Quant Funds of Lincoln, Mass. on May 1 became the second mutual fund company in the industry to allow investors to open accounts online, without paper applications or handwritten or digital signatures.

Quant's introduction of online accounts comes seven months after Invesco Funds of Denver became the first to do so (MFMN 9/6/99). The rest of the industry has delayed in offering this service, fearing fraud and potential contractual problems with shareholders over the lack of signatures on file, said Geoffrey Bobroff, president of Bobroff Consulting, a mutual fund consulting firm of East Greenwich, R.I.

But, once other fund companies see that these problems are surmountable, they are likely to follow Invesco's and Quant's lead, possibly by year-end and certainly within the next three years, Bobroff said.

A spokesperson at Invesco declined to comment on how its online experiment has been faring. The spokesperson also declined to say whether the fund complex has experienced any fraudulent attempts by individuals to open accounts in other people's names.

Quant is hoping that its new online service will boost sales, said Heather Dondis, Quant's director of marketing.

Like Invesco, Quant is not requiring a digital signature, or e-signature, from investors, she said. Authentication of such signatures is accomplished through the downloading of software from a third-party vendor into an investor's computer hard drive. The software, along with a password, then serves to authenticate any communication the investor relays to a fund company.

Instead of relying on signatures, Quant is relying on matching answers from an investor about his mother's maiden name and social security number with records already on file with his bank, Dondis said. Quant will contact an investor's bank by asking for an investor's bank routing and account numbers found along the bottom of his personal checks, and then contacting the bank through the Automated Clearing House, she said.

As an additional precaution, Quant will monitor account activity for the first 90 days after it is opened and limit initial investments during this period to no more than $10,000, Dondis said.

The complex, which has $240 million in assets under management, will also only allow accounts opened online to be redeemed by written requests, and will mail redemption checks to the address of the investor's checking account, Dondis said.

"We've made it as tough as possible for fraud," Dondis said.

Enabling investors to open accounts online is an extension of the Internet presence Quant is trying to build through ads it is swapping with other Internet sites (MFMN 4/24/00), Dondis said.

Quant wants to create a "truly compelling web environment where . . . shareholders can conduct the majority of their business online," said Frederick Marius, president of Quantitative Advisors, the investment adviser to the Quant Funds.

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