There are a number of options available to the individual investor regarding which firm to use to buy and sell stocks and bonds on the Tel Aviv Stock Exchange. Which is the best one? This article discusses the various Israeli brokerages and banks that provide independent and managed investment services in Israel, and a comparison of their fees, commission levels and services.
There is one stock exchange in Israel where all securities (bonds, stocks, ETFs, mutual funds, etc.) are traded. There are [post=1165 text="28 member institutions"] holding seats on the Tel Aviv Stock Exchange that are legally allowed to facilitate transactions for individual and institutional investors. Except for the Bank of Israel itself, the members are either investment brokerages, banks or insurance companies. Some of these firms offer services for independent and managed accounts for individuals, and others only service institutions.
Bank or brokerage?
Holding an investment account at a bank is expensive, compared with a brokerage firm. Banks tack on more fees than brokerages, and typically charge more in comparable fees and commissions than brokerages. Banks charge a variety of fees such as minimum transaction fees, account management fees, custodian fees, transaction cancellation fees, limit order change/cancellation fees, wire transfer reception fees, currency conversion fees, interest fees, dividend fees, cash withdrawal fees, etc. Brokerages typically charge only a small fraction of these fees, and when they do, you'll find the fee itself is less. For example, the commission on a single buy or sell order will cost 0.7-0.75% of the total transaction at the largest banks in Israel (Bank Hapoalim, Bank Leumi) with a minimum commission charge of 26-27 shekels ($7). In comparison, investment brokers charge less than a third (!) of that commission percentage, and in some cases require no minimums at all. At the same banks, the yearly account management fee is 0.6% of the customer's account balance. This is also significantly lower at brokerages. Lastly, we have found that banks are usually less equipped to answer your investment questions, are sometimes harder to contact, and may have difficulty executing more sophisticated trades.
Which brokerage should you choose?
The majority of brokerage houses in Israel work only with institutional investors, but a few are set up to also handle retail (individual) investors. These firms maintain online trading systems in English and telephone customer support available during all trading hours. These brokerages provide a good and convenient way to participate in the Israeli capital market through investing, both for the small and larger investors. While the firms facilitate the trade executions for the client at much reduced rates, the actual customer funds are automatically held in trust at a bank which provides full security should any brokerage go bankrupt.
From our experience investing in Israel, we've found the most recommended brokerages are: IBI - Israel Brokerage and Investments Ltd. and Meitav Trade, Migdal Stock Exchange Services (N.E.) Ltd. and Clal Finance Batucha Investment Management Ltd. These brokerages offer low commissions per trade and good customer support. Many Wise Money Israel clients hold accounts with IBI and Meitav and have been very satisfied with their service. Both are set up to handle the needs of the foreign investor and have English online interfaces for investment. All of these brokers are located in central Tel Aviv. Contact us for details on the rates we've been able to negotiate for our readers.
What's the process?
Opening an individual, joint or organizational Israeli investment account requires filling out forms and verification of ID. Wise Money Israel has helped readers open accounts during a visit in Tel Aviv, or we can help you open an account remotely via mail. Israeli and non-Israelis alike can open accounts.
Many of the above mentioned brokerage firms have a minimum opening account balance (~$5,500-$13,700), which can be funded by wire transfer or in some cases by check. Brokerages provide interest on cash deposits whose current yield is much higher than U.S. banks. Funds can be wired back out of your investment account to your bank with a simple phone call or email if necessary.
Brokerage services offered
Most investment brokerages that service individual foreign investors offer the following features:
- Online trading platform in English (Meitav, IBI)
- Telephone customer service
- Monthly printed statements in English (Meitav, IBI)
- Trading in stocks, bonds, Exchange Traded Funds, options, currencies, mutual funds, and trading on international markets (such as Europe)
- Inexpensive wire transfer to/from your bank
- No minimum commission fees (Meitav, IBI)
- Inexpensive currency conversion (Meitav, IBI)
- Stock and bond information and online charting
- Periodic analyst reports on the market
- Certified financial analyst recommendations on individual companies to buy/sell
In summary, investment accounts can be opened with a bank, insurance company or brokerage. Because of the fees and convenience, brokerages are preferable. You'll be able to execute transactions quickly online or via phone with the above listed brokerage houses. The Investment Account page on this site explains the five steps to opening your account.