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The Web and finance have been incredible partners. Investors like having control of their finances, doing their own research, and paying dirt-cheap commissions. However, there is a way to bypass the broker entirely: direct stock investing. The number of direct stock plans has been increasing at a rapid rate. In 1992, there were 22 plans; now, there are more than 500. This growth has occurred mostly in the past few years. The reason? The Securities and Exchange Commission made changes to securities laws that made it much easier for companies to implement direct stock plans.

There are two flavors of plans. Direct stock plans (DSPs) let investors buy stock from the company. There is usually a minimum investment amount (say, $500) andan enrollment fee (about $3 to $5) and perhaps a transaction fee ($1 to $10). But for the most part, it is much cheaper than purchasing stock through a broker.

The second type is a dividend reinvestment plan (DRIP). Mutual funds let investors reinvest dividends back into more shares, and a DRIP does the same thing for stock. But what if your dividends are small, such as $50 per quarter, and the stock is priced at $100? Then you can buy a fractional share (in this case, 0.5 shares of the stock).

DSPs are not for day traders. Instead, these plans appeal to individual investors with long-term goals such as planning for buying a home, college, or retirement. Direct stock plans are an excellent vehicle for this, since you can invest regular amounts each month. After a while, the wealth will start to compound.

NetStock Direct

There are many websites that provide information on DSPs. One of the leading sites is NetStock Direct . According to Jeffrey Seely, the CEO, the goals of NetStock Direct are to be a trusted partner for individual investors, help customers invest directly, and aid public companies that want to promote long-term investing.

At NetStock Direct's site, visitors can easily search the database for companies that offer direct stock plans. There is a detailed explanation of each company's plan, including IRA options, direct debit bank accounts, plan fees, and so on. There are also links to research materials on the company, provided by Reuters and Wall Street Research Net. The site also has investor tutorials. For example, there is a weekly column from Chuck Carlson, a renowned expert in the direct stock-investing industry and the editor of the DRIP Investor newsletter.

But the site does more than provide information. "The problem with direct stock investing has been a lack of standardization," says Seely. "Each company has its own forms to fill out, which can be a nightmare if you invest in a variety of companies."

NetStock Direct has developed an Enrollment Wizard that makes it very easy to enroll in a plan. "Traditionally, to participate in a plan, you called a phone number, sent in paperwork and a check. It could take weeks. With NetStock Direct, the process takes a couple of minutes," Seely says.

NetStock Direct has obtained its broker-dealer registration. "This will allow us to provide accounts to our members to hold their securities," Seely says.

So how does NetStock Direct make money? Its main source of revenue is publicly traded companies. For a fee, a company can outsource the electronic enrollment of their plan. This saves them money and also encourages share ownership in the company. Already, NetStock Direct has exclusive arrangements with more than 300 DSPs. NetStock Direct has grown primarily by word of mouth. In 1999, the company says it plans to sign agreements with financial websites as well as portals.

Glowing Future

The future looks bright for Netstock Direct -- the number of online investors is soaring. In 1994, there were 100,000 online investors. In 1998, that number topped 5 million. In 2002, there are expected to be more than 15 million. A good portion of these investors will be attracted to the advantages of direct investing.

"Our company is well capitalized," said Seely. So far, its funds have come from angels, but the next round of financing will likely be venture capital.

Seely said the company has no plans yet to go public. For now, he said he wants to focus on growing the company. And so far, so good.

For comments/questions, contact Tom Taulli at ttaulli@bpia.com.

Commercial: Readers interested in IPOs may want to check out The Investor's Guide To New Issues: How To Profit From Initial Public Offerings, available in our bookstore.