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PH&N keeps true to its low-fee history

Four months after being taken over by RBC Asset Management Inc., money manager Phillips Hager & North Investment Management Ltd. is dropping the management fees on a number of its funds.

The announcement is consistent with the firm's long-term focus on low fees. But PH&N is also sending a message to investors who have been uneasy about the takeover that the Vancouver-based money manager plans to stay true to its roots, said Dan Hallett, an independent fund analyst based in Windsor, Ont.

"I think to a certain extent this says to them [investors], 'We've had a commitment to low fees for pretty much our whole history, and that's not changing. We have a partner that's on board with that,' " Mr. Hallett said.

Founded in Vancouver in 1964, PH&N has become one of the country's top money managers, with assets of $68.2-billion as of March 31. Its trademarks have been stability, customer-friendly practices including low management fees, and fierce independence.

The $1.4-billion acquisition of the company by RBC, announced in February, surprised the markets, especially since PH&N had stayed on its own despite numerous advances from other suitors.

"When we merged with RBC, we said first and foremost we were doing it for the value of our clients. I think the fee reductions demonstrate that we continue a client-focused approach. The reductions also highlight that we are aligning our fees with some of the lower fee structures at RBC," John Montalbano, president of PH&N and chief executive officer at RBC Asset Management, said in an interview yesterday.

RBC has been at the leading edge of an industry trend toward cutting lofty mutual fund management fees, according to research done by The Globe and Mail. Four of its funds ranked in the top 20 in terms of management expense ratio (MER) declines in the five-year period ended February, 2008.

PH&N's latest fee cuts, of up to 0.6 percentage points, are slated to take effect about June 27. For investors who deal directly with PH&N, the reductions are primarily on global and socially-responsible investment funds, rather than its more popular Canadian dividend and bond funds.

The bulk of the reductions, however, are on the firm's "Series F" funds, which are sold to clients through fee-based advisers. These fee cuts are widespread, and include a number of Canadian and U.S. funds.

Traditionally PH&N was focused almost exclusively on direct-to-investor sales, but has started to bulk up its outside sales channels.

PH&N also said it will reopen an opportunistic investment fund that has been closed to new investors since 1993. The PH&N Vintage Fund is the company's most aggressive Canadian equity fund, and has had an average yearly return of 12.1 per cent since it was started in April, 1986.

Market conditions, particularly much greater liquidity in the small to mid-cap market, were behind the decision to reopen the fund, said Don Anderson, who manages the fund with Andrew MacDonald.

The Vintage fund has had big performance swings from year-to-year, gaining 53 per cent in its best year and losing 21 per cent in its worst.

The fund appears to have ample capacity for additional investment, including from existing PH&N clients, said Mr. Hallett, who noted he hasn't looked at it in depth because it has been closed to investment for the past 15 years.

Despite its strong returns it will be interesting to see how much attention the fund receives, given that many investors are seeking lower-risk investments in the face of volatile market and economic conditions, he added.

New fees at a glance

Series A units Former management fees New management fees Category average management fees 2007 MER
C-H Overseas equity1.25%1.10%2.00%1.78%
Overseas equity1.25%1.10%2.00%1.46%
Global equity1.25%1.00%2.16%1.56%
Vintage1.75%1.25%2.08%1.85%
CV bond0.55%0.50%1.44%0.77%
CV balanced0.85%0.75%1.99%1.15%
CV Canadian equity1.10%1.00%1.96%1.40%
CV global equity1.35%1.00%2.16%1.65%

SOURCE: MORNINGSTAR

© 2007 The Globe and Mail. All rights reserved.

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