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English > News > "The Angels Test" - a conflict of interest in pension savings / Adv Ehud Peleg >

"The Angels Test" - a conflict of interest in pension savings / Adv Ehud Peleg

Angels are usually in heaven. On Earth, live animals and human beings (there are some exceptions to both assumptions).

Human beings are imperfect, they have weaknesses and dispositions.

When it comes to world trade, we must particularly keep these facts in mind, if we want to ensure not only the interests of business owners, but also fairness toward consumers. Business people, responsible for the concept of "maximizing profits" and "offering value to shareholders", tend to sometimes overlook the value of fairness, or not to give it the appropriate weight in the equation that determines the business conduct.  For instance, such an approach would dictate hiding information from the consumers, deceiving them through false publications, taking advantage of their  distress and of their ignorance regarding their legal rights and their understanding of related material in the commercial sector.

In the field of pension insurance, the average consumer understands very little. Pension agents and distributors meet the consumer at his weakest point, usually when moving to an organized workplace or to a different job, and advise him about the recommended savings channels and to which fund or retirement pension scheme he should contribute. They do not tell him about compensation arrangements between them and this fund.  They do tell him that the more he will pay, the more they will receive compensation accordingly. They do not tell him about the fact that their agreement with some of the funds gives them higher compensation compared to other ones. Usually, the consumer accepts the recommendation, while, not having sufficient understanding, he does not even know which control questions to ask (for example - what are the alterative options they offer to the funds).


Considering the agents and distributors as professionals, as people who provide him service and want to preserve him as a client, and in light of the explanations that sound convincing and logical, he will tend to trust them.      

Now there are two options: the agent and the distributor will act trustfully for the client's sake, and will recommend him to contact the fund or the retirement pension scheme which is best for him, even if the reseller's arrangements with the same fund are less advantageous than with other ones.

The other possibility is that, consciously or unconsciously, the distributor's recommendation will be guided by the well-known rule: "What is in it for me", and not necessarily by the benefit to the consumer.

In the differences between the two possibilities, are found  many billions of shekels consumers are likely to pay to the insurance companies during the savings period, or not to receive their pension benefits when reaching the age of retirement, since they  were less optimal pension schemes for them, as the result of biased recommendation by the pension marketer.

This dilemma of the pension distributors and agents faces them with the "angels' test" - an impossible conflict of interests that is incompatible with their entity as human beings, especially as businessmen.


Head of Capital Markets and Insurance Commissioner, Dorit Selinger, has sought to act against this situation of conflict of interest, and to prevent this harsh test from the marketers. 

She has published a position paper requiring avoiding any connection between the agent or marketer and the level of management fees paid by the consumer to the fund and the payment the fund marketers will receive from these funds.

In response, pension insurance companies have launched a rough struggle against the commissioner, threatening to file an appeal to the Supreme Court. The companies understand that removing the improper relation will override the possible bias in the    distributors' recommendations and expose them to real comparison and competition that will reduce the management fee received by the consumers. They will not easily give up the hen that lays golden eggs.

Israel Consumer Council has prepared a legislative measure meant to establish the status of objective pension consultants for public service; they will be free of any business connection with funds or pension or retirement pension schemes, and they will encourage the public to prefer their services, at least by default, in order to bypass the conflict of interests of agents and distributors working against their own interest.

Meanwhile, the measure taken by the Commissioner of Capital Markets is clearly required and it is important to attempt to lead this industry, which is so significant to living level of people reaching age of retirement, in the direction of a more equitable future.  


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