Fidelity Investments of Boston and The Vanguard Group of Malvern, Pa. next month will both begin offering their shareholders the ability to file their federal and state income taxes online at no charge. Intuit of San Diego, Calif. will be providing its online tax preparation software, Quicken TurboTax, to both companies.

Fidelity and Vanguard will be offering this service to registered shareholders through their respective web sites, and The tax preparation screen on each site will appear as if it is an indigenous page on each site. In fact, it will be a hyperlink to Intuit's web site, according to spokespeople from Fidelity and Vanguard.

One of the main reasons the service will be provided as a hyperlink to Intuit is to protect shareholders' privacy, the spokespeople said. Neither Fidelity nor Vanguard will be collecting shareholders' online tax information, they said.

Rather, Fidelity and Vanguard, the number one and number two U.S. mutual fund companies, respectively, are offering online tax preparation as a service to existing shareholders, the spokespeople said. The companies also believe the service might attract new shareholders, they said. Neither Fidelity nor Vanguard would disclose their cost of providing Quicken TurboTax.

"We are offering the service as an added benefit to being a registered user of our website - one of the many benefits that are available through," said John Demming, a spokesperson at the firm. "We are a customer service-oriented, education-oriented company [seeking] to provide high-quality services at the lowest reasonable cost."

At Fidelity, the notion of providing online tax preparation "came up because we were [looking for ways to] provide an added service to our customers over the web," said Johanna Thornblad, a Fidelity spokesperson.

Fidelity tested the service in a pilot during the first quarter of 1998, she said. It was well received, she said.

Fidelity and Vanguard will promote their online tax services through articles and banner ads at their web sites. Fidelity, however, has also purchased banner ads at other web sites, including those of, Yahoo and CNN. It will also send statement inserts to customers, Thornblad said.

While Fidelity and Vanguard are passing along people's personal financial information to Intuit, H.D. Vest Financial Services of Dallas, Texas, which announced in the fall it would begin offering free online tax preparation services, is not. H.D. Vest, a 16-year-old financial planning company that has grown to 8,500 registered representatives serving 1.7 million customers, owes much of its success to offering free tax preparation services, said Herb Vest, chief executive of the firm. It has offered these services since the company's inception.

"Sixty million tax returns are filed by do-it-yourselfers," said Vest. "We just want to reach some of them. Even if we don't sell them anything this year, we think we can in the second or third year. Eventually, they will need us."

Burton Greenwald, president of B.J. Greenwald Associates, a mutual fund consultancy in Philadelphia, said he did not expect Fidelity or Vanguard to use the personal financial information that the TurboTax will record. He said a more "subtle benefit" of the online tax preparation service would be training more shareholders to make use of their web sites and as a result, cutting down on phone center and printing costs.

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