Shibolet & Co. – Capital Markets and Financial Regulation | Israel | August 2026
In Brief
On August 5, 2026, the Israel Securities Authority (ISA) published for public comment a draft directive that would, for the first time, permit all licensees under the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995 (the Advice Law): portfolio managers, investment advisers and investment marketers, to publish past performance data, subject to a uniform and binding methodology.
The draft directive would replace the current Directive Concerning the Presentation of Returns of Managed Portfolios to Persons Other than the Portfolio Owner and Their Publication (2011) (the ISA Directive of 2011), which applied to portfolio managers only. Comments may be submitted to the ISA until September 14, 2026.
What Does the New Draft ISA Directive Change?
The draft directive marks a conceptual shift: the ISA is moving from a regime that prohibits the publication of past performance data to a voluntary regime that permits such publication by licensees who elect to do so, on the basis of a common “professional language.” The draft directive does not mandate publication; it sets the rules of the game for licensees who choose to externalize their performance.
How Does the Draft Directive Differ From the Existing Israeli Regime?
The existing Israeli regulation left a significant gap, which the draft directive seeks to close. The reporting obligations currently in force under the Advice Law (quarterly client reports) focus on providing each client with information regarding his or her own personal investments only, and do not serve as a basis for comparison between licensees.
Until now under the ISA Directive of 2011, only portfolio managers have been permitted to present past returns to someone who is not their own discretionary portfolio management client. That directive allowed such presentation only within a personal dialogue. It also required disclosure of the highest and the lowest return at each risk level, alongside a simple average. According to the ISA, this methodology created barriers that deterred portfolio managers from using it.
No equivalent regime applied to investment advisers or investment marketers, who had no framework permitting them to show past returns to anyone other than the portfolio owner. The ISA attributes the gap to a structural difficulty: a client is not obligated to act on the recommendations given. The returns achieved in an advised portfolio therefore reflect the client’s own decisions as much as the licensee’s advice, and do not reliably indicate the quality of the service provided.
The draft directive gives licensees possibilities that the 2011 regime did not provide. It proposes to permit both the publication of past performance and its presentation to clients, where:
- Publication means performance information that stands on its own, without professional mediation and without the possibility of immediate interaction and is therefore subject to a rigid methodology.
- Presentation within a personal dialogue means performance information conveyed directly to a client or prospective client, with increasing flexibility as the licensee’s familiarity with the client deepens.
In both tracks, the declared objective of the draft directive is to reduce the risk of biased or selective presentation (“cherry picking”) and of obscuring the essential link between return and risk.
What Are the Rules for Publishing Past Performance?
A licensee electing to publish past performance under the draft directive would be required to comply with a full set of rules, the principal elements of which are:
- Selected period – the five years preceding the publication. A licensee active for a shorter period shall present its entire period of activity, provided that period is no shorter than 12 months.
- “Client portfolio” – for this purpose, only a portfolio that was active throughout the entire selected period and comprises more than one asset. For investment advisers and investment marketers, an additional requirement of full conformity applies between the recommendations given and the transactions actually executed – a condition designed to ensure that the return reflects the licensee’s judgment rather than the client’s.
- Three risk levels – portfolios are classified by annualized standard deviation: low (up to 5%), medium (5%–10%) and high (above 10%). A portfolio containing non-tradable assets, or transactions involving special risk under Section 18 of the Investment Advice Law, is automatically classified at the high risk level.
- Representative portfolio – at each risk level, only the portfolio achieving the median return may be published, so as to neutralize the effect of outlier portfolios.
- Full publication requirement – a single risk level may not be published in isolation; all three risk levels must be presented simultaneously.
- Minimum threshold – publication with respect to a risk level is permitted only where that risk level comprises at least five client portfolios.
- Standard deviation index – alongside the return, an index is presented, calculated against a reference value of 7.5%, based on the standard deviation map established in the European Union for the classification of UCITS funds.
- Uniform calculation formula – returns are calculated using the TWR (Time-Weighted Rate of Return) formula. TWR is a return calculation method that neutralizes the effect of the timing and size of deposits and withdrawals, consistent with Proper Conduct of Banking Business Directive No. 460.
What May a Licensee Present Within a Personal Dialogue?
The draft directive distinguishes between two categories of client, and the scope of what a licensee may present differs accordingly.
A prospective client is a client who has not yet undergone a needs-assessment process. To a prospective client, the licensee may present only the data permitted for publication, together with the median return of client groups classified in advance, subject to presentation of the full range of groups, a threshold of five portfolios per group, and clarification of each group’s risk characteristics.
An assessed client is a client with respect to whom the licensee has completed a needs-assessment process, whether or not an agreement has been signed. To an assessed client, broader flexibility is afforded: the licensee may present the returns of specific portfolios matching the client’s characteristics and needs, accompanied by supplementary data reflecting the risks. So long as no agreement has been signed, the specific assets in the presented portfolios shall not be disclosed.
Cross-Cutting Obligations Under the Draft Directive
Beyond the rules governing each track, the draft directive imposes a set of obligations that apply to any publication or presentation of past performance:
- Documentation – an obligation to retain the supporting records, calculations and classification methods for seven years, and to adopt dedicated work procedures.
- Accompanying disclosures – in every publication or presentation: a clarification that past performance is not indicative of future results, disclosure of the selected period, and clarifications regarding the limitations of the standard deviation index and of non-tradable assets.
- Firm level or individual level – data may be presented at the level of the firm or of the individual providing the service, subject to clear disclosure.
- Third parties – only data prepared in accordance with the publication rules may be transferred to third parties (such as client referral companies), and their presentation of that data will be deemed a presentation on behalf of the licensee.
- Eligible Clients – the draft directive will not apply with respect to Eligible Clients as defined in the Advice Law.
What Questions Has the ISA Put to Public Comment?
The ISA has requested specific input on four questions, and these are the principal point of influence for the market:
- Gross returns – whether to permit the presentation of gross returns alongside net returns, along the lines of the U.S. model, in a manner that would neutralize differences in management fees between clients.
- Standard deviation index – the necessity of the standard deviation index in lieu of presenting the raw standard deviation figure itself.
- Five-portfolio threshold – whether the threshold of five portfolios per risk level is appropriate, and whether disclosure of the number of portfolios underlying the calculation should be required.
- Non-tradable assets – the treatment of non-tradable assets, including whether their automatic classification at the high risk level properly reflects their characteristics.
How We Can Help
Shibolet & Co. advises licensees under the Advice Law on all aspects of the regulation applicable to their activity – from formulating and submitting comments on the draft directive, through assessing the directive’s implications for the business model, to operational preparation and updating of internal procedures ahead of the directive’s entry into force.
