April 24, 2000
NEW YORK - Information-based mutual fund websites will eventually become "infomediaries" or sites that offer investors objective advice on funds as well as the capability to purchase funds online, according to one website entrepreneur.
The entrepreneur, Jonas Max Ferris, is the co-founder and CEO of MaxFunds.com, a new website that tracks and rates no-load funds that are either too small or new to have ticker symbols.
His site began offering fund applications and prospectuses for 30 of the funds it tracks only a few weeks ago. That initial handful of funds brings together more fund prospectuses and applications than any other site on the Internet, he said.
"I know it sounds crazy, but no one is doing this yet," he said. "The technology isn't anything new, but we're the first to start offering this kind of service."
Ferris made his remarks at a conference here on electronic distribution of mutual funds sponsored by International Business Communications of Westborough, Mass.
MaxFunds.com provides a variety of data and information on the funds it tracks including news items, proprietary ratings and comparisons of fund performance against others in their class. By entering a fund's symbol, a visitor to the site can obtain access to the information as well as download a prospectus and an application. Before a visitor can download an application, however, he must confirm that he has read the prospectus. The application can then be printed, filled out and sent through regular mail to the fund company. There is no charge for the user and only a $5 charge to the fund for each application downloaded, Ferris said.
But that will all change within a year or so, Ferris said. Ferris envisions then having a totally automated, paperless transaction that will allow visitors to fill out a standard application which can then be electronically delivered to the fund company while the investors' payment is wired from his account into the fund.
Compliance issues have prevented an entirely paperless transaction model from being fully embraced by the industry. But, as more large companies like Invesco of Denver, Colo., adopt 100 percent online transactions, a trend will begin to emerge, Ferris said.
"Funds aren't very pioneering on regulatory issues," he said. "They like to do what has already been done. It leads to an overly safe environment that doesn't innovate anything. My prediction is that once you have one or three big funds doing this, everyone else will follow."
By aggregating fund applications and offering investors an opportunity to conduct all of their transactions on one site, MaxFunds.com will provide direct competition to fund supermarkets, Ferris said. If enough companies authorize him to sell their funds, his site will resemble a supermarket but it will charge funds considerably less than the 25 to 30 basis points currently being charged by most online supermarkets. The principal difference between Ferris' conception and supermarkets would be that investors send their checks to supermarkets while investments would go directly to funds, not MaxFunds.com said Ferris.
However, several issues could pose considerable challenges to Ferris' plans, said John Payne, an analyst with Cerulli Associates of Boston. A site that rates a fund as well as distributes it raises questions of that site's objectivity. Also, a third party "infomediary" would threaten a fund's control of the relationship it has with its clients. Some funds have already passed customers on to brokerages and they may not be willing to give additional control over to a website, he said. To distribute funds, a website would have to first register as a broker-dealer, raising a multitude of compliance issues, Payne said.
Rating the funds for which it provides applications does not compromise MaxFund's objectivity because, like a magazine, there is an understood separation between the content editors and those that handle the ratings, said Ferris. Fund companies also have little say in where their customers will obtain their information and they cannot compete with information-based websites in adding the latest tools and technology.