Tampa, Fla. - Fund companies that have sought to encourage customers to do business online in order to cut down on the cost of telephone reps and other more expensive service may find that the Internet is not necessarily a cost-saver, at least in the short run.

While direct distribution, and to a lesser degree broker-sold fund companies, have developed alluring websites that offer varying degrees of inter-activity, the general public has not mastered the technology. Many would-be Internet customers are Web novices and need time and guidance to learn how to use it.

To help these customers, some companies are providing access to telephone service reps.

E*Trade, the online brokerage in Palo Alto, Calif., for example, has always used the Internet as its main distribution and communication channel, so officials there have had to deal with Internet use issues from the beginning of its operations.

For those who get lost trading online, E*Trade allows investors to set up appointments with customer service representatives to go over the website over the phone, said Joseph Van Remortel, vice president of E*Trade Asset Management. The reps guide investors through the site by simultaneously looking at the same screens on their computers. Van Remortel said that it is important for a business that uses the Internet to "build the customer service capability to address those people (who are new to the Internet)."

But, providing such service produces cost and training problems. How is an ever younger entry-level customer service rep force to deal with the complex questions of the Internet?

The turnover rate for customer service teams is very high in the mutual fund business and most team members are recent college graduates, said David Driskill, president of David Driskill Associates, a consulting firm in Danvers, Mass. Now, this inexperienced customer service base is going to have to face ever more complicated issues as fund companies delve deeper into e-commerce.

"I think the biggest challenge is the online experience," said Iang Jeon, vice president of electronic commerce at Scudder Kemper Investments who spoke at the National Investment Company Service Association operations conference just outside Tampa last week. Jeon has been promoting Scudder's own redesigned website which the company claims is easier to use than other sites.

In the U.S., 45 million households have personal computers, but only 30 percent of them have Internet access, said Jeon.

That is not the size of audience that fund companies would like to see, and they are looking forward to the day when there are closer to 70 million households hooked up to the Web - a number closer to the penetration of televisions in U.S. homes, Jeon said.

Until customers get more web-savvy they will not make the plunge into the e-commerce realm in great numbers, whether it is over concerns of security or just being shy of the technology, said Matt Nash, senior vice president of service delivery and channel integration at Fidelity Investments of Boston.

"That's an inertia that we have to overcome," Nash said.

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