The Internet As an Information and Services Tool

Page 8
Denis T. Rice, July 1998

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IV. The Internet As an Information and Services Tool.

Knowledge is power in the field of investing. Because the Internet expands the individual investor’s access to vast amounts of information at tremendous speed, it has become an empowering tool. It has also become an effective method for investment product providers to maintain and initiate relationships with customers.

A. Use by Mutual Funds to Offer Services and Disseminate Information.

Mutual funds use the Internet in multiple ways, offering investment services and distributing information of all kinds. For example, Fidelity Investments not only offers funds and brokerage at its regular Web site (, but also operates an Internet ‘zine called “@82 Dev.” The Fidelity Web site featured a streaming worldwide stock ticker, research, fund descriptions, customized stock quotations, and online trading. Visitors to “@82 Dev” (named after Fidelity’s Boston address) can find book reviews, discussions by Fidelity investment managers, plus the streaming stock ticker. The “Charles Schwab Mutual Fund OneSource” subsite on the Charles Schwab homepage (www. offers descriptions of a myriad of fund products and services, comparisons, trading and portfolio design. For online market information, the viewer accesses a sub-site, called “Market Buzz.” Schwab in 1997 began marketing its capacity for processing fund supermarkets and wrap programs offered by other broker-dealers and by banks. By the time it landed its first major contract to clear funds for another brokerage firm, Schwab was handling more than 45,000 no-load fund transactions a day and had more than $100 billion in third-party no-load funds.

American Express Financial Services (, Vanguard Funds ( and many other mutual funds have similarly gone on the Internet. Two of the largest firms servicing mutual fund shareholders set up Internet-based transaction systems in 1997 for shareholders of their fund clients. First Data Investor Services Corp. in Massachusetts and DST Systems in Kansas City began offering both Internet Services in 1997. These services allow shareholders in one of a family of mutual funds having the same investment manager to exchange shares among funds in the same family. They can also access account balances and transaction histories and portfolio listings on much the same way as shareholders of Fidelity. Subsequently, a competitor, SunGard Trust and Shareholders Systems, announced that it would unveil a similar Net-based system in 1998. As a result, viewers can find an almost endless array of news and information, different financial products and opportunities online investing.

B. Sites Offering Individual Investors News, Research and Analysis.

Not long ago, sophisticated investment research tools were available only to institutions and securities professionals. Now almost any investor can become his or her own securities analyst by using free or low-cost websites which contain enormous quantities of data and sophisticated tools that help to identify and screen securities and design portfolios. By September 1997, the number of such stock-screening sites on the Web had risen in just a year from zero to 15. For example, at Quicken Networth (www.networth.quicken. com), an individual investor can sort through some 12,000 different stocks for 19 different variables, including rates of growth in earnings or sales, or amount of insider trading. Another free stock screening site, Hoover’s Stockscreener (, displayed only 8,000 stocks, but they could be screened for 22 variables with the results presented in spread-sheet form.

Other sites, while not free, still fall within the reach of most investors. For example, “Microsoft Investor” ( which charges $9.95 a month, has an “Investment Finder” program that can evaluate a universe of 8,000 companies according to 81 different criteria. If the viewer asks for stocks to be rated by “price ratios,” the “Finder” offers five subcriteria: price to book value; price to earnings, either currently or on several historical bases; and price to sales. Finder’s criteria can be set as high or low as possible, and the 25 stocks that best fit the criteria will be presented in chart form. Perhaps the richest trove of data among these sites is “Wall Street City” ( At $34.94 per month, this analytic tool can tap into as many as 40,000 stocks (including foreign issues) using 297 different variables.

Other sites offer the viewer or mix of market information, financial data and more general news, including sports and forums. An example is Bloomberg Online (, which offers a 24-hour-a-day worldwide financial information network. A site featuring information solely about equity securities is The Motley Fool ( Along with articles on investing strategies, it displays model portfolios, ideas on specific stocks, message boards and allows viewers to share information on stocks. A viewer can find links to over a thousand finance-related sites listed at The Syndicate ( Zacks has a collection that includes stocks, mutual funds and all kinds of material on personal finance at Another example of such a “facilitator” is at, a Web page operated by “National Corporate Services, Inc.” It features links to stock exchanges, self-regulatory organizations, issuer Web sites and other financial news.

Investors are able to use special online services to receive information from issuers. An issuer posts financial information and news on its own Web site, and then expands the universe of potential readers by links to a service provider such as Reality Online. Reality Online, which operates “Inc.Link,” can generate up to 25 pages of enhanced financial content for a given issuer’s Web site. Inc.Link will then link the issuer’s Web site to a detailed profile of the issuer posted at 110 “hub” sites, which are mostly brokerage firms home pages. Thus, an investor is able to move from a profile of an issuer located at a brokerage site to the issuer’s site where there is different material generated by Reality Online, or in reverse order.

Some new on-line entrants provide investor relations services to micro-cap companies that cannot afford expensive outside firms. Thus, OTC Financial Net work ( channels press releases and analyses to what it claims are 350,000 “prequalified small-cap individual and institutional investors, brokers, analysts and others.

Hyperlinks are widely-used devices to enhance a Web site. Just as Microsoft offers its viewers links to online brokerage firms, brokerage firms frequently link to research reports. In order to shield the linking firm from misleading information on someone else’s Web site, disclaimers can be installed. Once a user accepts the conditions of the disclaimer, the referring site keeps a record of the agreement. An example is the disclaimer by National Discount Brokers at its Web site ( National also uses tracking devices called “cookies” which monitor how often a given site to which it has a link is visited.

Moreover, other tools can be integrated with financial analysis and execution software. For example, the software maker Intuit, which publishes the most widely-used personal financial management program, has formed online partnerships with a number of brokerage firms so that investors can download brokage account and market information into their personal financial program. According to former SEC Commissioner Richard Roberts, electronic trading by individuals on Nasdaq will “increase exponentially for the foreseeable future.” Access to Nasdaq’s Small Order Execution System (“SOES”), coupled with the enormous amounts of information available instantly online at little or no cost, gives retail customers the ability to trade electronically with the kind of information that historically was enjoyed only by institutions.

Such online tools and data bases tend to level the playing field not only between big and small investment professionals, but between investment professionals and dedicated amateurs as well. Sites such as Microsoft Investor are easy for the amateur to use and offer amazing speed. In providing individual investors the SEC is keenly aware of the extent to which the use of electronic technology, including the Internet, enhances the ability of investors to make informed investment decisions in a variety of ways

“by giving investors information faster; by giving investors information in electronic format, so databases can be searched and financial information can be analyzed more readily; by reducing disparities between large and small investors’ ability to access information; and by helping investors communicate with each other and with companies.”

In view of the accelerating speed and power of the Internet, it is hardly fanciful to project that a bright high-schooler in 2001 A.D. will be better equipped from the standpoint of data and tools to analyze securities than a professional was just a few years ago. In fact, some commentators argue that because the Internet gives the “average” investor the same access to information once reserved for wealthy and sophisticated investors, the “average investors should be treated as ‘sophisticated’ under the federal securities laws.”

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