Opening an Israeli Brokerage Account

Congratulations! Your money is ready to make aliyah. Let’s bring it over here, so that we can get back to reading through the pile of old magazines that we got the last time someone visited us from America. (Thanks, Rachel!)

Things you will need:

• A pen and paper
• Willingness to drive to Tel Aviv
• A plan

Excuse me, “a pen and paper”? What is the pitom? This is 2014 and you are living in a hi-tech country. This entire process can be done electronically! Put that pen and paper away. Except, keep a fax machine handy. At some point, you will always need a fax machine.

                                

This part of investing in Israel – opening a brokerage account – is actually very easy to do. If you have a lot of money to invest (around 250,000 shekel or more), you can even find someone in Israel who will be willing to manage it for you. I never investigated fully how this would work, so please let me know what you find.

What I can tell you is how you can buy and sell Israeli stocks and bonds on your own.

At Your Bank

All of the banks in Israel offer trading services. They each have their own trading system and all you would need to do is ask your bank to turn it on. I’ve heard of some people being told by their banks that this is not allowed because they are American, but this is just a simple Israeli misunderstanding. The banks are not allowed to provide Americans with ability to trade U.S. stocks and bonds in an Israeli account, but there is no restriction to trade Israeli stocks and bonds. Fortunately, as a seasoned oleh, you already know how easy it is to convince Israelis that they have made a mistake. Make sure your fax machine is handy.

Trading with your bank is convenient because you have already memorized the 16 different special secret codes that change every month which you need to login. Also, the banks actually have fairly good trading systems. Of course, by “fairly good”, I just mean, “not necessarily as bad” as the alternative.

The only downside with the bank is that by the time you finish paying them fees, it’s not entirely clear whether you will have any money left. In fact, you are being assessed a fee right now just for reading about your bank on my blog. This is the “reading about a bank fee”. This one is totally my fault, so I’ll cover it for you.

Whoops! I just realized that you will need to pay the “friend is paying a fee for you fee”. This one is also my fault. I’ll cover it for you also.

Here is what the fees would look like for a basic brokerage account. They could even be lower as you invest larger sums of money:

Fee	Amount
Stock Trading Fee (of trade amount)	0.1%
Bond Trading Fee (of trade amount)	0.1%
Minimum Trading Fee per transaction	2.35
Monthly Service Fee	15.00
Minimum Trading Fees per month	9.00
Other Fees	None
Interest on the “Plus”	Prime “minus” 2.5%

If you have a brokerage account in the U.S., you may notice that these fees are very competitive with what you are used to paying in America. The major difference is the monthly service fee and required minimum transactions per month (totaling as much as 24 shekel). This is not a lot of money, but as Americans, we would have been more comfortable without these. Then again, we also would be more comfortable with wider parking spaces. That’s just what we get for living here.

By comparison, here is what the banks will want to charge you:

Fee	Amount
Stock Trading Fee (of trade amount)	0.650%
Bond Trading Fee (of trade amount)	0.650%
Minimum Trading Fee per transaction	27.00
Monthly Service Fee	None
Minimum Transactions per month	Possibly, none
Other Fees	1% and up
Interest on the “Plus”	Of course not, silly

In my negotiation with the bank, I only got as far as the “Other Fees” before I stopped. The banks charge דמי משמרת, or a “custodial fee,” which is assessed as a percentage of the money that you have in the account. The standard fee for this 1%. They will discount it for you, but they are unlikely to eliminate it altogether unless you can show that you will have significant trading volume.

To Bank or Not To Bank?

Trading with your bank is the quickest way to get started and having all of your money in one place is really very nice. However, you will want to make sure that the fee structure is reasonable compared to what you would pay with a brokerage account. As far as I have researched it, unless you have more than about $1 million that is planning to make aliyah, it is highly unlikely to be the case. Also, keep in mind that banks “expire” whatever discounts they give you on fees each year, which means that you will need to be prepared to re-negotiate the terms of your trading services every 12 months. 

Brokerage Accounts

The alternative to trading with your bank is to open an Israeli brokerage account. This option is a lot like eating in buffet style. It is not as convenient if you have to get up all the time to refill your plate, but it also means that you will eat less. Keeping your money further away from your bank account will make it easier to keep it off limits, which is a best practice for successful investing.

We already saw the price structure for a basic account (which is all you will need to trade just in Israel). The only requirement for the brokerage accounts is that you will need to meet their minimum opening balance, which will be about 50,000 shekel.

As it turns out, all of the brokerage firms in Israel use the same trading system. I consider myself somewhat an expert on “systems” because I work in software, so I can basically give you this fairly reliable assessment: it is not that good. But hey, it works.

Since all of the companies use the same trading system, it is really very simple to decide which one to use. I recommend evaluating them based on whoever calls you back first. In my case, it was IBI. They not only called me back within hours (are they Israeli?), they also paid for my parking in Tel Aviv when I came to visit them to an open account (really, are they Israeli?). 

You can find a convenient list of brokerage companies here. It is not quite up to date, but it will give you a good list to call if you want to do some comparison shopping. 

Or, I can save you the effort on the research: they are pretty much the same. If you want the cheapest, your best option is probably Migdal. They have a similar low-cost fee structure as IBI, but without requiring a minimum of 9 shekel in transactions. Unfortunately, Migdal told me that they are not willing to open accounts for Americans because the paper work is too complicated. I wonder if their fax machine is broken.

What Migdal clearly did not know is that I would write about this on my blog and encourage you to call them and ask them about opening an account so that they can see just how much they are missing. Please tell them that you have $1 million to invest. When they ask you why you just don’t keep it with your bank, tell them you like to eat at buffets.

הצלחנו!

There you have it. You can now invest in Israel! All you need now is a plan. That shouldn’t be hard at all. You simply need to figure out your life goals and work backwards to understand your investment objectives. At that point, it is simply a matter of understanding the tax consequences of dual citizenship and you are all set.

What’s that you say? You would rather get a driver’s license again?