Onex merges part of Gluskin Sheff with RBC after advisers planned early exit

Onex Corp. ONEX-T is transferring parts of its private wealth business, Gluskin Sheff and Associates Inc., to RBC Wealth Management Canada and will wind down the rest of its wealth management and planning operations in an unusual agreement that followed the planned defection of some of Gluskin Sheff’s top advisers.

Through an arrangement announced Friday, Onex will distribute its alternative investment products, currently offered by Gluskin Sheff, through the wealth management arm of Royal Bank of Canada. All of Gluskin Sheff’s adviser teams – a group of 41 senior advisers, analysts, associates and wealth planners – will be offered jobs at RBC.

Onex said it will continue to manufacture investment products to offer to RBC RY-T wealth management clients and advisers. But all wealth management and wealth planning operations not transferred to RBC will be wound down.

Onex reached the agreement with RBC after learning that four Gluskin Sheff managing directors from its client wealth management group, who collectively managed a significant share of the boutique wealth manager’s book of business, planned to leave to join RBC, according to multiple industry sources with knowledge of the deal.

That helped spur discussions between Onex, which acquired Gluskin Sheff for $445-million in 2019, and RBC over an agreement that could benefit both sides, the sources said. The agreement is not a conventional acquisition, and RBC is not paying Onex to acquire the Gluskin Sheff advisers or key parts of the wealth manager’s book of business.

The Globe and Mail is not identifying the sources because they are not authorized to discuss confidential discussions.

For Onex, it signals that the private wealth strategy it sought to build when it purchased Gluskin Sheff has not panned out. Onex has a long history in private equity but has been building up its credit and private wealth strategies, which generate steady streams of fees and help diversify the services it offers to clients. And it will ultimately mean the end of the Gluskin Sheff name in wealth management, which has catered to high-net-worth individuals for nearly 40 years since the company was founded by Ira Gluskin and Gerald Sheff.

“The announcement marks the end of the Gluskin brand, which is likely to be viewed as an unsuccessful acquisition by Onex,” said Phil Hardie, an analyst at Scotia Capital Inc., in a note to clients. “That said, we believe it is the best way forward for Onex.”

The relationship between Onex and RBC Wealth was first forged in 2021 when the bank was building a private market team to address being “slightly underpenetrated” in alternative assets, said David Agnew, CEO of RBC Wealth Management Canada.

“We started talking to the best providers in the space and we were very impressed with Onex and their expertise,” Mr. Agnew said in an interview. “And they were intrigued with our distribution strengths.”

Mr. Agnew already reached out to many of the Gluskin Sheff lead advisers on Friday and anticipates recruiting the majority the team. “Our hope is that 100 per cent of the client wealth management team will join RBC Wealth Management Canada,” he said.

While the agreement does not include payments to be made by RBC, Mr. Agnew did confirm he will consider “transitional payments” – also known as recruitment bonuses – for anyone who joins the company.

Mr. Agnew declined to comment on the advisers who had planned to leave Gluskin Sheff. Onex spokesperson Jill Homenuk declined to comment beyond a company news release.

Onex expects to record a restructuring charge and take an impairment on goodwill and intangibles but has not quantified how large either will be. The company plans to provide an update when it reports quarterly earnings in May.

A major victory for Onex is that it gains access to a potentially lucrative new channel through which it can reach wealthy clients via RBC, which is Canada’s largest wealth manager with $533-billion of assets under administration. Until now, Gluskin Sheff only offered its products through proprietary channels.

“Over time, we believe this distribution agreement has the potential to drive significant growth in assets under management and fee-related earnings,” Mr. Hardie said.

It is not known what role Gluskin Sheff CEO Dave Kelly will have once the agreement is completed. The former head of private wealth at Toronto-Dominion bank was hired last year to revamp Gluskin Sheff and accelerate its plans to gain market share. At the time, Onex aimed to make Gluskin Sheff stand out from rivals by offering both traditional wealth management products and alternative assets.

Mr. Kelly did not respond to a request for comment.

“As we have indicated previously, the private wealth channel remains an area of significant potential growth for Onex,” said president Bobby Le Blanc, in a prepared statement. “This agreement with one of Canada’s largest wealth management platforms represents an attractive near- and long-term opportunity to diversify and expand our reach among private investors.”

At the end of last year, Gluskin had $8.2-billion of fee-generating client capital, roughly unchanged from when Onex acquired the company. That included $6.5-billion in public equity and credit market investments, $1.6-billion of Onex’s private credit products and $123-million of Onex private equity funds. Over the last fiscal year, net outflows of funds totalled $42-million.

RBC’s Canadian wealth management arm is a giant by comparison, earning $4.3-billion of revenue last year. As one of the country’s largest full-service securities brokerages – with 2,000 securities advisers and 110 investment counsellors – it has an extensive product shelf and distribution network for traditional wealth management products. The agreement with Onex adds to a lineup of alternative investment products with exposure to assets such as private credit.