The term family office is just becoming recognized in Canada Northwood's chief executive tells FWR in an exclusive interview.

The family office market is still small and undeveloped in Canada despite the number of ultra high net worth families.

There are approximately 27,000 families with at least C$10 million in investable assets or C$25 million in net worth in Canada, BMO Harris has estimated.

“The term family office is just becoming recognized,” Tom McCullough, president and chief executive officer of Toronto-based Northwood Family Office, told Family Wealth Report in an exclusive interview.

McCullough speaks from personal experience. In the early part of the new millennium after spending a few decades in senior roles in financial services he began looking for a way to manage his family’s wealth. His father was at a point in life where he wanted to sort out his affairs.

The two turned to the family’s long time charted accountant only to find that this approach didn’t satisfy the comprehensive, customized and confidential process needed to handle substantial family wealth.

“We thought there must be a better way,” McCullough said.

At the time multi family offices were virtually non-existent in Canada. In 2003 McCullough founded Northwood with partner Scott Hayman, who is chief financial officer and heads up client service.

“I thought if we need this there has to be others who do.”

In the early days Northwood would often receive calls from people unfamiliar with family offices who thought it provided “family planning” services. 

McCullough estimates that today there are at the most 10 commercial MFOs in Canada.

Typical Northwood clients have family net worth in the $C10-$500 million range. The average net worth of its 25 family clients is approximately C$30 million.

The MFO’s clients fall into three groups, all growth areas. Entrepreneurs are the first and largest.

The second is what Northwood describes as high performance professionals. These include C-level execs and finance pros, such as senior investment bankers, private equity and hedge fund managers.

High performance professionals are so busy tending to business that their personal financial affairs don’t make it to the top of the in basket, McCullough said.

The third group is global families with a Canadian connection, such those with global wealth who have a family member in Canada.

The Canadian government is actively looking to increase the number of immigrants, particularly the high net worth and well educated, McCullough points out.

He added that Canada has no estate or gift taxes and permanent taxation is based on residency not citizenship.

Northwood’s approach includes its trademarked Net Worth Management. It takes into account all assets and liabilities, including family businesses, vacation homes, investment real estate, philanthropic funds and human capital.

Most of the industry typically looks at the liquid asset side, according to McCullough.

“A family needs to look at their entire net worth,” he said. “People have integrated lives.”

An integrated plan is developed followed by identifying areas requiring specific external expertise. Northwood works with clients’ existing advisors but if they are not already in place external pros are introduced from a network of handpicked specialists.

The MFO’s non-investment services include risk management, tax, structure, estate, succession and philanthropic planning, as well as lifestyle, governance, education, reporting and administrative.

Investment management services are provided by wholly owned investment management affiliate Northwood Private Counsel, which is completely open architecture.

McCullough said part of the reason the MFO model is still emerging in Canada is due to a much less competitive financial services landscape than the US. Canada typically takes five to 10 years to catch up to the trends of its neighbor, he added. 

Canada’s five major domestic banks dominate the market. They pick up much of the high net worth wealth management business by default, even if they aren’t good at servicing this segment, according to McCullough. 

McCullough, who held senior wealth management roles at Royal Bank of Canada before founding Northwood, also spends time educating the marketplace on wealthy families.

He teaches “The Management of Private Wealth” in the MBA program at the University of Toronto’s Rotman School of Management, sits on the U of T dean’s advisory board and is an entrepreneur in residence at University of Western Ontario’s Ivey School of Business.