Funds sold through intermediaries are beginning to provide shareholders with access to their accounts through the Internet. Some investors can even buy and sell funds on the web without the help of their brokers.

But, it can be a dual-edged sword for the fund companies because the fund companies do not know all of their investors. Large wirehouses like Merrill Lynch & Co. of New York keep the funds they buy in large omnibus accounts for which they do their own record-keeping.

"There may be a significant amount of end users who won't be able to take advantage of that (service)," said Richard F. Kane, managing director of Zefer Corp. of Boston, an Internet consulting firm.

That is not the case for the direct-distribution companies. They know their customers. One of the best qualities of the Internet has been its ability to help companies find out more about their customers. Direct-distribution funds have been able to get to know their customers better through the Web, but for the broker-sold fund, it is not as easy.

"(They) don't know who those people are, and (they) don't know who their broker is," Kane said. Kane plans to address the problem at the National Investment Company Service Association's operations conference in Miami this week in a forum on, "The e-Commerce Distribution Dilemma."

Kane said he does not know what percentage of fund companies' fund assets are tied up in omnibus accounts, but for many companies, it may be a majority of assets, he said.

Even the companies that are enthusiastically going onto the Web are aware that they can not reach all of their shareholders online.

AIM Management Group of Houston, Texas, which sells through brokers, gave its shareholders the ability to buy, sell and exchange shares for any of AIM's funds in October. But still, because of omnibus accounts, AIM does not have a complete picture of its retail shareholders.

"We don't know who they are," said John Deane, senior vice president and chief technology officer for AIM and a participant in the NICSA forum.

But the new capability is very attractive to the company because brokers are able to handle more business, especially when their clients can make small transactions on their own without calling up their brokers.

"They (brokers) still get paid for it," Deane said.

A broker that has 300 clients today might be able to service 1,000 clients using the Internet for certain customer segments, Kane said.

Broker-sold funds are working hard to find out more about the end shareholders, said Lee Kowarski, a consultant with Kasina, an electronic commerce consultant in New York. Omnibus accounts do present a problem in the Internet age, he said. Fund companies could tailor their products and marketing materials such as websites to their investors better if they had basic demographic information about their clients under omnibus accounts, he said.

"It is a hindrance," said Kowarski. "It would be helpful for the fund companies to know more about their end shareholders."

Some fund companies are providing brokers with incentives to give them information about their top clients, and some are asking for this type of information on their advisor websites, he said.

All this movement by fund companies to connect more with their customers brings into question whether funds will eventually try to make an end run around the middleman.

"It's a slippery slope to cutting out the intermediary," Kane said.

But financial intermediaries will remain a strong distribution channel as retail investors clamor for advice on how to manage swelling accounts in this bull market, Kowarski said. But, the broker's relationship with his clients will be less transaction-oriented, and more advice-driven, he said.

"People are going to need financial advice," Kowarski said. "It's not the end of the broker. It's not the end of the load fund."

Besides not knowing their clients, broker-sold funds may also not know their competition, which is popping up in new forms every day on the web.

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