CONFERENCE CALL: FUND FIRM MULLS INTERNET PRICE BREAK

American Century Investments may offer a discount to investors who conduct their mutual fund transactions via the Internet, says president and chief operating officer William Lyons.

Of a 1% fee charged by American Century, between 50 and 60 basis points typically go to cover the cost of mailing out literature and forms and conducting transactions — or answering inquiries — by phone, Mr. Lyons told InvestmentNews last week. He was a participant in a Securities and Exchange Commission technology roundtable in Washington. Kansas City, Mo.-based American Century, which manages more than $70 billion in mutual fund assets, spends $300 million a year on shareholder services and technology, Mr. Lyons said.

“There are obvious cost advantages in the service side of the mutual fund business to having investors initiate transactions” via the Internet, he said, adding that when customers access their Web sites, fund companies can save — among other things — the cost of providing toll-free telephone calls and the manpower to handle them.

American Century recently began offering classes of shares to the institutional market at a lower cost than its retail shares based on service cost differences, Mr. Lyons said. The fee for institutional-class shares is 60 basis points, compared to 80 for investor class shares and 105 for adviser class (401[k] plan) shares, he said.

trying to sort it out

He asked the SEC to spell out clearly whether offering a technology-based class of shares to retail customers would violate its regulations, saying that currently “it’s not clear that regulatory concepts would allow it. There’s general regulatory approval, but not great certainty.” Agency officials did not immediately respond.

The new class of offering is “not imminent,” Mr. Lyons stressed. “It’s in the concept stages.” The challenge for mutual funds, he says, is to tailor the services they provide via the Internet to investors’ needs.

The only instances of such Internet discounts that Lipper Analytical Services Inc. could come up with were on a Citizens Funds money market product that is no longer offered and the E shares of Schwab’s Standard & Poor’s 500 stock index fund.

Mutual fund, brokerage and technology company officials told the SEC of the tremendous changes in online trading and other services that are taking place as a result of the Internet, and they expressed frustration that regulations are not keeping pace with the many new opportunities.

But they also cautioned that the Internet has created major problems by providing a forum for so much information that it’s difficult to sort the good from the poor.

Referring to investment advisers, Robert Pozen, president and chief executive of FMR Corp. in Boston, parent of mutual fund giant Fidelity Investments, said it “seems troublesome that a lot of people can use this mechanism now with no capital.”

“Investment advisers can advise a lot of people” over the Internet, Mr. Pozen said. “There’s always a possibility of someone running off with your money. The issue of who’s a registered adviser and who’s a registered representative is very important.”

But SEC Chairman Arthur Levitt responded, “There’s absolutely no way we can protect every investor from their own foolishness. None.”

a global reach

Both John Reed, chairman and CEO of Citicorp, and John Brennan, chairman and CEO of Valley Forge, Pa.-based Vanguard Group, urged the SEC to work with international agencies to coordinate their regulations. “Foreign investors want to buy our products,” said Mr. Brennan, but, “A product purchased in the U.K. but not registered there could be a legal violation.”

Citigroup, the entity to be created if the $76 billion merger of Citicorp and Travelers Group Inc. is completed, would be doing business in 100 countries, said Mr. Reed. “Technology makes it possible for American companies to deal outside the U.S. in markets not subject to U.S. securities and accounting regulations,” he said.

The mutual fund and brokerage executives at the roundtable called on the SEC to allow them to distribute information — much of which investors discard — and take signatures electronically to save the cost of printing and mailing. But Mr. Levitt said the “issue is whether enough people have access” to computers to make electronic systems practical.