Family Business Audiocast | Episode 68 | Tom McCullough

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R. Adam Smith: Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I'm fortunate for my many experiences within the family firm industry. A brief comment on why I created this broadcast.

Private companies are a passion of mine, having grown up in a family of entrepreneurs and having engaged for two decades in deals, strategic transformations, investments, and boards with an array of fascinating family enterprises, family firms, and family offices. I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem.

Whether you're a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. And now it's time to turn our attention to our accomplished guest on today's episode.

Welcome to The Family Business Audiocast. A warm thank you to our live audience today and those listening in the future. On this episode of the Audiocast today, I'm joined by Tom McCullough, who is founder and chairman of Northwood Family Office, one of the leading multifamily offices in the world based in Canada, in Toronto. Tom, it's wonderful to have you today.

Tom McCullough: Thanks very much, Adam. Happy to be here.

R. Adam Smith: We'll talk about Tom briefly and dig in here. Tom brings more than three decades of experience in wealth management and family office advisory, including senior leadership roles previously at RBC Wealth Management before founding Northwood. Northwood was founded in 2003. His vision was shaped not only by this industry experience but also by a personal understanding of the need for truly independent, comprehensive, and confidential advice for families of significant wealth in Canada and beyond.

During his leadership, Northwood has now become one of the most recognized family offices in Canada, consistently ranking among the top independent firms on a global basis. Beyond his advisory work, Tom is a leading voice in the field. As we know, he co-authored several influential books on family wealth. He's also a professor at the University of Toronto, Rotman School of Management. He's also obviously involved in the Ultra High Net Worth Institute—we'll talk about that today—and a contributor to the broader thought leadership industry in wealth management, family offices, and family enterprises. Tom brings a very powerful and unique perspective with his background and experience, offering clarity and long-term stewardship to the clients that he serves and to the industry as a whole. Great to have you here, Tom, today. Thank you so much again.

Tom McCullough: Great to be here.

R. Adam Smith: So we'll start with Northwood. Again, based in Toronto, it is a multifamily office founded in 2003 and is now one of the leaders in the world. It has been awarded by Euromoney and others as one of the top in the industry, which is amazing. Of course, it's a very competitive industry, as we know. So we'd love to hear about Northwood first.

Tom McCullough: Sure. Northwood, as you said, started in 2003. Maybe I'll tell you a little bit about the founding story of Northwood because it ties into your other comments. As you said, I spent 20-plus years at RBC—the investment banking part of it originally, and then I ended up being in the private wealth area. Shockingly, I was there for 20 years. I never expected that, but it was a great organization and a great place to be. I had lots of independence and so on. I was never an advisor per se; I was always in senior management and was on the executive committee when I left.

But about 20 years in, three things happened. One is I realized, "Wow, I've been here for 20 years," and the bank was taking over more and more, and it was a bigger organization, maybe a little bit less fun. Secondly, I have got a large family on one side of my family. I've got 25 first cousins—half in the US and half in Canada on that side of the family—and almost all of them who work are entrepreneurs. Those who don't work are at home with kids and that sort of thing. And so I was the lone corporate guy for 20 years, and I think I had it in me to be an entrepreneur at some point. It was always burbling in the background, so that was on my list.

Then the third thing is our family—my parents essentially—were looking for what I would today call a family office. But this is 25 years ago, and people did not know for sure what a family office was per se. We'd heard the term and didn't really know, and we weren't large enough to have a single-family office. So we went looking and, as people often do, they turn to their accountant.

And of course, our accountant gave us two specific ideas: you can do an insurance policy, or you can do an estate freeze tax structure. It was about a minute-and-a-half conversation and sent me packing. He could have said all sorts of things like, "Let's have a chat together," or, "How can I help?" But, like a lot of professionals, he ended up focusing on a particular idea. Which I'm glad he did, because it set me on a vision to say, "Boy, I think there's a lot of people that could use somebody in their life that can bring objective advice and knowledge about a whole wide range of things that clients have issues with." Don't sell a product. But I couldn't find that. They say the best entrepreneurs are frustrated consumers, and I thought, "Maybe I'll just do it. It can't be that hard." And of course, it was very hard, but I did start that in 2003, and Northwood is now 40 people, over 100 families, and $5 billion in AUM.

R. Adam Smith: There you go. That's a very inspiring story. There is, as we know in Canada and beyond, a very significant expansion and evolution of the multifamily office and wealth management model, and it's a very important organizational structure as well. So it's great to talk about it and to see that story. Let's talk more about that gap of how you designed the organization, and just today, what are some of the elements that you and let's say elite MFOs provide to the market for our audience?

Tom McCullough: It's a very interesting comment you make about elite MFOs. It's confusing for people what an MFO is because when I started out 23 years ago, people would ask me what I do, and I would say, "I'm involved in a family office," and they would wonder if that was birth control and family counseling. So people didn't really know what it was many times.

Now, it seems like everybody is a family office. There are just all sorts of people who are claiming to be a family office, so there's no exact definition of it, which makes it a little bit tricky. But I think there are essentially five elements that a typical, what I'll call full-service family office offers, and they would fit into the category of:

• Planning: Broadly speaking, this would be everything from family goal setting to capital sufficiency analysis, to estate and tax planning (all of it with outside advisors as well), philanthropic planning, risk management, et cetera.

That's the first one, planning. The second would be investment management, asset allocation, and that's maybe the most known and understood one. Sometimes it's the one people come for and don't even realize the other components are available. The third would be something to do with, I'll call it family governance. And that is really just helping families decide how they're gonna make decisions, especially if there is shared control of assets.

And that would include everything from educating future generations and planning how, for succession and transition. The third area would be family wellbeing, and that's really the relationships among the people and having healthy individuals in the family. That's that human capital that is often talked about.

And then the fifth area would be wealth administration, which is probably 100 items under that category, but it's all the things that make sure the trains run on time, from consolidated reporting, to bring forward lists, to one-off tasks that the family office will manage for people.

R. Adam Smith: As a wealth management function, a fiduciary wealth management function is very important, and I think you've covered the key areas of the multifamily office. Of course, some are more traditional and more closed architecture, others are more open architecture. Others lean into alternatives and others don't, and so on. And others focus on managing and protecting the wealth versus expanding the wealth. So we can talk more about that during this conversation.

This is also a good time to talk about the Ultra High Net Worth Institute, which through its legacy and its approach to family capital covers those areas as well, and you're also getting more involved in the institute.

Tom McCullough: I am. The institute is interesting. It was formed, I think, about eight years ago. There was a group of people led by Steve Prostano, who is the very well-respected head of the institute and has been in this field for many years. He had organized a group of people to speak on a panel about the issues facing ultra-high-net-worth families, and he got somebody from the RIA business, somebody from a trust company, somebody from broker-dealers—different types of the industry. They talked about all these issues families face.

At the end of the session, after they were finished and they were chatting, they were saying, "This is really confusing for clients. Is there some possible way we could help families by bringing an organization, education, common language, and certification for advisors—some way that this would help families break through the confusion in this area?" And that's really how the institute was born. It is a not-for-profit think tank and learning exchange, essentially. It focuses primarily on the advisor side at this stage to help people who are serving families in the ultra-high-net-worth category, let's say, to understand more and more about what they need and find ways to communicate and deliver that in an increasingly professional way.

So it's just a very high-quality organization. I've been on the board for, I think, six or seven years, and I've just taken on the role of head of thought leadership and strategy as I've geared down some of my time at Northwood. We're going through a succession plan at Northwood, and then of course, I'm stepping up to do some things at the institute. I've got lots of great things happening, and a lot of it is very symbiotic.

R. Adam Smith: Amazing. Of course, James Grubman, your colleague, was on the show here the last couple of months and is so revered in the industry, adds so much value, and is such a gentleman. He added incredible value to the institute and is still involved, but he'll be having a little bit more free time as of this quarter.

Moving into long-term discipline and just looking at the risk-reward structures of forming liquidity and balance sheet structures for very wealthy families, we'd love to talk about that in terms of not portfolio architecture, but just the complexities and importance of maintaining and sustaining wealth, but also growing it. That includes alternative investments and how that's essential, of course, over the last 10 years especially, with allocations significantly increasing. Although riskier, alternatives are really where to create new wealth, as well as private company acquisitions and growing operating companies. So maybe just talk a little bit about the approach to a holistic investment strategy, particularly for a billionaire that has operating companies, not just public holdings.

Tom McCullough: Yeah, great question. I've been in this field for 40-plus years, and I have been specifically in the family office space for 25 years. I would say one of my observations is people start in the middle as opposed to the beginning, and the beginning, I think, is goals. People often will wonder if they have goals, and if you're pressed with a gun to your head, "What are your goals?" sometimes people don't know. But I think people do have goals, and sometimes they need to be teased out a little bit.

In some ways, you could say there are only two things you can do with money: you can spend it, or you can give it away. You can save or invest, but that's ultimately to spend yourself or to give away to children, future generations, or charity. We spend a lot of time at the beginning with families helping them figure out what it is that they want to do and what's important to them. It's a very important investment of time, both for us to get to know how we should help them manage, but also for them to come to grips with what's important.

It's interesting, one of the questions that we ask people in discovery meetings—and it's often a husband and wife in the types of clients that we have—we'll say, "What are the best three things you've done for yourself and your family in the last 12 months?" And we wait an uncomfortably long period of time until both of the couple answer the question. The interesting thing is it's mostly not financial. It might be, "I sold the business," but more likely it's things about life and the family. What it teaches them and helps them realize is that money is really a tool to do the things that you want to do, as opposed to just the goal.

Now, some people have a goal to double their money over an X period of time. That certainly can be a goal, but oftentimes the goals are more personal than just that. Some of those goals cost money, some of those goals don't cost money. After people have answered that question, we say, "How do you want to answer that question in 12 months? What are the best three things that you've done for your family in the 12 months ahead?" It's just very helpful to help orient people to, "Okay, what do we want as a family?"

Often people come in and the first question they'll have for us is, "What would an asset mix be for people like us?" And our answer is, "We have no idea. We don't know anything about you; we haven't read any of your documents." I think good family offices do very much what we would do. When people come in, they're looking for somebody, mostly, who can look at their overall affairs. Just like they had a CEO of their operating business, they need a CEO of their liquid capital once they've generated some or sold the business. Our job is to look at everything.

So we would collect all of their documents—everything from wills, powers of attorney, prenuptial agreements, investment statements, to tax returns—and we read all of it. Nobody has ever read all of their documents in one sitting ever before. Given all that background, only then can you begin to help them figure out what they should do from, let's just call it, an asset management standpoint. Maybe I'll just add that instead of starting from what you have on the shelf as an advisor and what you like in the market, what you want to do is start from what they need to get to their goal.

We think about it as building a bridge from here to there—whatever "there" is. "There" is the future. And so if an engineer is building a bridge, what materials would an engineer need to build that bridge? What investments—alternative, traditional, cash, growth, et cetera—do you need to build them to where they want to get to? Which is a different orientation than, "Hey, I like private credit."

R. Adam Smith: Exactly. The building is a great analogy, and that is particularly relevant to a more holistic perspective. On this podcast, we talk very much about the importance of communication, of being open and accessible, vulnerable, sharing information, gathering corporate governance advisory boards, charters, and bringing in external advisors. All of that drives open communication and more information, and with that information, it creates better collaboration. Better collaboration creates less tension and fewer chances for things getting really messed up.

We've covered this with some of your colleagues on the soft side, like Emily Bouchard, Victoria from Merrill Lynch, Christina Wing, and so on. And then on the more holistic advisory side, we've had some of your colleagues and friends like Richard Wolkowitz looking more at the holistic perspectives. But everybody seems to emphasize this importance of communication and collaboration, and that drives transparency. What do you have to say about collaboration within the family office, within the family?

Of course, the family office is just the administrative entity. The family office does not really cover the total activities of the family. I think people talk about the business of families, the family's entities. I like to refer to this whole topic, this whole ecosystem, as the family enterprise. And I like that the Ultra High Net Worth Institute talks about family capital. It's an interesting time to use these terms and talk about them. But just a little bit more from you on this importance of collaboration, transparency, coherency, vulnerability, and accessibility.

Tom McCullough: Yeah, that's a great point. I'm a big believer in all of those things. The world is complicated. Not everybody can be an expert in every area. We all need to work on behalf of families with colleagues to get things done.

Families are not under-advised; they are under-integrated. There are many good advisors, most of whom chose their area of specialty because they liked it, and they're deep, vertical experts in those areas—that's very important. What my observation is missing, and I find this with new families who come to us, they have some great investment managers, attorneys, accountants, and various other providers, but who is running the show and coordinating things? I always say if you don't know who the integrator is in a family, it's probably the family. They're doing it by default.

But the problem is they don't have a background or skills in that area. They ran a widget business and sold it for $200 million or $500 million, but they have never really run a financial business. They really need help in all various areas. There are great people who play those narrow roles, but not many who play the broad roles. I'm sure you've heard many of the analogies. One of them we use most often is the general contractor role. You need electricians and you need plumbers, but you also need a general contractor—unless, of course, the client is knowledgeable, interested in doing that job, has experience in it, and is good at it. A family can do all of those kinds of things themselves, but I think that's a key role.

It's a little bit different than collaboration. Collaboration is important when you work together, but somebody needs to make all those connections. We use the analogy of mortar and bricks. A brick is something obvious that needs to be done, like a will, an investment portfolio, powers of attorney, or an insurance policy. But the mortar is all of the things that connect those.

I use an example. I wrote a paper called The Rise of the Integrated Advisor, which essentially argues that this role is actually becoming a profession now, as opposed to a family friend lawyer who helped the family off the corner of her desk over the years. Now it's actually becoming a role, and that's the growth of the multifamily office.

In that paper, I've got an example of a family who is buying a very large piece of property next to their ski chalet. You just think about all the implications and other areas beyond just the purchase of this property that are kicked into gear because they're doing it: How should it be owned? In a trust or not? Do they have liquid capital available? Are there municipal regulations? Are they going to tell the kids about it? Who's going to be trustees of the trust? Should it be owned separately? Are there tax implications? All of these things, like any complex operating business, need to be managed. I think more and more people are realizing that they need someone to help with that management if they're not able to do it themselves.

R. Adam Smith: Thank you so much for that. There's so much to unpack there, Tom. We'll revisit this and find ways to bring more to the table. Let's step back and talk about some of the academic work and intellectual capital that you've created writing about the industry and sharing knowledge as a practitioner.

There's so much content out there, of course. You've seen some of our guests, including James Grubman, and Dennis will be coming on soon. Then, of course, we've had Enrico Salazar, Massimo Bao, Professor Matt Hughes, and of course one of the giants, Alfredo De Massis, on the show. There's so much that all of you produce. Just talk about that for a minute—just that content, those ideas. How is that shared? Why is it important to think intellectually about the industry, and why is it important, not just the execution?

Tom McCullough: I have taught a course at the University of Toronto for 15 years called the Management of Private Wealth, and I've been able to say to the students—MBA students in most cases—that they are actually living through a massive transformation, both an intellectual and practical transformation of an industry. People will look back at this era and say substantial change happened, and they are living it right now.

A lot of that is related to this idea of integration, of a whole balance sheet of human capital versus just financial capital, of globalization, of complex families, and an industry trying to adapt to that from being an old-style industry, having made some changes, and now really becoming professionalized. Jim Grubman, Dennis Jaffe, and Kristin Keffeler's book, Wealth 3.0, captures a lot of those.

My books—two main ones. One I wrote some years ago and co-authored is called Family Wealth Management, and we just did a second edition that came out a year or two ago to update charts and so on. It really captures this goals-based approach to thinking about the actual investing and financial capital management of people's affairs. The other two books that I wrote are both titled Wealth of Wisdom. The reason is because all the content was not just written by myself and my co-author, Keith Whitaker, but we identified... for example, one of them is the top 50 questions wealthy families ask. We identified what we thought those questions were, and then we went out to all those types of people you just mentioned who've been on your call and said, "Can you answer this question?" One of them might have been on, "Should we have a family meeting?" So we chose a person in our network that we thought would be the best person to answer that question.

It is just fantastic. There are so many great contributors there, and we're all co-creating, I would say. This industry is going through such substantial change right now—all for the good, I would say—because it is oriented toward the family and the client, not toward the person who is offering a product. So I would say it's all very good.

The reason I'm excited about the Wealth of Wisdom books is because they are in the form of questions. I think questions open discussion; answers close them. So what we do is we've asked all these questions, got some responses, but we're inviting the families and the advisors to weigh in and say, "How do you think about these things?" It's a very exciting time, and I think the Ultra High Net Worth Institute is a great example of an organization that's arisen for this moment to be this not-for-profit think tank that is helping to bring all of these things together, along with other organizations. It's actually just a really exciting time to be in this field.

R. Adam Smith: This growth is significant both at the family office level, with 10,000-plus globally, let's say half in the US. That's a lot of institutions, organizations, wealth, and scale. I think one thing that is not discussed enough is the scale of family businesses, which is why I designed this podcast about family business holistically. It predates and is not just about the family office, which is more of the organizational, administrative mechanism for wealth management and the wealth organization, essentially.

I think what is underappreciated and under-commented is that there are large pockets of private wealth really predating the term "family office" that are not in a family office. It's certainly going more into a family office because that's the entity that people are using—what they're calling it legally and administratively. But of course, I'd be interested in your comment on that. There are large pockets of wealth, let's say owning particularly a public company and especially in emerging markets in Europe, and owning a large operating company rather than asset allocation wealth, where you may not have a family office or even need a family office. They just do their thing. What do you want to say about that?

Tom McCullough: Yeah, that's a very good point. What even is a family office? If a family has mostly operating businesses—large, very significant—they probably have somebody that would often be called an embedded family office. Somebody in the organization, the operating business, if that's the core piece of their wealth, who does some organization and coordinating.

The growth, let's say, of the distinct, unique, separated family office is, I think, oftentimes when a business has been sold, but it's also when a family realizes, "Oh, we're getting tied into all the issues with the business because we've also got capital that's been spun off these businesses, and maybe the next generation is pursuing other things." I think it's a form very much in flux.

I'm describing one type of family office, but there are so many different types. I'm actually just going to teach a three-day program in a couple of days on family office designs: Should a family have a unique family office? If so, should it be single or multi? And if they have a multi, should it be single, or should it be a hybrid, or vice versa? I think families are very much in flux, and in some ways that's good because they are sorting through what their needs are, those needs will evolve, and the structure should evolve. The family office maybe hardly existed 35 or 40 years ago, and now there's a lot more popping up. But I think sometimes people fall into the trap of saying, "Oh, we have to do it this sort of way." More and more now, there are more hybrid models that are adapting to the needs of the families rather than following some kind of rote process.

R. Adam Smith: Great. That's amazing. I do encourage people to keep up with your writings and some of the platforms where there's a significant amount of content that's available, in and outside the private banks and the wealth management firms, of course. We see those amazing reports. And then MFOs like yourself, and we see some great reporting and writing from your competitors as well—Crescent, Rockefeller, Stanhope, Cerity. There's a lot of value out there.

What are some of the public platforms where you think there's a lot of amazing content? Because the Ultra High Net Worth Institute is more of a membership organization, but there is content. I think I write not as much as you, but I contribute at familybusiness.org, which is quite large and amazing. And then, of course, there is Family Wealth Report. What are some other areas where people can learn about the industry within the family office industry? Cutting-edge, thoughtful advice.

Tom McCullough: You're so right, there's just so much these days. Literally Google "family office" and the area that you're interested in. I might do that myself if I'm sitting down with a client to think about helping them make a decision on a philanthropic foundation, a donor-advised fund, or some other approach—I'll often just do a literature search online. It's just amazing what great, thoughtful things are available. The Ultra High Net Worth Institute has 600 or 700 resources on their resource library. There's lots of that kind of thing.

Just one thing I was going to mention tied into the Wealth of Wisdom books that we wrote: if you go to wealthofwisdombook.com, there is a link to about 100 podcasts on the various topics that are covered in the book. They're freely available on Apple or Spotify, wherever you get your podcasts. For those people who want to drill deeper into some of these topics, that's often one of the ways to do it. I don't even know if I know where to start to say what is the best source. I literally Google it.

And of course, AI is so helpful now. If you say, "I'm looking for five articles on this very detailed topic," often it will find them and summarize them for you. So it's not a lack of information. With advisors, it's not that families are under-advised, it's that they're under-integrated. And so it's not like there's not enough content; there's lots of content. The question is, how do you apply it to the specific needs of the family? I think that's a real skill to be able to do that. That is the role of the integrated advisor.

If people are interested to read the article called The Rise of the Integrated Advisor, it's, again, freely available. I think it's on our website, but if you just Google it, it'll come up, and it talks about what kind of person fits that increasingly important role. Just thinking about the next generation of both advisors and of family members, it's a beautiful role. If people like a combination of some of the financial things but also helping people, and if people have some level of EQ, it's a fantastic role that I think it will take AI 100 years to duplicate, if it can ever do it. So if people are looking for interesting roles going forward for younger people to pursue, I think it's becoming a real profession that is in the very early stages of substantial growth.

R. Adam Smith: We could continue for probably several hours or days talking about the complexities of the family office world. I think I'd love to hear just a final comment on—we cover this pretty consistently on the podcast—about legacy and your particular point of view on legacy. Why is it important, and really, what does it mean to you?

Tom McCullough: Boy, legacy. That is a very interesting word. I will tell you one story about legacy that I think maybe captures it for me. In Wealth of Wisdom: The Top 50 Questions, there is a topic about legacy and how you leave the legacy you want to leave. I was about to do a podcast interview with the contributing author of that topic, and one of the things she says in the book when talking about personal legacy is that you are already in the process of leaving a legacy. It's not just when you die or retire or move on to something else—you're in the process of creating and leaving a legacy now.

She asks, "Do you know what the legacy is that you think you are leaving, and do you like it?" She says, "If you're brave, talk to one of your heirs, one of your children, and say, 'What is the legacy that I am leaving?' If you like it, great. If you don't and you're still alive, you have a chance to change it."

I think that applies both to individuals and to businesses. I'd say one of the legacies that I wanted to leave in my business, Northwood Family Office, is that we wanted to be around very long-term for families, because nobody wants to change their family office. They want somebody who's going to live with them, grow with them, and, quite frankly, manage the succession on the family office side for them. So we've been extremely focused over many years—seven or eight years—on building a succession plan that leaves all of the values that we built Northwood with intact, but of course with younger, more energetic, and probably way smarter people than we were when we founded the business. Legacy is a beautiful thing, and I think about it all day, every day.

R. Adam Smith: Great, I'm glad you do. It's really the core, I think, of why wealth is important and why it's important to also foster, grow, apply, and spend it wisely—moving beyond the value of wealth itself and into companies, into the community, and into the world. I'm glad we covered that, and I want to talk more about it with you.

I'm glad to have you on the show today, Tom McCullough of Northwood, out of Toronto. We covered the importance of clarity, independence, collaboration, long-term thinking, and legacy around family wealth. I think Tom's work reminds us that successful family offices and organizations are built really on discipline, objectivity, collaboration, and alignment across generations—which is tricky and super important, especially now in this industry, which is expanding, exploding, and changing. Tom, it was really great to have you on the show today and sharing everything. I hope you really enjoyed it. You've shared a lot of amazing wisdom today.

Tom McCullough: It was great. Thanks very much for having me. I appreciate it.

R. Adam Smith: This is R. Adam Smith signing off. Please stay tuned for the next episode of the Family Business Audiocast.

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