GE Financial Assurance of Stamford, Conn., is taking a stake in a new mutual fund distribution model.
The company, whose parent is General Electric Co., recently made a multi-million dollar investment in Netstock Direct, a Web site based in Bellevue, Wash., that distributes no-load mutual funds through the Internet, much like a mutual fund supermarket does.
GE was one of three investors that put $8.5 million into the operation. The other investors are Bowne & Co. of New York, the world's largest financial printer, and Sandy Robertson, founder of investment bank Robertson Stephens, which is now owned by BankBoston Corp.
The investment will lead to a new distribution channel for the GE mutual funds and to new products and services provided through the Netstock Direct Web site, according to Brian Ratzliff, vice president of marketing and business development for Netstock.
"GE liked our direct investing story, and they also liked the audience we had," Ratzliff said. He said that GE funds, which are sold through intermediaries, would be available on the site within months.
Netstock currently helps people buy stocks online through direct investment programs and also allows people to buy a handful of no-load mutual funds without transaction fees. These funds include offerings from INVESCO Funds Group of Denver, SAFECO Mutual Funds of Seattle, Credit Suisse Asset Management of New York, and Stein Roe Mutual Funds of Chicago. Prospectuses and marketing materials from those companies are also available.
The no-load funds available on Netstock Direct are no cheaper than those found through no-transaction fee programs at fund supermarkets. However, Netstock claims that the fees they charge fund companies to be listed in their program are a fraction of those charged by fund supermarkets.
Another advantage for fund companies is that the funds sold through Netstock are held in the investor's name. At a brokerage, the funds are held in the brokerage's name, and the fund company doesn't know the investor's identity.
The site, which debuted in 1996, will use this new round of capital to become a financial products aggregator, Ratzliff said. It has plans to offer life insurance, auto insurance, mortgages and variable annuities in the near future.
Whether it has been distributing company stock or mutual funds directly, Netstock has always taken a no-frills approach and has catered to "buy-and hold" investors. Ratzliff said that the future look of Netstock will be very different from the online brokerages that have become the tools of day-traders.
That philosophy will make Netstock attractive to fund companies that want to attract long-term investors, not market-timers, Ratzliff added. "We're not going to get into the business of news and active trading," he said. "We do not want to be in that space (occupied by the online brokerages). We really want to focus on investors with a long-term view."
Ratzliff said Bowne, which was involved in an initial round of investing, is interested in Netstock because it may help accelerate the distribution of literature such as annual reports, proxy statements and consolidated statements online throughout the industry.
Netstock is also actively encouraging fund companies to create electronic shares of mutual funds -- shares that are sold and serviced entirely online. "We're now starting to actively champion (electronic shares) with the funds," Ratzliff said. These fund shares would presumably be cheaper for fund companies, and the savings could be passed on to investors. On-line brokerage E*Trade Group of Menlo Park, Calif., already offers a family of index funds that are entirely serviced over the Web.
