Some of Netfolio's services look fairly typical when compared to what the competitors, such as Foliofn, have to offer. At the most basic level, you pay a flat monthly or annual fee, create a basket of stocks customized to your investment objectives, and instantly become your own fund manager. But beyond that, things at Netfolio start to get interesting.

Here's how it works:

Minimum balance - $5,000 minimum to open an account (versus no minimum with Foliofn).

Fees - $200 a year, or $20 a month, plus $20 per trade when trading outside of your Personal Funds, but the annual fee is waived for the first year (versus Foliofn's annual fee of $295, or monthly fee of $29.95, and $14.95 for direct trades outside of an investor's folios).

Strategies - You begin by filling out an online questionnaire, detailing your goals and risk tolerance. Netfolio's computer modeling software recommends an investment strategy, asset allocation, and stock portfolio basket containing anywhere from 5 to 40 stocks that meet your objectives (versus choosing from one of the 75 prepackaged baskets at Foliofn.).

If you've read James O'Shaughnessy's book, What Works on Wall Street, you know he's a big proponent of long-term investing and a pioneer in the development of investment strategies based on quantitative stock analysis. So, it makes sense that a significant feature at Netfolio is the ability to have your personal funds tailored using software that employs quantitative strategies.

O'Shaughnessy places so much on emphasis on strategy, he even registered a name for it - "Strategy Indexing." Netfolio hails it as the core concept of their service, and rejects any notion that there can be any real value in acting on hunches or other subjective measurements.

Take note, active traders: you are hereby discouraged from using Netfolio. At $20 a trade, your costs could add up fast and according to O'Shaughnessy, those that insist on excessive trading just might be the recipient of a phone call from an irritated member of Netfolio's compliance department.

The whole concept of personal folios was new a year ago. But now, to stay in the game, companies are looking for ways to add a competitive edge to their services. According to Netfolio execs, they plan to move ahead of the pack by offering expert advice. Advice is a good thing, particularly since Netfolio's services tend to get a bit complicated. And compared to the more user-friendly Foliofn website, Netfolio seems to be appealing to the more savvy investor.

As I mentioned earlier, the proliferation of online investing tools hasn't gone unnoticed by the mutual fund industry. The Investment Company Institute (ICI) thinks the Securities and Exchange Commission should subject folios to the same laws as mutual funds, and have filed a petition as a follow-up to a letter sent last year.

ICI is voicing its concern as the two of the biggest companies in the $7 trillion mutual fund industry are gearing up to introduce their own versions of folios - Fidelity Investments and the Charles Schwab Corporation. Their entry into the sector later this year will send a clear signal to the investment community that customized stock baskets are an idea that's moving into the fast lane, regardless of opposition from the mutual fund industry.

Eric D. Roiter, general counsel for Fidelity's mutual fund division, has openly supported the petition. He was quoted as saying, "Folios that are simply volume stock-trading discounts would not require regulation as mutual funds, but folios packaged with regular management advice are, in effect, mutual funds and should be regulated as such."

That would certainly seem to include Netfolio's services.

The SEC is aware of the situation but is not rushing to judgment. At a March conference, Paul Roye, director of the SEC's division of investment management, said the commission was "analyzing whether these products are appropriately regulated, but the fact that a product competes directly with mutual funds is not a legitimate reason to regulate it as a mutual fund."

So, for the time being at least, it appears that the proponents of online baskets and other spin-offs still have an opportunity to be creative and offer up whatever the market will bear.

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