Fund Investors Can Use the Web to Bypass Brokers, Not Commissions
Ian McDonald
09/02/99 - 02:04 PM EDT
Some mutual fund companies are adding a new wrinkle to do-it-yourself online investing: broker commissions.
Last week,
MFS Investment Management unveiled MFS Access, a self-service section of its
Web site where investors can add to existing broker-sold fund accounts by transferring money from other funds or from their bank accounts. In January,
Alliance (AC Quote), another broker-sold fund company, added a similar feature to its
Web site.
In both cases, investors are charged a sales load or commission to make the online purchase. The fee goes to the investor's broker of record, even if the broker has no input on the decision.
"We assume that most individuals are buying additional shares on the advice of their adviser, and we have no plan to bypass the broker's commission," says MFS spokesman David Oliveri.
Alliance spokesman Duff Ferguson admits that investors who pay a commission when they didn't use or need their broker's help raises a tough question: "Why pay a load for nothing?"
Many experts believe the fund firms' stalwart and awkward commitment to paying commissions for online transactions could backfire. By highlighting investors' ability to do it themselves, these purchases could spur them to explore lower-cost options for investment advice.
"The fund company has to charge the commission because they have to preserve their relationship with the broker. But things like this will make sales commissions disappear," asserts Philadelphia-based fund consultant Burt Greenwald.
"When people go to a site and invest $50,000, they'll see that they pay $1,500," he says, assuming a typical 3% commission. "When they realize that they could just ... get a comparable product for less money in a fund supermarket, they're going to start scratching their heads."
Mimi Wallis, a commission-based broker with
JC Bradford in Nashville, Tenn., points out that clients who add to their accounts via the Web have been doing the same thing -- and paying the same commissions -- through the mail and over the phone for years.
But she admits that doing the same thing over the Internet could highlight an online broker's cost advantages. "I can see where it would nudge them closer to doing it themselves on the Internet," she says.
Fund companies stress that their goal is simply to offer brokers and their clients an alternative to the telephone. "This just adds a level of convenience because these are transactions that shareholders have always been able to make over the phone. It's designed to bypass the phone and not the broker," Oliveri of MFS says.
Alliance's Ferguson says few investors have used Alliance's site to make purchases, and few brokers have questioned the idea. Both Ferguson and Oliveri believe other fund companies may follow suit.
One point potentially lost in the shuffle is that brokers are not the only ones who benefit from charging loads. Fund firms typically retain 15% to 20% of loads charged on their funds.
