The Web is on its way to becoming the number one method for direct-selling mutual funds and the number of mutual fund company Websites is proliferating as companies come to comprehend the Web's power, a new study concludes.

The study, McGladrey & Pullen's second annual study of mutual funds and Internet distribution, found that not only do potential shareholders make investment decisions based on Internet services offered, but many investors first learn about fund companies in depth through the Web. That is because the Internet is the primary information gathering tool for many people. While television and other types of advertising may be the best way to establish brand, the Internet is the best medium to provide the breadth of information people want before they invest, said Steve Miyao of McGladrey & Pullen. Its study was made public last week.

Because of the Internet's power, the number of Websites being run by the mutual fund industry is rapidly rising and that trend is expected to continue. The study identified 312 fund Websites as of July, up from 181 last year. McGladrey & Pullen believes that there will be over 600 fund Websites by 2000. The survey further found that 77 percent of all fund companies that do not now offer online account access today plan to do so within the next 10 months.

"The overall trend is for companies to dedicate a significant portion of their development budgets to expanding online customer service capabilities," the study said.

The study also found that creating a Website is expensive but that fund companies deem the cost worthwhile. Nearly half of the companies which ranked in the survey's top 20 spent over $90,000 to create their site, and most companies employ about 11 people to run their sites.

These Websites are producing results, however, and according to McGladrey & Pullen, 75 percent of the fund companies in the top 20 are either "satisfied" or "very satisfied" with their investment in the medium. Almost two-thirds of that group are also considering increasing their Web-related budget next year.

Miyao says mutual funds are paying attention to the Internet because their shareholders and potential clients already are. An ever-growing number of people are using the Internet to communicate in everyday life and in business. Miyao also noted that some people would rather be able to look at important financial information, such as balances, than hear it from a service rep over the phone. In addition, Web-based customer service is less expensive than service by telephone and shareholder use of the Web will cut down on calls.

While providing shareholder services is the most important function of sites targeted at retail investors, building relationships with financial intermediaries and providing them with marketing materials are the most important functions of websites aimed at brokers, the McGladrey & Pullen study says.

The study's selection of the top 20 mutual fund Websites was based on the information the sites provide, their customer service capabilities, their design and layout and their ease of use. The amount of information provided was given the most weight in the rankings. The list includes most of the largest mutual fund companies.

"Those pushing the limits of Web technologies tend to be large fund companies facing competitive challenges," the study's overview stated.

The top 20 are: American Century Investments; American Fund; Schwab; Fidelity; Firstar Funds; John Hancock Mutual Life Insurance Co.; Kemper Funds; MFS Investment Management; Montgomery Funds; Morgan Stanley Dean Witter; Oppenheimer Funds; Principal Financial Group; Prudential Insurance Co.; Robertson Stephens Funds; The Scudder Family of Funds; Stein Roe and Farnham, Inc.; Strong Funds; T. Rowe Price; TIAA-CREF and Vanguard.

Firms that dropped out of the top 20 from the 1997 study were: Calvert Group; Founders Funds; Gabelli Funds; INVESCO; Janus Funds; Legg Mason; Lindner Funds and Putnam Investments.

In the future, non-financial companies with Internet expertise, like Microsoft, are likely to become competitors to the mutual fund companies, according to the study.

The survey also named for the first time the top 5 financial professional sites -- those sites or Web pages created exclusively by fund companies for the brokers or advisers who sell their products. In ranking the broker-sold fund company sites, McGladrey & Pullen chose those sites that are entirely or partially dedicated to financial professionals. It found 40 such sites, most of which have password-protected areas for these financial professionals.

The top five are: AIM Funds; Franklin Templeton, Goldman Sachs, MFS and Putnam. As examples of the kinds of services provided by the top ranked companies, Goldman Sachs helps brokers create their own home pages on the Internet and Kemper enables its brokers to download marketing materials and sample sales letters. Some fund companies that sell only to advisers are providing shareholders with transaction capabilities over the Web as an additional service, but Miyao said these companies would always place their greatest emphasis on brokers.

The 1998 McGladrey & Pullen mutual fund Websites study can be downloaded using Adobe Acrobat Reader from its Website at

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