The Steadyhand Diaries

Veteran money manager Tom Bradley broke all the rules by launching a low-fee, direct-to client mutual fund firm. In pursuit of his dream, he chased down the right talent, endured the glare of regulators, got a new liver and squared off with a grizzly bear

by Tom Bradley
Globe Investor Magazine, May 22, 2008

In early 2005, Tom Bradley resigned as president of Vancouver-based Phillips, Hager & North Investment Management, one of Canada’s biggest independent money managers. Rather than play it safe after his 14-year stint at PH&N, Bradley opened his own Vancouver mutual fund shop. Since beginning his career in 1983 as a research analyst at Richardson Greenshields, the Winnipeg native has watched the wealth-management business grow fat and flabby. Bradley set out to build a firm that put investing ahead of marketing. He also found time to keep this diary.

May 13, 2005

“My husband just had the biggest midlife crisis I’ve ever seen. Certainly the most expensive one. Couldn’t he just have updated his wardrobe, bought a Porsche and had an affair?” At my 50th birthday party, this is how my wife described my quitting Phillips, Hager & North. There’s probably a grain of truth to the midlife crisis, but Lori and I both knew it was time to go. It wasn’t fun any more.

The birthday fell just days after my farewell party. It was brutal leaving. PH&N has been hugely successful. It manages more than $50 billion, has a great client-service ethic and is the envy of the Canadian industry. We all worked our asses off to make it happen.

As much as I loved the team, I stepped down because the board and I were increasingly out of synch. I wanted our investment stars—who are now on the board—to focus on managing money. They wanted to get more involved in running the business side. This was too fundamental a difference for me to just live with.

September 7, 2005

We’re back in Vancouver after two months at Crystal Lake in Ontario. I had no problem enjoying the summer off, even if my water skiing got progressively worse. Turning 50 isn’t all it’s cracked up to be.

It’s only been two days, but I can already tell that Lori doesn’t like being married to a retiree. Fortunately, all it took was a rainy afternoon and a few phone calls to get my head back in the game. I’ve got a couple of opportunities with established firms, but I really want to start something new.

I know the pension business well, and am known there, but wealth management has more upside because, to put it bluntly, the industry has gotten out of shape. It’s now driven by marketing rather than investing. Fees are too high—among the highest in the world. And portfolios are bloated with too many stocks.

October 20, 2005

I’m perched in my home office overlooking Kits Beach, and what do I spend my afternoon doing? Dissecting a principal-protected note—the industry’s wonder drug, which promises equity-like returns with no downside. While the selling document tantalizes the reader with a return of “up to 10%,” I calculated that the odds of that happening were virtually zero. What garbage.

It seems that every day there are new products—closed-end funds, wraps, principal-protected everything—driving fees up and transparency down. In many cases, the fees are over 3%, which doesn’t give the investor a chance. With the big players so fixated on asset gathering, it’s hard to see things changing.

But some firms are bucking the trend. We built a successful private-client business at PH&N, without sales commissions and fancy packaging. And in the U.S., lower-fee, direct-to-client mutual funds make up 15% of the market. Vanguard, a trillion-dollar mutual-fund co-operative, doesn’t have a big sales force or marketing budget, but its passion for low-cost investing—primarily through indexing—and client service has taken it to the top.

In Canada, very few firms have made a serious effort to introduce low-fee, actively managed funds. The banks are direct-to-client, but they don’t charge much less than the high-cost adviser-sold funds. They just haven’t used their scale and distribution power to bring down fees.