Top financial players set up family offices

By Heidi Staseson | February 17, 2006 | Last updated on February 17, 2006
4 min read

Two veterans of the financial services industry have each set up separate boutiques or “multiple family offices” catering to high-net-worth individuals in the Ontario region. Michael Nairne recently left his position as managing director of Loring Ward International to launch Tacita Capital, while Tim Cestnick — who left AIC last year — has a new venture called the The WaterStreet Group.

According to the Chicago-based Family Office Exchange, multiple family offices are “structured to offer integrated, interdisciplinary services to ultra-high-net-worth individuals and families [and] have historically provided customized service levels and confidentiality not available from larger product-driven financial institutions.”

Nairne defines a family office as wealth management at its most advanced focus.

“It’s really a spectrum of services and it ranges from selecting and monitoring money managers to comprehensive wealth management,” he explains. “A family office looks at them all because it views everything from an integrated tax planning and risk management perspective. So it’s much more highly integrated and it goes across multiple generations.”

While he still sits on the board at Loring Ward, Nairne says he and tax lawyer wife Joanne Swystun, one of Tacita’s principals and a former partner with Stikeman Elliot, will provide tailored wealth-management services to super- and ultra-affluent clients, catering to “the unique nature of their needs.” Targeting individuals with an average net worth ranging between $10 million and $100 million, Tacita’s service offerings will cover clients’ entire household balance sheets — not just investable assets — including personal, portfolio and business assets, while simultaneously providing advice.

Nairne says this customized and personalized service will be provided as a “seamless, single source delivery to a small number of clients.”

He notes he is currently in discussions with prospective clients and says he expects to be fully operational as a multiple family office by September. For the past two years Nairne has devoted much time working out of Los Angeles and New York, researching and following the trends of several advanced multiple family office models.

Cestnick launched his multiple family office last November along with two partners from the private banking side. Currently he is dealing with six wealthy Ontario families and 10 institutional clients. He projects the firm will have up to 50 families within five years. Like Nairne, Cestnick’s company targets families with $10 million or more of investable assets, with a net worth of at least $20 million or more. Cestnick says his wealthiest client has a net worth of $350 million, and the firm’s assets under management are approaching $1 billion.

The WaterStreet Group also offers clients a host of tailored services from investment advice and risk management to integrated planning and family continuity service, including conflict mediation and a discovery process to help them understand and document their financial philosophy. He says the majority of his company’s services will be provided in-house, including the family administration services and his specialized area of tax and estate planning.

Both Nairne and Cestnick have said they will not engage in any stock picking, but their respective companies will selectively hire money managers for such purposes. “Our intent will be to use the complete mix of tools that are available — index funds, index-based ETFs, enhance index, structured equity managers, active hedge fund managers,” says Nairne.

Adds Cestnick: “There are people out there that specialize in being managers of managers. They find the best for wealthy families and they watch them like a watchdog. That’s exactly what we do. We don’t pick stocks but we’ll go around the world and find the best money managers for our clients. We might use anywhere from three to five of those money managers for any one particular client. So if any one manager is doing a bad job we just fire them.”

Neither Nairne nor Cestnick will take commissions and will each operate as a fee-based service. Nairne says his price model will be a “typically fee-based retainer or hourly charge in combination with percent of investable assets,” with pricing that is transparent to the client, while Cestnick refers to his fee structure as “fee-based on assets under advisement.”

Both men cite the current lack of Canadian family offices as their prime reason for setting up shop. “I looked at what was happening in the United States and I could see that the business model was very successful,” says Cestnick.

“In Canada there has been a gap. I know a lot of HNW families and I see how that money is managed, I see how their taxes are looked after and I see quite often that there is a gap in their planning. And that’s because there’s no one person handling everything. So I decided there was a real opportunity here. When I left [AIC] I knew the business model I wanted to build was the multiple family office. It just really fit my background really well.”

When asked whether he saw room in the Canadian marketplace for healthy family office competitors, Cestnick said “absolutely,” particularly since different business persons define family offices under their own auspices. “It’s almost tough to compare apples to apples because everybody has sort of built their businesses a little bit differently,” he says.

“Every time a business model is successful you’re going to have competition, that’s always been expected. I think the bigger players — and I think we’re one of them — will probably gain the largest market share because branding is important, and as you get bigger your branding is generally more well-known and that seems to feed itself.”

Nairne, who is equally confident of his potential market share, agrees the opportunities for family offices in the financial planning community are boundless. “It was a window on a whole different wealth management reality. I’ve been fortunate enough in my career to be involved in numerous phases in the industry’s evolution. This is kind of an exciting evolution for the industry and an exciting challenge.”

Filed by Heidi Staseson, Advisor’s Edge,


Heidi Staseson