Bachar Reform 2005 / Reforma Bachar

The Bachar Reform (Hebrew: רפורמת בכר) was a landmark 2005 structural transformation of the Israeli savings and investment industry, named after Yossi Bachar, Director General of the Israeli Finance Ministry under Finance Minister Benjamin Netanyahu. Before the reform, Israel's five major banks (Hapoalim, Leumi, Discount, Mizrahi-Tefahot, FIBI) vertically controlled the entire savings chain: they took customer deposits, issued corporate and government bonds, managed the provident funds (gemelim) and mutual funds (karnot naamanot) where those deposits were invested, and received fees at every step. This created structural conflicts of interest: banks channeled customer savings into their own funds regardless of performance, allocated corporate bond placements to favored issuers, and were simultaneously underwriters, managers, and distributors of financial products. The Bachar Reform forced the banks to divest all controlling stakes in provident funds and mutual funds within 5 years. The key provisions: (1) Banks could not own more than 20% of any non-banking financial entity; (2) Banks were prohibited from managing provident funds (gemelim) or mutual funds — only insurance companies and independent asset managers could; (3) New independent financial advisors (yoatzim פיננסיים) were to replace bank 'investment advisors' who were actually product salespeople. Impact on the Israeli savings industry: A new, diversified, competitive asset management sector emerged — Altshuler Shaham, More Investment House, Meitav, Harel Finance, Clal Finance, Psagot (later acquired by Meitav), Migdal, Menorah — collectively managing ₹1.5T+ in pension and savings assets by 2023. Competition drove management fees down from 1.5–2% annually to 0.2–0.5% for most pension products. Passive karnot sal became viable as independent managers competed on cost. Impact on Israeli capital markets: The banks' forced divestiture transferred billions of shekels in assets to independent managers who had no conflict-of-interest reason to favor bank-issued bonds — improving the integrity of the Israeli corporate bond market and creating a more arms-length relationship between bond issuers and institutional investors.

Before Bachar (2004): A Bank Hapoalim customer's retirement savings in the bank's Hapoalim Gemel were invested heavily in Bank Hapoalim's own bonds and affiliated corporate debt — generating fees for the bank at the depositor's expense. When Hapoalim's affiliated companies needed financing, the bank's asset management arm provided it, regardless of credit quality. After Bachar (2010): The same customer's savings are in Altshuler Shaham's Gemel Altshuler — managed by an independent firm with no corporate lending relationships, required to publish returns against benchmarks, charging 0.4% annually vs. the bank's 1.5%. The Bachar Reform is why Israeli retail savers today have access to genuinely competitive, low-cost pension and provident fund management — it is the direct cause of the modern Israeli asset management industry.