John montalbano, newly appointed president of Vancouver-based Phillips, Hager and North Investment Management Ltd., foresees an increasingly competitive arena in the money management business, and expects that high investment returns may be harder to come by than in the past. If so, PH&N is in “the sweet spot,” he says, with its reasonable fees and healthy long-term returns an ideal combination for a low-return environment.

Montalbano, 40, PH& N’s president since April 5, is filling the shoes of Tom Bradley, who resigned. His appointment to the president’s perch is for at least five years. As a long-time employee of the company, holding a variety of roles since he joined in 1987, he has had many years to absorb the culture of PH&N. He was an equity analyst for 13 years, and more recently managed the firm’s distribution arm, including both private and institutional clients.

“There is a distinct culture at PH&N, with a huge emphasis on integrity and putting the client first,” Montalbano says. “You need to be part of the organization to feel it — and that’s why there is a policy of promoting from within.”

Founded in 1964, the employee-owned firm is ranked by the Investment Funds Institute of Canada as the 12th-largest investment fund manager in Canada, with the fund portion of its assets standing at $14 billion as of March 31, up 18% from a year earlier.
The firm also manages private accounts, pensions, endowments and institutional money.

It is the largest independently held money manager in Canada, with total assets under administration of $51 billion.

“We offer a long record of
better-than-average performance with lower-than-average fees,” says Montalbano, a native of Yellowknife who was raised in Vancouver and graduated with a bachelor of commerce from the University of British Columbia. “It’s a powerful combination. As people become more fee-conscious they are doing their homework and their research is leading them to PH&N.”

The firm’s funds are sold on a no-load basis, which means no commissions are paid to advisors to put their clients into the funds. Montalbano estimates about $1.8 billion in client assets have come to the firm through the advisor channel, primarily from advisors who operate on a fee-for-service basis. “Fee-based planners find it easy to recommend our funds,” he says. “Clients do well on both the performance and the fee side of the equation, and that strengthens the advisors’ relationships with their clients.”

PH&N also has no redemption, transfer or administration fees. The only cost is the annual management fees on its family of 21 funds, and those run markedly below industry averages. For example, PH&N Equity Fund charges an MER of 1.16%, according to Morningstar Canada, less than half the industry average of 2.89%. The MER on PH&N Bond Fund is 0.59%, significantly lower than the industry average of 1.96%.
The savings result in a major difference in bond fund returns particularly in a low-interest-rate environment.

The company requires a minimum investment of $25,000, although it can be spread across any number of funds in the family. Montalbano says that the average account size is close to $100,000 and the assets tend to stick around. On a $100,000 account, even a 1% reduction in the management fee can translate into more than $10,000 for the investor after 10 years, he notes.

Although the core funds are conservative, the lineup also includes PH&N Canadian Growth Fund, which invests more aggressively in younger companies. If PH&N has had a weakness in the past, it was in the international category, in which its Global Equity has been a fourth-quartile performer for the past five years. The problem was addressed in September 2004 with PH&N becoming a partner in Sky Investment Counsel along with Sky president Jenny Witterick who now acts as sub-advisor to the international funds.

PH&N doesn’t advertise, which lowers its costs. The business has grown through word-of-mouth and a strong emphasis on customer service. “Our clients are more apt to recommend funds to their friends and family than to leave the firm,” Montalbano says. “Our client-retention rate is high.”

It provides investment advice free of charge, although it tends to focus on basic financial planning and portfolio allocation. Clients are referred to outside specialists for more complex advice in areas such as tax and estate planning. PH&N also holds regular seminars across the country at which clients are invited to hear presentations on the economy and capital markets, and meet with senior investment professionals. It also provides support to advisors in the form of
fund updates and market commentaries.