Top financial players set up family offices

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@advisor.rogers.com