An e-mutual fund trading platform is readying for launch. Almost a year after the Israel Securities Authority and the Mutual Funds Association fantasized about an alternative mutual fund distribution system, separate from the banks, the Mutual Funds Association has published a tender for the operation of a website through which investors can directly buy unit in mutual funds, thereby saving part of the purchase costs. The Mutual Funds Association hopes that this will break the banks’ stranglehold on the distribution of mutual funds.
Although it was originally thought that a broker or syndicate of brokers would run the site, ironically, a bank will do so. Sources inform ''Globes'' that bankers have been offered to bid in the tender.
The tender deadline is the end of March. Capital market sources believe that most of the bidders will be small and mid-sized banks, which currently have little revenue from mutual fund distribution fees. Management of an online platform will give them control of a new market with high growth potential. It will also give them access to a huge database of online customers.
The idea of a broker running the site was dropped because of conflict of interest concerns arising from the purpose of serving all mutual fund management companies and their role as a fund manager. However, if the tender among the banks fails, the option of a broker running the site could go back on the agenda.
The main beneficiaries of the platform will be investors and mutual fund managers. Investors will see cheaper management fees and investment costs, because a purchase made via the platform will be exempt from the fees now paid to the banks for buying and maintaining holdings in mutual funds. Mutual fund managers will benefit from their reduced dependence on the banks. Mutual fund managers currently pay banks a distribution fee of 0.25-0.8% of assets managed, depending on the type of fund. It cannot be ruled out that the banks might raise their fees in the future.
If the online platform becomes effective, mutual fund managers will have an independent distribution system.
Published by Globes [online], Israel business news - www.globes.co.il - on February 21, 2007
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