Quant Funds Offers Completely Electronic New Account Sign-Up and Investment

Quant Funds has gone live with a new system that allows prospective investors to sign-up and invest in one of its funds completely online, only the second fund company, after Invesco, to permit this option. The firm is combining proprietary technology with the Automated Clearing House system to allow for paperless initiation and investment, a process that typically requires the printing and mailing of documents. "I believe with the investments we've made in technology, this puts us probably in the top 10% to 20% of mutual fund complexes in terms of online functionality," says Frederick Marius, president of Quantitative Advisors, the parent company.

Until now, fund companies have had to deal with a number of issues that prevented the totally online registration and investment in funds. Until recently, the IRS required manual signature on W2 forms. Also, many people still question whether a contract is legal if it does not include a manual signature. "This is a question that has been taken up both at the federal and the state level," explains Marius. "There's a uniform electronic commerce statute that has been adopted by, I think, 14 states, that allow for electronic signatures. In addition, there's pending federal legislation which addresses this same issue."

More importantly, the ACH system, which all banks use to pass funds from one to another, has an inherent flaw that would allow would-be thieves to open up a mutual fund account online using nothing more than the information included on someone else's check. The thief then can liquidate the funds of the new account almost immediately and have those funds routed to his own bank.

"You the person who has been stolen from finally get a statement and realize that someone has taken money out of your bank account," Marius details. "You call the bank and they have you fill out an affidavit, and the bank comes to Quant Funds and takes the money, even if we have a negative account balance."

As a result, it's easy to understand why a fund complex would be wary of using the ACH for opening a new mutual fund account. Quant Funds has solved the problem by permitting new account holders to only liquidate funds back to the bank they came from within the first 90 days of investment. "This means that if I did take it out of your bank account, you have at least two statement periods to notify the bank that the funds are missing," Marius explains. "The second part is, if people know the money can only go back to the bank account from which it came, and they can't liquidate it in hard copy form, then they aren't going to try to do it."

Quant Funds is using its own technology for pricing the funds, and investors only get the price of the fund once the bank transfer has been cleared. Thus, if the investment is made today, but the funds are transferred the following day, the investor gets the price of the fund at the second day. "It's really to cover our own risk," Marius says. "And we're not really a day-trading firm. We don't really want market-timers."

Why the fund company has poured so much money into Web technology is simple, says Marius. "Our long-term intention is it will save a ton of money," he explains. "A consultant said to me the price of opening a new account through a non-automated process is approximately $17. The price of opening an account on our system is between three and five cents."