Fidelity Investments of Boston and American Century of Kansas City, Mo. both announced last week that in light of the Electronic Signatures Act taking effect on Oct. 1, they would accept new applications online, without handwritten signatures of any kind. Neither firm is requiring signatures, either at the time of an account opening or later, on hard copies via fax or the mail.
Fidelity has not yet set a date for when it will permit retail, non-retirement accounts to be opened online, but it does expect to begin doing so later this month, said Jessica Catino, a Fidelity spokesperson. By the end of the year, Fidelity plans to extend the new service to 401(k) plans and IRA's, Catino said.
American Century, meanwhile, had its web-based system for new accounts operating at 12:01 a.m., Sunday, Oct. 1, said Beth Randolph, a spokesperson for the firm.
The Electronic Signatures in Global and National Commerce Act, which President Clinton signed June 30, provides that contracts signed with electronic signatures are valid. The law does not define electronic signatures, leaving it up to businesses to determine for themselves if they want to accept the click of a mouse or an encoded string of numbers downloaded as software onto a computer hard drive as signatures. Fidelity and American Century are eschewing high-tech data encryption in favor of simply asking investors for their social security numbers and self-selected pin numbers, the spokespeople for the firms said.
American Century lobbied for the passage of the e-signatures act and the firm will be quick to take advantage of future technologies, such as scanning a person's thumbprint or retina, Randolph said.
"We've always been early adopters of technology," said Randolph. "To our firm, it's very important, and we would hope it will help us reach more investors."
The fact that Fidelity is in the forefront of allowing online account origination is going to have a major impact on how other fund companies view this new possibility, said Lee Kowarski, a consultant with kasina of New York, an e-commerce consulting firm specializing in financial services.
Last year, however, when Invesco of Denver began offering online account origination, customers were, "pensive and apprehensive" about it, Kowarski said. (MFMN 9/6/99) E-commerce consultants said there were problems with opening accounts entirely online because electronic consent forms and digital signatures could be forged, leaving Invesco open to fraud. At that time, without a hard-copy signature on file, Invesco would not be complying with contract law, these consultants said.
Then, as some other, smaller fund companies, including Marsico, Wasatch Funds and Quant (MFMN 5/8/00), began allowing online account openings , the industry began to be more open to the idea, Kowarski said.
When it became known that online account origination had brought assets flowing into Invesco, online account origination began to appear to be sound business strategy, Kowarski said.
Now, with Fidelity and American Century joining in, online account opening has gained still more legitimacy, Kowarski said.
"It will force other funds to confront the issue," he said.
With the advent of this new service from Fidelity, which it is calling E-Sign, customers can conduct business with Fidelity more efficiently than before, said Neal Litvack, president for retail marketing of Fidelity Personal Investments, in a statement.
Invesco has been well rewarded for being the trendsetter on electronic signatures and has not encountered any problems, said Kowarski of kasina. A spokesperson from Invesco was not available to comment.
Charles Schwab & Co. of San Francisco and Vanguard of Malvern, Pa. will probably soon announce plans of their own to open accounts online, Kowarski said.
All types of financial transactions will be executed online, without signatures, by 2005, said Bryan Keane, a senior e-finance analyst in the San Francisco office of Prudential Securities of New York.