CHICAGO- Although the Internet is a great communications tool, it will never replace the mail, the telephone or face-to -face contact, according to many participants at the Investment Company Institute's Operations Conference held here last week.

Just think of it as the fourth communication channel, said Bill Doyle, director of money and technology strategies for Forrester Research. Doyle spoke on a panel about using technology to attract customers. "The Net will absolutely not replace anything. These (fund) consumers are multi-channel users."

Even though the Internet can reduce company expenses and can potentially reach more customers as increasing numbers of people spend time online, the Internet has its limitations, participants said. One such limitation is that it is only a segment of the population that is inclined to spend substantial amounts of time and transact business online.

"The Internet is really enhancing the other channels," said Peter Tarrant, general manager for e-business Solutions at International Business Machines.

Stephen Gibson, president and chief executive officer of Liberty Funds, a panelist in a discussion of distribution, said that the Internet will not be embraced by everyone. It is merely one more option that consumers will want to have available to them.

Jack Kutner, president of First Data Investor Services Group, said that while mutual fund companies' Internet capabilities are becoming increasingly sophisticated, so too are their use of telephone systems and service. Even the telephone is still evolving as a channel for mutual fund companies, he said.

"Over time, the game will increasingly be played over the Internet," Kutner said. "But for now, the telephone is still increasingly replacing the mail."

The key to successfully using the Internet is for mutual fund companies to make sure that investors have access to their products on the Internet, he said.

"There's nothing more difficult than to arrive to a decision (to buy a fund for example) on the Net and to be told to go through another channel," Doyle said.

Other conference participants expressed disappointment that personal computers and the Internet are not easier to use. Some participants said the Internet should be as easy to use as the telephone or even a television. Others said that the Internet will have to be voice-automated, as it no doubt will be one day, to become the communications channel of choice for the majority of investors. Still others said the Internet can be a threat to brokers if they do not learn how to use it to their advantage. Doyle said investors do not need their brokers anymore for traditional services like getting quotes and research.

"The brokers who survive are going to be those that leverage the technology" and use it to gain and service more clients than they could without it, said Doyle. Adam Schneider, a partner with Deloitte Consulting of Deloitte & Touche, said much of the Internet's potential lies in providing advice online.

"Electronic advice is the missing link," said Schneider. "I think electronic advice is one of the next great frontiers."

u Service providers like Alamo Direct used the conference to launch new Internet products. Alamo introduced, a new program that allows fund companies to send legal mailings, including prospectuses and annual reports, electronically. The new product, like many new Internet products, is expected to save fund companies the cost of paper and postage.

"This process also addresses the unfortunate fact that envelopes are most often thrown away without even being opened," said Peter C. Suhr, executive vice president for Alamo Direct.

Web advertising underused, study finds

A new study has found that many mutual fund companies are ignoring the Internet as an advertising medium.

The study, by Mainspring Communications, found that most fund companies are skeptical of the benefits of Internet advertising.

Mainspring spoke with 12 of the top mutual fund companies for the survey, representing 30 percent of the industry's total assets.

Only eight of the 12 fund companies surveyed advertise at all on the Internet. Of those eight, six spent less than 1.5 percent of their total ad budgets on Internet campaigns. One company is spending $3.7 million in online advertising, while the next greatest budget is $1.5 million. Four companies, all load companies, are spending nothing on Internet advertising.

However, Mainspring says that as more funds enter the online marketplace and more people go online, fund companies will be forced to advertise there.

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