They say that some problems are nice to have. Having a sum of cash in your bank account and not knowing what to do with it might definitely be classed as one of them! From the sale of a property, inheritance, to plain old prudent saving every month, there are plenty of ways that these balances are being generated.
With the banks cutting down on the number of Investment Advisers, and moving those that are left out of local branches and into regional hubs, having a bank advisory portfolio is becoming a less attractive solution for many customers with large cash balances in their bank account. For Olim, we have the additional hurdle of finding one who actually speaks English and is accessible when needed, meaning that these changes are only serving to exacerbate our challenges.
This is why the solution of portfolio management is starting to become a more attractive prospect for many people, especially Olim.
The process is simple. First, you sit down with the portfolio manager of your choice and discuss your investment goals, and how much risk you feel comfortable taking. Using their tools, research, expertise and experience, the manager then invests your money according to your preferences. An advantage over the bank-advisory portfolio is that they can just get on and invest without having to ask you for approval each time they decide to buy or sell something. With most people not having the time, desire, or knowledge to be involved in the micro-investment decisions, this is very useful.
Therefore, we give you below the "5 Things You Didn’t Know About Portfolio Management in Israel":
1. Accessibility - The portfolio is managed through your bank account, meaning you can constantly track every movement in your portfolio at all times should you so wish. You sign a very limited Power of Attorney allowing the manager to buy and sell securities ONLY. To remove the manager, you can simply tell your bank to cancel the Power of Attorney.
2. Fees – Managers will normally charge an annual management fee, which is a percentage of the value of your portfolio. This fee you pay to the manager directly.
3. Bank Fees – As well as the manager's fee, you will also pay buy/sell and safe keeping fees to the bank, however most managers will have an agreement with the bank whereby the bank fees on the portfolio are extremely low. So whilst on an advisory portfolio you don’t pay any external management fee, in most cases, especially for small-medium size portfolios, the bank fees are much higher than they would be for a managed portfolio – thus partially mitigating the manager’s annual fee. Also, because the fees for buying and selling go to the bank and not the manager, there is no need to worry about over-trading ('churning').
4. Managers – In Israel, Portfolio Management is offered by both the large institutional asset managers, as well as smaller boutique companies. For Olim, we usually find that the boutiques are more appropriate because there are more companies that have fluent English speakers there, and the service level is more in line with what English-speakers are used to.
5. Minimums – One of the reasons that this type of portfolio management is not accessible to all is because of the minimum balances required. These tend to be around 350,000 Shekel for the large institutional managers, and more like 1m Shekel for the boutique managers.
At IAL, we use Portfolio Management as part of our client's investment strategy where appropriate ,and can help set you up with one of Israel's leading boutique Portfolio Management firms. For more information contact us here.