- General duty of trust – Licensees have a duty to act for the benefit of their clients with trust and diligence, and cannot place their personal interests or those of another ahead of those of their clients;
- General duty of care – Licensees have a duty to act with the care and professionalism that a reasonable licensee would employ under similar circumstances and must take all reasonable measures to protect the interests of their clients;
- Tailoring advisory/management services to client needs – Licensees must clarify the investment objectives of their clients, and ascertain their financial standing and all circumstances relevant to the investment and must tailor their advice or portfolio management to client needs;
- Written agreement – Licensees must render services according to a written agreement concluded between themselves and each client.
- Fair disclosure – Licensees are obligated to comply with fair disclosure principles, including:
- Disclosure of all information material to the suggested transaction;
Disclosure of special risks
Disclosure of conflicts of interest;
In the case of marketing agents, disclosure of ties and preference to certain financial instrumen;
- Disclosure of all fees and commissions levied on the client.
- Record keeping – Licensees must record and save every advice activity and every transaction conducted for or on behalf of the client.
- Restrictions on proprietary trading – As a control on potential conflicts of interest and market abuse, licensees are restricted in their ability to engage in proprietary trading.
- Additional obligations placed on portfolio managers:
- Financial assets must be held for each client separately;
- Client assets cannot be used by the portfolio manager;
- Performance-based fees are prohibited;
- Benefits other than those stipulated in the Law are forbidden;
Reporting Requirements to Clients
Portfolio management firms must issue statements to their clients at least quarterly, which report all transactions conducted on their behalf, the composition of the investment portfolio, cash balances and all direct and indirect fees charged.
Reporting Requirements to the ISA
All licensees must file the following reports to the ISA: annual report on compliance with capital and insurance requirements; current reports if one of the qualifying conditions for obtaining the license cease to exist; in the case of portfolio managers, a current report if their share holdings in an individual issuer exceeds five percent of issued capital or entitles them to voting rights exceeding five percent.
Obligations stemming from the Prohibition of Money Laundering Law – 2000
Portfolio managers (and non-bank members of the Tel Aviv Stock Exchange) must also comply with anti-money laundering laws. As such, they must fulfill Know-Your-Customer obligations, which include verification of the identity of their clients, record retention, and filing reports to the Anti-money Laundering Authority.