In Canada’s growing pool of wealthy families, Tom McCullough occupies a firmly entrenched spot on the deck.
The co-founder, chairman and CEO of Toronto-based Northwood Family Office – which oversees about $2.2 billion of investment assets and $9 billion of family net worth – has spent more than 35 years in wealth management and multi-family office services. He’s written two books on high-net-worth families, and a third one, Wealth of Wisdom: Top Practices for Wealthy Families and Their Advisors, is set for release on Sept. 7. He also teaches family wealth management at the University of Toronto’s Rotman School of Management.
He’s also a second-generation member of a moneyed clan and father to two third-generation inheritors of family wealth – a circumstance that has shaped his vision of what a family office should be.
McCullough sat down recently with Canadian Family Offices to share his thoughts on wealth, wealthy families and Canada’s family office landscape.
You’ve been described as the godfather of family offices in Canada. What’s it like for you today after more than three decades in this space?
I started working at RBC Dominion Securities right out of university in 1981, and then started Northwood right after that in 2003. I’ve only had two jobs in my life, so it’s gratifying in the sense that this idea we had years ago has borne out.
So was the original intention to build a single-family office for your family?
The plan always was to build a multi-family office. Our family was the first client and we continue to be a client. We’ve benefitted from the same things that Northwood offers to all our clients, from strategic investments and tax planning to philanthropy management and family dynamics issues. From my own perspective, it’s been absolutely fantastic because I have the benefit of leading the firm but also being able to evaluate our service with my client hat on.
When you started Northwood, it was pretty much the only game in town. What’s your view of the current family office space in Canada?
I think it’s confusing for families these days because so many different types of firms are now branding themselves as family offices. The term connotes high levels of wealth, so some firms that are trying to target that type of client might decide to adopt the label. But when you scratch the surface, you might see that they’re really just an insurance broker, an investment advisor or an accountant. There’s nothing wrong with that, but I don’t believe you should say you’re a family office because you tacked on a couple of other services.
There is no definition in Canada, but in the United States the Family Wealth Alliance has set down some very helpful standards for a multi-family office. These standards – updated in 2020 – define family offices based on whom they serve, what services they offer, how they deliver services and what type of experience they have. Under the services offered, there’s a list of 10 services, and the thinking is that a company is a family office if they offer at least eight out of these 10 services. There also needs to be full transparency in the delivery of these services – you need to be totally client-centred and fully disclosing – and there has to be objectivity and independence.
What trends are you seeing today among wealthy families when it comes to approaches and attitudes to wealth and family strategies?
Family structures are becoming more complex for a number of reasons. People are living longer, so you have more generations alive at one time. We’re seeing more blended families and people marrying partners from other countries and nationalities. Wealthy families’ children travel more and often go to school in another country, so many of them end up staying there. All these things add colour and context in a good way but also add legal, tax and other kinds of operational complexities.
The complexity of the investment world and the speed at which it moves can also make it easier for things to get out of whack quickly. In the olden days every idea got vetted slowly through experts, but today something new can pop up – look at cryptocurrency, as an example – and families feel like they have to react quickly. It’s a minefield for families.
The conversations we have with clients are about what’s the best approach for their family as opposed to just jumping on the latest bandwagon. Instead of hiring that hot fund manager, we identify our clients’ goals and design a portfolio that gives them the highest probability of achieving those goals.
The way we look at it, families are on one side of the river today and they need to get to the other side, which is the future. Our job as a family office is to be the engineers who can help them build a bridge to get across that river safely and cost-effectively.
Where and how are wealthy families focusing their investments these days?
What’s changed over the last 20 years is that bonds used to be a big part of client portfolios. It’s less so now because interest rates have been so low, but they have been going up a bit and that will help investors who are interested in fixed income.
What’s changed a lot in the investment world is just the breadth of other tools available. In the old days, stocks and bonds were pretty much the only building blocks of client portfolios because there wasn’t much access to, nor interest in, private and alternative investments for wealthy families. This has changed over the past 10-plus years as alternative asset classes like real estate, infrastructure, private equity and venture capital have become important components of client portfolios.
When you think about all the wealthy families you’ve worked with, what are the common themes among those who have done it right from a financial and human capital perspective?
The families who do it best work really hard to stay as grounded as they can. Money works against that because it gives you access to privileges you wouldn’t have otherwise, so you do have to work hard to stay grounded. While it’s tough to do when you’re busy running a business, people who prioritize their families do end up with better results. People who are philanthropic also tend to be more successful from a family perspective since it can be a great way to bring the whole family together on something that everyone cares about. They often end up happier because they’re not just thinking about themselves.
My parents were big influencers for me. They taught me gratitude. We didn’t grow up wealthy. Dad came from a poor family from Ottawa with 11 kids, but he ended up building wealth from real estate. The mentality my parents gave me was “create your own future, don’t wait for somebody else to hand it to you.” So I never felt constrained and limited.
My dad also told me never to borrow money for consumption if you can help it, only borrow to invest in yourself and your business. Don’t have debt because when bad times come debt is a problem, whereas if you don’t have debt you have flexibility.
Northwood was acquired earlier this year by CI Financial Corp., a Toronto-based global asset management and wealth management advisory services firm. How will this affect continuity of services and relationships at Northwood?
From our clients’ perspective, the partnership with CI Financial hasn’t changed anything at all. We will continue to run our own business and we will not be selling any product. In essence, we’ve created a private partnership inside a public company. From our team’s perspective, we wanted a way for our staff to have ownership and that’s one of the major reasons we took this step. It’s a long-term capital transaction. We want to preserve exactly what we do at Northwood and allow the next generation – who have been training on the job for the last 10 or more years – to continue what we started.
I’m still building. I hope to be involved in the business for years to come. In our business, grey hair, or even no hair, is a plus! We’ve built a good reputation so far as a family office. I’d like to add to that a reputation for having successfully transitioned the business to the next generation.
This interview has been lightly edited and condensed.
More from Canadian Family Offices:
- The beer-brewing family who lost it all
- Naim Ali, CEO of Calgary’s SM2 Capital Partners, on immigrant success story
- Bill C-208: Advisors work overtime on succession plans as tax changes loom
Please visit here to see information about our standards of journalistic excellence.