Cameron Passmore, CEO of PWL Capital, works at his home office in Ottawa, on Jan. 22.Ashley Fraser/The Globe and Mail
PWL Capital Inc. became one of Canada’s fastest-growing wealth managers by adding hundreds of Shopify Inc. SHOP-T employees as customers. Now, the Montreal firm hopes to amp up expansion and challenge the country’s investment giants after selling to U.S. financial services and human resource consulting company OneDigital.
The deal, announced Thursday, is the first Canadian purchase for the Atlanta-based company, legally known as Digital Insurance LLC., which is controlled by Canadian private equity firm Onex Corp.
Twenty-five-year-old OneDigital, which generates US$1.4-billion in annual revenue, started as an employee benefits adviser, expanding into wealth management in 2020, and had US$14-billion in wealth management assets under management (AUM) before the deal.
PWL’s AUM have grown by an average 17 per cent annually in the past 10 years, reaching $5.5-billion, compared with less than 10-per-cent average annual industry growth. The explosive growth has mostly been built up through passive investing, a strategy that minimizes daily buying and selling of stocks by using benchmark indexes.
OneDigital has made about 200 acquisitions, and “this may turn out to be our most consequential one to date,” said co-founder and chief growth officer Mike Sullivan. Terms of the cash-and-stock deal were not disclosed.
Canada’s wealth management industry has undergone years of consolidation, as technology and regulatory costs squeezed independents. Canadian banks have been big buyers of financial advisers and their million-dollar books of business. They have been joined recently by foreign buyers including Abu Dhabi’s Mubadala Capital, which said last year it would buy CI Financial for $4.7-billion.
PWL wasn’t initially looking to sell, and had spurned suitors in Canada and the U.S. PWL president Brenda Bartlett said her firm had little interest in being swallowed up by large organizations that tend to focus on boosting AUM rather than other factors such as ensuring cultural fit between parties.
“Most Canadian acquirers are large integrated institutions,” she said. “That had zero appeal to us because we wanted to stay independent.”
But OneDigital was relentless, she said, continuing to reach out for months starting in 2023 to discuss the benefits of partnership. PWL chief executive Cameron Passmore said he was initially skeptical but impressed by the fact OneDigital was still led by its co-founders. He warmed up after discovering the two organizations had much in common the more they talked.
“We finally got to a point of realizing this could be a perfect set-up,” he said.
Mr. Sullivan says PWL is an “absolute 10 out of 10” acquisition target in terms of the cultural fit with OneDigital; its talent and capabilities; and its distinct focus on low-fee, passive investing strategies for its 2,300 clients and their families.
He said the plan is for PWL to be a stand-alone unit renamed OneDigital Canada and acquire like-minded advisers: “We think there are hundreds of advisers in Canada that would be interested in aligning with a team like PWL. They’re going to scale rapidly.”
Canada is a decade behind the U.S. in embracing the index-style investing PWL champions. The amount of passive AUM in Canada has grown much faster than actively managed assets over the past decade. But just 16.4 per cent of total assets were in passive funds in 2023, according to Morningstar, compared with 47 per cent in the U.S.
The 29-year-old PWL embodies Mr. Passmore’s zealous enthusiasm for the investment philosophy popularized in by U.S. fund giants BlackRock Inc., The Vanguard Group, Inc., and others that have adapted index investing and led massive growth of exchange-traded funds.
Mr. Passmore, a 58-year-old native of Lennoxville, Que., started as a mutual fund salesman in the early 1990s as investors were piling into the products. He became disillusioned collecting big upfront commissions and continuing annual trailer fees while feeling he wasn’t adding value to clients.
After his employer sold to industry consolidator Assante, he and his team joined fledgling PWL in 1997, where he could charge customers fees based on portfolio values instead of earning commissions. He quickly surmised that since most active managers couldn’t regularly outperform the index, it made more sense to bet on low-fee funds that passively tracked the index.
In the early 2000s, he began offering low-fee products from Dimensional Fund Advisors, which tweaks typical passive investing practices by favouring small cap stocks and value stocks. (Today, PWL also partners with BlackRock and Vanguard.)
Most PWL advisers today earn a salary, which the firm sees as a better way to ensure their interests are aligned with clients. And unlike some traditional Canadian financial adviser companies, PWL operates under a fiduciary standard model, in which an adviser is legally required to put client interests ahead of their own.
The turning point for PWL came when Mr. Passmore met Shopify CEO Tobi Lütke in 2011, who became a client and referred him to other local tech entrepreneurs and Shopify employees.
“They speak the language we speak – evidence and math,” said Shopify president Harley Finkelstein, a long-time client. “We don’t want to be sold to, we want to be taught and learn something and we want to know the people we work with are very high character people.
“Any entrepreneur that asks me for advice with their financial situation, I often direct them to” Mr. Passmore.
The flurry of tech customers dropped the average age of PWL clients below 50, and the firm hired young as well. Its average employee age is 35, putting PWL ahead of the demographic crisis looming over Canadian financial services, as advisers near retirement. It also operates two popular podcasts.
By 2021, Shopify employees accounted for 30 per cent of PWL customers (it is now 20 per cent). That year, Mr. Passmore bought a controlling stake in PWL from retiring co-founder Anthony Layton. He also opened ownership to PWL’s younger employees. About 40 per cent of its 105-strong staff had equity before the OneDigital deal.
Editor’s note: This story has been updated to clarify that OneDigital had US$14-billion in wealth management assets under management before striking a deal to buy PWL.