This is Globe Advisor’s weekly newsletter for professional financial advisors, published every Friday. If someone has forwarded this newsletter to you via e-mail, or you’re reading this on the web, you can register for Globe Advisor, then sign up for this newsletter and others on our newsletter sign-up page.
Car loans are being called the new mortgages as they make up a significant line item on a household budget.
The average payment on a new vehicle is approaching $800 a month, says Andrew King, managing partner and co-owner of DesRosiers Automotive Consultants Inc. in Richmond Hill, Ont.
That’s due to the exponential rise in the price of vehicles, with an average new car now costing more than $61,000, according to the AutoTrader.ca Price Index. The average used car is around $39,000.
Globe Advisor spoke with Mr. King about the reasons for the rising costs of vehicles..
Why are vehicles so expensive these days?
There have not been enough vehicles available to meet the demand in the marketplace because of the semiconductor chip shortages. As a result, the [Canadian] industry has close to a million in lost vehicle sales in the past three years because vehicles weren’t available. So, there’s huge pent-up demand.
So, how are consumers paying for cars?
The majority of people either lease a vehicle or finance through a loan. Some pay cash, but it’s still a minority of consumers.
Most use some form of financing and have a monthly payment. The average duration of financing has been growing as consumers try and keep the monthly payment lower. It’s common to see 84 to 96 months of financing. Interest rates on financing have also gone up considerably.
The result of high prices seems to be more older cars on the road, either people keeping their cars longer or purchasing much older vehicles.
Yes, people are buying much older used vehicles – around 10 years old – because there’s such a shortage of everything and they’re more affordable.
But cars also last a lot longer than when we started the business 30 years ago. It’s now common for vehicles to last 15 years or more. That said, older cars definitely need more repairs and the average spend per year does increase as the car ages. So, that can be very stressful for consumers.
When will the chip shortage be sorted out and will prices then stabilize?
Most new vehicle dealers believe the chip issue will improve in the second half of this year or the first half of next year. There’s a long wait list for electric vehicles and with internal combustion engine cars, it varies from one model to another.
It will take at least another year before we’re sort of back to where we were in 2019. Prices should come down somewhat from the current high, but they’re not going to be what they were in 2019.
This interview has been edited and condensed.
- Deanne Gage, Globe Advisor reporter
Must-reads from Globe Advisor this week
How this money manager is preparing for the potential for more interest rate hikes
Portfolio manager Geoffrey Heward believes central banks aren’t done hiking interest rates this year and is positioning his portfolio to withstand the economic fallout he sees ahead. “I think it’s dangerous to declare the all-clear,” says Mr. Heward, partner and senior portfolio manager at Heward Investment Management Inc. in Montreal. His call comes after the Bank of Canada raised its benchmark interest rate by a quarter point to 4.75 per cent on Wednesday. Mr. Heward believes the central bank could raise rates yet again this year and the U.S. Federal Reserve Board could also hike its benchmark rate once or twice more in 2023 to try to curb stubbornly high inflation. He tells Brenda Bouw more about his overall strategy for this year.
How to reduce an oversized tax bill after being paid as an executor
Being an executor isn’t exactly an honour. Depending on the size and complexity of the estate, it can take months or even years to deal with the seemingly endless paperwork and administration that comes with the job. Then, if you’re receiving an executor fee, there’s a tax on your work. Given the size of estates today, especially with soaring property values in cities such as Toronto and Vancouver, executor fees can bump a person’s income and taxes owning significantly in the year they’re paid. Brenda Bouw explores some strategies.
Investors turn to a variety of investment products in search of higher yield and income
In a period of market volatility, higher interest rates and inflation, more high-net-worth investors desire higher yield and income-producing products for their portfolios that go beyond the traditional stocks or bonds, according to a new report from Investor Economics. Deanne Gage has more details on what’s resonating with advisors and their clients.
Advisors who’ve left the big banks find varying levels of support
Many advisors at bank-owned firms may wonder if the grass is greener on the other side. Moving to an independent dealer, portfolio manager, investment counsellor or family office can promise more freedom to develop their business. Yet, the support services available at those wealth management firms vary. Banks and bank-owned dealers offer advisors abundant internal support for a fee. Those who’ve made the switch say offerings at their new firms can range from a similar structure for support services to no internal experts whatsoever. Kelsey Rolfe explains.
What you and your clients need to know
Adult kids are spending thousands a year to support parents who didn’t save enough for retirement
The overwhelming reason why adult kids are supporting their parents financially today is insufficient retirement savings. No other reason came close among the 926 people who completed a survey in the Carrick on Money newsletter for people aged 18 and up who provide financial support to parents. Just more than 52 per cent cited a lack of retirement savings, while another 10 per cent said their parent or parents had outlived their savings. Rob Carrick adds his perspective on these findings.
Estate planning hurdles are different for LGBTQ couples. Here’s how
Amid the countless financial hurdles facing Canadians, estate planning is often low on the priority list. Delaying this process is risky for everyone, but for members of the LGBTQ community, especially couples, the hurdles are more consequential. Many of the estate-planning challenges that LGBTQ Canadians face stem from the fact that two-thirds of couples are in common-law relationships, according to Statistics Canada. This type of union can cause problems if a partner’s view clashes with those of the biological family. Mariya Postelnyak reports.
Is there a financial ‘advice gap’ for non-wealthy Canadians?
Industry players and lobbyists in the financial services sector are warning of a pending “advice gap” that would be created if a ban on certain embedded commissions for mutual funds was extended to segregated funds. These particular commissions are more commonly known as deferred sales charges, or DSCs, and they allow financial salespeople to earn upfront payments that are not deducted directly from investors’ contributions. Rather, they’re funded by higher continuing fund management expenses that many investors are not aware of. Preet Banerjee makes the case for looking at other compensation models to better serve the masses.
To find great leaders we must stop focusing on performance
If you heard the statement “the best performers make the best leaders,” what would your reaction be? For many, their personal experience would lead them to believe that it isn’t true. For example, we can all imagine the best salesperson – driven, straightforward, maybe even somewhat aggressive – not being the greatest leader and motivator. They may lack inspirational qualities and listening and coaching skills. Yet, despite this seemingly obvious discord, and decades of research and experience, companies are still promoting ‘top performers’ into leadership roles. It’s easy to understand why. Performance can be seen, felt and measured. But if we take this away, how else could companies decide who ‘deserves’ to be in a top job? Henryk Krajewski explains.
– Globe Advisor Staff