are permitted, in connection with acquisitions, with the exclusion of a few detailed exceptions.
The purpose of the proposed amendment is to allow collection of management fees by a trust fund on differential basis. Presently it is not possible to charge varying management fees from the public. Management fees are paid off directly from funds’ assets and are equal for all.
During the last months requests, from fund managers, had been received by the ISA to examine the possibility to charge lower management fees in order to enhance trust funds’ ability to compete for big investors’ money, since big investors in general and institutional investors in particular, usually enjoy lower management fees investing in alternative channels. The ISA had examined the issue and decided to allow discounts in management fees, by means of a refund to unit holders, without it being perceived as a prohibited benefit, according to encompassing rules published in a prospectus or in a report and based solely on criteria of size, length of holding period and the identity of the distributor holding the units. Opening management fees to competition will benefit the clients, who will be able to choose units of a fund offering them the highest refund on management fees.
This proposal comes as an addition to reform pertaining to the increased competition between trust funds’, which was also initiated by the ISA. About three months ago the Knesset had approved in the second and third reading another amendment to the Joint Investment in Trust Law, which encourages competition between the members of the stock exchange by allowing a member of the stock exchange to reimburse his clients for distribution fees he charged fund managers, as part of his clients’ acquisition of said trust funds’ units.
This competition is expected to lower commissions (or even their full reimbursement), and substantially reduce the cost of investment in trust funds. The ISA and fund managers are acting to create an alternative system for the acquisition of trust fund units. The new system will allow a client to acquire units of a trust fund through the internet, without being charged any commission whatsoever. Provision of discounts on management fees is expected to increase the attractiveness of the aforesaid distribution method even more and increase its effectiveness as a competitive incentive.

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