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Moving Past the Paperwork, Invesco Gets Ready for Fund Sales on the Net

The paperless transaction, common elsewhere on the Web, is new to the mutual fund industry.

In a move that sets it apart from its Luddite peers in the mutual fund industry,


soon will offer direct, paperless sales of its funds over the Internet.

Customers will be able to open new accounts online and immediately buy shares of Invesco funds without submitting a printed application, check or signature card. Money to buy the funds will be transferred electronically from the applicant's bank account. After clicking through Invesco's application wizard and submitting a bank account number over the Internet, investors could own shares as soon as the next market close, when the fund's shares are priced.

"No longer do they have to fill out an application and a check, mail it and watch the market over the next couple of days," says Jon Pauley, Invesco's vice president of electronic commerce. "They'll be able to know that their investment will be made as of the next close of the market. And they'll be able to view their electronic statement online the following day to confirm their purchase."

Opening new accounts and selling funds directly over the Internet "will create some great opportunities," says David Haywood, an analyst at fund-tracker

Financial Research

in Boston. "Say you're on

, and something about the


Invesco Health Sciences fund pops up. You read it, get interested in it and then, bam, you're invested in the fund."

Or at least, that's a scenario Invesco hopes for. Following industry trends, flows into Invesco's funds have slowed in 1999, according to Financial Research. Through July, the firm took in $125 million less this year than it did during the same period in 1998. The company has $30 billion in assets under management.

When Invesco conducted a survey of its shareholders in May, 51% indicated they'd like to buy new funds online. For shareholders who use Invesco's Web site regularly, the figure was 81%, Pauley says.

Not everyone is convinced fund investors will want to buy funds instantly online -- at least not initially.

"I think this will engender a great deal of publicity and very little business," says Burton Greenwald, a mutual fund consultant in Philadelphia. "It's one thing to use a credit card to buy a book at

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for $21. It's another thing to suddenly open up your bank account for a $10,000 withdrawal."

That said, Greenwald says the mutual fund industry eventually will have to embrace the Internet and sell funds online.

Others question the amount of liability Invesco will assume by not getting a physical signature on the boilerplate applications, which detail the risks of investing. And there are other concerns as well.

"Once you receive money and open an account on behalf of someone, you have an obligation not to give the money away to someone else," says Jay Neuman, corporate counsel for

Federated Investors

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in Pittsburgh, which manages $118 billion in assets. "You have to take reasonable measures to ensure that you're not going to act on the instructions of someone else."

Pauley wouldn't go into detail about how Invesco plans on dealing with signature and authentication issues, but he did say the company has thought such details through.

"I don't want to get too much into the issues, but we have much more control this way than, I think, traditionally the industry had with print applications," Pauley says. For instance, if an investor opens an account using a certain bank account online, he or she must also redeem shares to that account unless a signed letter is submitted on paper authorizing transfer elsewhere.

But given that checking-account numbers are plainly printed on the bottom of checks, an unauthorized "purchase" for $10,000 of Invesco's funds isn't implausible, even if it's just at the hands of some practical-joke-playing co-worker.

Pauley has an answer for that scenario, too. "The

mutual fund account has to be in the name of the person that's on the bank account, so it's not like your friend could fill out an application for himself," Pauley says.

Pauley says Invesco will reveal more on how it plans to deal with security issues when it launches its program in October.

Confidence and security issues aside, industry watchers acknowledge that harnessing the Internet to sell funds is an idea whose time has come.

"It's an incredibly hot topic right now," Financial Research's Haywood says. "Our clients are all asking us what the Internet is going to do, how it's going to change the face of the industry and how they can best compete. Unfortunately, we don't have all the answers right now."

"As services started becoming much more important, groups had to become much more flexible to compete," Haywood says. "Once one group offers an increase in its level of service, other groups are going to need to respond to that."

Which means that before the end of the millennium, Invesco might just lead the fund industry into the present day.