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Funds test the air online
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June 21, 1999: 4:36 p.m. ET
But mutual fund company services on the Web still vary widely
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Deep in the woods of New Hampshire, past scenic walking trails, basketball courts and a rippling pond, a group of Web experts at Fidelity Investments stare into computer screens all day looking for trouble.
It is the Boston-based fund giant's version of Mission Control, where technology staffers track site traffic and make sure account holders can do everything from trade stocks to design a retirement portfolio.
"You have to be on the Web in order to be in the financial industry today," said Tracy Curvey, senior vice president of Fidelity's personal investments and brokerage group. "It's an integral part of our business."
Funds start getting wired
As the Web transforms business and society, mutual funds have been late coming to the party. But in the past few years, some have been spending hundreds of thousands of dollars to catch up, while Web operations in the rest of the fund universe vary widely.
The bigger companies like Fidelity and Vanguard have enough resources to offer everything for investors, from brokerage services to real-time stock quotes.
Some of the medium-sized fund groups are trying to focus on a particular niche, whether it's retirement investing or personalized portfolio trackers. Smaller fund "boutique" operations are linking up with fund "supermarkets" like Charles Schwab.
Merrill Lynch's decision to venture into online trading will only heat up the competition in the financial services industry for investors' attention, fund pros said.
"Even before Merrill Lynch made its announcement, there was competition to add more bells and whistles to your Web site," said Catherine Hickey, an analyst at fund-tracker Morningstar. "Merrill's decision will definitely motivate fund companies even more."
Yet some fund companies still have Web sites that are no better than an electronic brochure, with little more than the names of their funds, said James Punishiller, an analyst at Forrester Research.
"Fund companies are having trouble justifying building up Web sites," Punishiller said. "It's amazing how few fund companies advertise at portals, Morningstar and online business sites."
One-stop shopping
The largest fund operations are trying to create a place on the Web where investors can take care of virtually any financial task in one place.
"It seems like every time you turn around another fund company is opening a brokerage business," Hickey said. "Consolidating your account is what they're going after -- people really like being able to do it all in one place."
Fund companies see the Web as a way to generate income in different ways at a time when fund inflows are slowing down and competition for investors is high, Hickey said.
At Fidelity, investors can buy and sell Fidelity funds and other funds in its fund supermarket, open a brokerage account online, buy and sell stocks and other securities in that brokerage account, move money from stocks to funds, move money from a separate bank account into a Fidelity account and check the value of their holdings, among other tasks, Curvey said.
About 31 percent of mutual fund trades are done online, while 77 percent of equity trades are made on the Web, Curvey said. Half of Fidelity's 6 million account holders go online, she said.
"It's gone from a fraction of our business to a major driver of our business," Curvey said.
One type of Fidelity brokerage account has a feature allowing customers to write checks and pay bills. Another new account, available in July, will be linked to an American Express card. The statement will list card activity and Fidelity will automatically pay the balance every month.
"It continues to grow, and where it levels out I don't know," Curvey said.
Focusing on a niche
Scudder Kemper Investments also offers a range of services on its site, from a fund supermarket to online trading and stock quotes.
But one key feature is a financial "concierge," a sort of electronic tour director who can answer "plain English" questions and guide you through the site, said Greg Titus, vice president and director of electronic commerce at Scudder.
"We might be taking a slightly different approach -- we're looking for areas where we can excel," Titus said. The concierge and portfolio planning tools help users personalize the experience, he said.
For example, if a user types in, "I need some information on Internet funds," the concierge will point to a section called "fund facts."
"The lines are blurring online -- a lot of the things you find on our site you'd find on a consumer media site like Yahoo! Finance or a broker site like E*Trade," Titus said.
Users also can create and save portfolio plans depending on different scenarios -- one if they win the lottery; one if they inherit money; and one if they are stuck with their 401(k) and IRA accounts.
"We're bringing new users on every day," Titus said. Scudder had 100,000 more individual visits in January than a year ago. The company expects daily traffic to grow 50 percent in 1999.
T. Rowe Price is taking a similar approach. Its site has a full range of services, but it is highlighting its retirement section, Retirement Plans @Work. The service allows people to buy, sell and redeem shares; change their contributions and allocations; and check balances, among other tasks.
The retirement site has grown 600 percent since its launch in 1997 and 1998, Sanchez said. By May, the section had already gotten more traffic than in all of 1998, he said.
"We expect a 400 percent growth this year, if not more," Sanchez said.
Another approach
Other fund companies take a different approach. Janus Funds, for example, looks at its Web site as merely another channel, along with the telephone, said Mark Cohen, manager of Internet strategy and development.
Janus has no plans to develop an online brokerage because it is "first and foremost" a money manager, Cohen said.
"To get involved in (the online brokerage business) would not be in the best interest of investors," Cohen said. "It would take our eyes off the ball."
At Janus, Web users can get details on funds and daily prices; look up their account balances; and do purchases, exchanges and redemptions, Cohen said.
"We look at the Web as another channel for us, we don't look at it as a business," Cohen said. At the same time, the company realizes its importance. Janus got 10,000 site visits a day in 1998. In 1999, the number has risen to 40,000.
The smallest players
At the other end of the fund universe, the smallest companies find a Web operation too costly, said Hickey of Morningstar. Many boutiques have linked up with fund supermarkets like Schwab and Fidelity.
"They might be able to flourish by going with a supermarket," Hickey said. "But who knows? It's uncharted territory. The more we see financial services firms moving to the Web, it could very much be in their (the boutique shops') interest."
Hickey said it's hard to say whether the smallest fund companies can survive without a Web presence.
Punishiller of Forrester Research said the supermarkets don't give investors enough information about small fund shops. Plus, investors lose touch with the fund company itself.
In an era where people are bombarded with news and information, investors need a Web site where they can read interviews with fund managers, get daily net asset values and hear what top economists think about the market, Punishiller said.
"You need to re-establish a connection to the consumer," Punishiller said. "People need help wading through the confusion." 
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