How can one signature put you at financial risk?

Kinneret Razon Picovsky, a leading expert on Israeli investment regulation, points out how receiving advice from a licensed professional protects the client.

February 17, 2019 22:41

Shekel money bills. (photo credit: REUTERS)


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Most investors in Israel who were raised in English-speaking countries are familiar with the concept that the professionals they consult for financial advice must be properly trained and be under the supervision of a national regulatory body.

That’s the case in Israel too – with licensed practitioners being supervised by the Israeli Securities Authority – but there’s a glaring loophole that many experts fear is being exploited to the detriment of unsuspecting clients.

Under Israeli law, an individual who falls under the Qualified Client rules can be sold investments without receiving advice regarding their suitability. That’s fine if you are a sophisticated investor with considerable experience and an understanding of complex products. But if you aren’t, you can create real problems for the future if you are convinced to sign the Qualified Client declaration. This is because you are losing the considerable rights and consumer protection that Israel Securities Authority-regulated professionals provide, which includes the vital requirement to inform the investor regarding special risks that the investment may involve.

This may not seem like an issue to worry about. However, if the investment proves to be completely unsuitable then the investor has no rights. Quite simply – the Israel Securities Authority won’t be there to protect you.

Tel Aviv-based attorney Gidon Cohen makes a clear comparison.

“Seeking financial advice from an unqualified financial adviser is like seeking medical advice from an unqualified doctor. Both are likely to land you in an unhealthy situation.”

Even a good lawyer may not be able to help you if the investment proves inappropriate, as advisers in Israel who are not licensed are not obligated to have professional insurance to compensate clients in the event of negligence.

Kinneret Razon Picovsky, a leading expert on Israeli investment regulation, points out how receiving advice from a licensed professional protects the client.

“The law gives the investor the option – if he suffered loss – to submit a civil claim against the licensee, based on breach of one of the obligations,” she says. “In addition, the law enables the investor to submit a complaint to the ISA against the adviser or manager, who will be exposed to disciplinary sanctions if they have breached the rules.”

For individuals navigating the complexities of investing in Israel the message is clear – take advice from an ISA-licensed professional and never sign the Qualified Client declaration if you are not a sophisticated and experienced investor, because if the investment goes disastrously wrong you are on your own…

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