In this episode of the Polestar Podcast, Kevin Parton, who recently joined VELA Wealth as a Partner and Senior Advisor, interviews Keith Allan, Portfolio Manager at Harness Investment Management, discussing their partnership with VELA Wealth and their unique approach to financial management. They address the challenges posed by rising interest rates and geopolitical events, highlighting the need to stay invested and avoid market timing. The conversation highlights the value of a balanced and diversified portfolio, offering valuable insights for podcast listeners.

About the Guest – Keith Allan

Keith Allan is a Portfolio Manager with Harness Investment Management. Harness has engaged in a strategic partnership with VELA Wealth and provides discretionary portfolio management for many of VELA’s clients. With more than 15 years of buy-side investment management experience, Keith brings a wealth of knowledge and experience to provide insight and guidance to clients regarding their investment portfolios. At Harness, Keith is responsible for developing and maintaining investment portfolios for VELA clients. Keith is dedicated to fostering long-term relationships with high-net-worth individuals and families by providing a clear and transparent vision to help them achieve their investment goals. To learn more, please visit Harness Investment Management team page.

About the Host – Kevin Parton

Kevin Parton, CFP professional, specializes in personal and business financial planning, tax reduction, and estate planning. Kevin is diligently concentrating on client education as a powerful strategy for building financial certainty. As no financial situation is the same, Kevin and his team monitor clients’ plans and implement personalized strategies to reduce their personal and corporate taxes, and protect their income, assets, and loved ones against the financial consequences of a serious illness, injury or death, ensuring clients maintain financial certainty and peace of mind. To read more, please visit the VELA team page.

The episode is also available on:

The Podcast Transcript

Kevin Parton:

Hello there. I am Kevin Parton, and welcome to the Polestar Podcast by VELA Wealth. My guest today is  Keith Allan, Portfolio Manager from Harness Investment Management. Harness has an ongoing partnership with VELA Wealth. How are you doing today, Keith?

Keith Allan:

I’m well, Kevin, thank you for having me. How are you doing?

Kevin Parton:

I’m doing alright, thank you. I’m excited to use this as an opportunity to find out a little bit more about Harness as well as your perspectives on things that are going on in the global economy and markets. I am going to start off with a real quick question as I am new to VELA: how is Harness Investment Management and VELA different from others in your experience?

Keith Allan:

Well, I come from working almost close to a decade at one of the largest institutional money managers in Canada. So, coming over to Harness four and a half years ago allowed me to take a broader lens in terms of how investment management should be done, and especially for our client base. For us we’re very focused on the client experience. So, in terms of the overall, the values that lies in the family balance sheet and taking that sort of overarching approach to find out what’s important to families, and not just from an investment perspective but from planning, insurance and the path to where their family wants to be and where they want to get to. So, we are taking a top-down approach and looking at the overarching relationship and the portfolio, and the portfolio itself is just one part of the overall process and I think that’s what separates us – is being able to look at everything holistically and doing what’s best for the clients.

Kevin Parton:

In your experience, that is what attracted you to being a part of this relationship?

Keith Allan:

Yes. From a corporate standpoint, not having to pull the strings from the higher-ups that is what attracted me. We have an approach that we stand by on how we view financial management and we want to be able to not only articulate that to our clients but be in a position to execute it. Jason and Rob [Jason Boudreau, Founder, and Rob Wallis, Partner, at VELA Wealth] and obviously yourself not only approach investment management, but overall financial management and overall financial planning, and that is what attracted me. I’ve known Jason and Rob for a long time as individuals and professionals, and I am really aligned with their beliefs.

Kevin Parton:

I can’t agree more. I mean, having been in the business for 14 years myself and having consistently taken a holistic approach, I’m really excited to be able to have this partnership with you and bring a little bit of a higher level of sophistication to that pillar of financial planning or investment management. I’ll sort of use that as a segue into the next question about investment philosophy.

Can you distill your investment philosophy or Harness Investment Management philosophy into some core components or explain how it drives your investment decision-making?

Keith Allan:

For sure. When we talk about investments nowadays, we sort of see it coming out of COVID, right? We talk about the meme stocks, and we see people investing on tilt whether it’s cryptocurrency or any sort of the latest greatest fad in the investment world. That is not what we’re about. We’re very fundamentally driven, so we believe in long-term investing. Maybe that’s not going to win style points or have a credible amount of attractiveness, but it’s empirically proven that this going to hold true for the long term. We believe that proper diversification, whether it’s sector or country-specific, is important to your portfolio. We’re very, very strong believers in asset allocation. Not your typical antiquated or archaic structure such as a 70/30 portfolio, 70% equities, and 30% fixed income – no, we believe that there are other components to a portfolio.

Alternative assets are a big component of our portfolios. Right now cash is a yielding asset – all our clients hold a certain amount of cash. When we talk about alternatives, we talk about real estate, commodities, or using derivatives when appropriate in some circumstances. So, for us, it’s all about diversification. It’s all about asset allocation. It’s about incorporating those investment assets with your overall family balance sheet. Is your family heavily involved in or heavily invested in real estate? Well, we’re not going to hold 15% of your portfolio in private real estate or REITs, we’re going to take that into account. If you have a lot of insurance policies unwritten to your family or other types of fixed income or pseudo-fixed income assets – we’re not going to hold 50% bonds in your portfolio, right? We’re going to look at your overall balance sheet, where you’re at and what makes the most sense for you and your family.

Kevin Parton:

So, it seems that you’re really able to customize what’s held within the portfolio specific to the client and to everything else that they own.

Keith Allan:

Yes, 100%. So that’s, again, what separates us. We can offer those bespoke or customized portfolios to our clients, which allows them to feel that we are really taking the time to understand what’s important to them and what allows them to really benefit in the long run from achieving that excess return. So, we definitely take a customized approach to that. We do have model portfolios we use, but we’re able to tailor them and tweak them to meet the client’s needs. What separates us is our product shelf and what we do all for it is quite vast, so we have a lot of different options. I sort of compare it to an ice cream parlor. You go to a Baskin Robbins that offers not just chocolate, vanilla, and strawberry. You have 30 flavors to choose from. We like to think of ourselves as the investment management firm, that’s got a lot of different options at our disposal and meets the client’s needs.

Kevin Parton:

Fantastic. I want to circle back to something you said a little bit earlier about coming out of COVID and the meme stocks. It feels like there’s a lot more of a conversation around trying to invest in the next hot topic. And you talked about not wanting to do that and it’s not necessarily the coolest. How do you manage client expectations when it comes to having these discussions with them? I have to imagine that these things come up in conversations more often than maybe they did pre-COVID.

Keith Allan:

It is tricky, right? Everyone knows someone, got a brother-in-law, cousins, friends, or neighbor who made 40% plus off this stock or that stock. Now, in my experience, and I’ve been in the industry now for 20 years, I would say 90% of the time it’s not true. People love to exaggerate when it comes to that sort of stuff and in reality, there are just not that many people getting that wealthy off one or two hot stock tips.

Setting expectations is the key. Managing expectations is the key. Rob Wallis, who’s a Partner at VELA and someone you and I know both very well, uses a quote that I love, is that Warren Buffett made more money in the last 10 years than the previous… I can’t remember what it is… the previous 30 or previous 40 years. And I think that shows the effect of compounding interest and compounding return.

For us it’s really preaching that longevity and really advocating to stay the course, put money in, allow it to compound, allow it to grow, and look, if after five years you’re generating 10-11% annualized per year, well, that’s pretty good. Doing that over a long-term, two or three decades for a lot of our clients who are in their 30s or 40s, they are going to have a meaningful portfolio when it’s time to retire. I think having clients trust that and showing them what that actually means, understanding the effects of compounding return, it’s very challenging, right? For someone that investments may not be their first language, they’re trying to understand how the effect of compounding works, and showing them that can certainly be impactful.

Kevin Parton:

Well, along those same lines, I heard recently that PIMCO prides itself in any given year having the best portfolio, but over 5 or 10 years, it always being sort of in the top five or ten percent because they’re consistent because they practice good fundamentals and their goal isn’t to try and be the hot topic or sort of swing for the fences and I think to a degree that can feel maybe boring or anticlimactic in the short-term, but in the long-term, obviously that’s what you’re going for.

Keith Allan:

Absolutely.

Kevin Parton:

So, in a year like this one, we’ve seen some up and down swings in the markets and there’s been this perpetual conversation around interest rates and what that might have to do with the market trajectory. What’s your future outlook going through the last two months of this year and into 2024 based on everything that’s happened so far this year?

Keith Allan:

There’s no doubt that this has been an incredibly challenging year and incredibly challenging 18 months, right? We’ve had unprecedented interest rate increases. I should say, when you see interest rates rise that dramatically, that quickly, that is really a heavy load on risky assets, most notably fixed income assets, whose price and value move inversely to interest rates, so as interest rates continue to rise, we see fixed income really sell-off. It’s just the nature of the asset class. But also equities, right? Because if people can get that guaranteed five, six, seven, sometimes more percent at their bank, well, why are they taking the risk of putting their money in risky assets such as stocks? They can get that guaranteed yield from their banks sitting in cash where there’s virtually no risk. So, naturally, we see risky assets sell off and that’s what we’ve seen over the last 18 months. So yes, it has been a very, very, very challenging market. What do I see moving forward?

Well, I think last week [October 30 – November 3rd, 2023] was really telling because effectively the US Fed came out and said that they are standing pat. I know they said that a few times with mixed results, but they do sound like this time it’s certain. And we saw the market react accordingly – we saw a nice rally last week, and sort of from what I hear and read and see, there’s a really good chance that’s going to be sustainable here as we go into the new year. We might see a little Santa Claus rally earnings are better than expected, right? There are some really strong earnings that come out where a lot of analysts and a lot of folks on Wall Street have said “OK, this is better than we thought”, which is sort of been the impetus for the market to react favorably.

As we get into this holiday season, the spending season, that’s going to be very telling. I believe people are willing to go out and spend at Black Friday and Cyber Monday leading into Christmas. And if so, are these companies that rely on consumer discretionary spending going to really see an uptick in their profitability as we go into Q1 2024? Are people willing to spend $1,500 on the newest iPhone?

Are they willing to go buy whatever the latest and greatest PlayStation or Xbox is out there? Are they willing to really splurge this year on family trips and maybe buy a new car? And do other things that they’ve otherwise been putting off? Again, that could be the impetus or sort of the push for a strong Q1. Especially if interest rates stay status quo, people might say “Look, the worst is behind us now”, but a lot of people are saying no, we’re not even close, there’s going to be further interest rate hikes.

The problem is that as mortgages come due, if interest rates continue to go up, people are not going to be able to renew and we’re going to see some really challenging times from a real estate perspective. At the end of the day, the Federal Bank and the US Fed don’t want to see people default on their mortgages, they don’t want to see people not be able to renew their mortgages. So they will have to weigh that with any future interest rate hikes.

I remain optimistic. I like to consider myself an optimist despite what some folks may say. I’m optimistic that we will see a catalyst here leading into the end of the year in the beginning of Q1 where we’ll see a little bit of bounce back in the market. I still think there’s a lot of volatility left, I don’t think it’s going to be clear sailing and the next bull market is right around the corner. But I do believe there will be a bull market at some point here in the next 18 to 24 months and that’s something that we’re really preaching to clients – “Look, you going to sort of ride the waves here. You kind of got to keep your head above water. Don’t panic. Can’t take the money out of the market. Let it do its thing. So, you can capture that bull market when it does happen because that’s when you can really start seeing some meaningful returns.”

Kevin Parton:

Well, I was going to ask about that because with interest rates being as high as they are, cash is returning more than it has in a long time. But relative to what? What we saw last week in two days, there was a big uptick in the market. And if you’re in cash and on the sidelines you miss those moments. How do you position in conversation or within your portfolios taking advantage of a high interest rate environment from a cash perspective, but also being cognizant of the fact that you can miss some big equity days and lose out on growth there?

Keith Allan:

It can be a challenging conversation with clients because our job is to enlighten them. At the end of the day, it’s the client’s money. I can’t say to a client, you have to do this and you have to do that, right? All we can do is offer guidance and perspective, and show empirically what returns mean what asset classes do, and what it means that if you are sitting in cash and you missed the first two days of a three or four-week rally, what that means to your portfolio. At the end of the day, the client has to make the choice and if we haven’t enlightened them and we haven’t shown them, then that’s on us. We haven’t done our job. But if we have and they still decide to go against our advice that’s their prerogative. I think for us it’s really important that we show them that cash is important to have and now it’s probably a higher weight than we otherwise would, whether that’s 5% or 7% or 10%. But at the end of the day, you want to be diversified and you want to have exposure. To your point when those risky assets do rally you’re really capturing it. So, sitting down and understanding what their cash needs are, making recommendations in terms of what we feel is an appropriate cash balance. Right now, that’s anywhere between 5 and 10% for clients depending on their situation.

Now, of course, if clients need cash imminently, if they’re buying a house or doing a renovation they’re going to hold more cash and that’s entirely appropriate because they need that cash. So, we’re not going to invest it and put risk on the table when they need that cash. But all other things being equal, we need to show them that they want to have cash available and some dry powder available to take advantage of positions that we feel are undervalued. At the end of the day, we want them to still remain fully invested, and that might mean diversifying in other asset classes. That might mean underweighting or overweighting certain positions, but we’re never advocates of trying to time the markets such as selling everything you got. If a client has a $1,000,000 portfolio, put it all in cash and try and time it on the way up, and try and get it out on the way down like that’s a fool’s game. Nobody going to win at that game. Not even the most sophisticated investors can win at that game.

Kevin Parton:

Absolutely. Well, in the interest of time, I have two more quick questions here. One in relation to what happened when rates went up? When rates went up, fixed income went down, but we also saw equities go down at the same time and there’s only been a number of years in history we’ve seen fixed income and equities go down at the same time. Is it likely, if not possible, that as interest rates come back down, we’re going to see the opposite happen? We’re going to see businesses that have lower interest rates to pay on their debt and so business growth will happen and retail investors can get into the markets more, but we’ll also see the opposite in fixed income when interest rates go down, fixed income yields get better.

Keith Allan:

Yes, in theory, your logic is correct. The one thing that I would caution about is that there are a lot of… and again I remain bullish and I do think there’s opportunity ahead. I do think that people will be compensated and rewarded for staying the course and staying in the market. But what I do caution is that there are all other variables that play geopolitically right now. We have two very large wars unfolding, unfortunately. One that continues to rear its head in Eastern Europe and Ukraine and the other one in Israel and that sort of leads to all bets being off. When you have these significant geopolitical events that are unfolding, and yes they are half a world away from what we’re here in North America, but it’s kind of the knee bones connected to the ankle bones connected to the elbow, where all does cascade itself down. I would caution against interest rates going down, we’re going to see a massive bull market rally and everything’s going to go up, fixed income is going to go up, currency is going to go up, and equities are going to go up. I would say let’s just maybe pump the brakes a little bit because we do have two wars that are going on that from supply chain standpoints, from energy, oil is still largely driven from the Middle East and Eastern Europe, especially Russia. Oil has such a cascading effect on the rest of the global economy.  When that’s impacted as much as it has been, we have to caution there. But yes, in theory, if interest rates start getting cut like you would think, risky assets would perform well. But we’re living in a world where there are so many other variables that it’s hard to make that type of forecast.

Kevin Parton:

Well, it’s like you were reading my questions because that’s what I was going to ask you – how do the geopolitical events impact what’s going in the market? And as you said a little bit earlier, I think there’s always something to consider in the short-term, but in the bigger picture, trying to time the market based on what’s happening locally or geopolitically isn’t necessarily the strategic move.

Keith Allan:

Just to reiterate what I said – we never advocate timing the markets like it’s time in the market, not timing the market. My good friend Jason Boudreau, Founder of VELA, likes to use that phrase. I actually quite like it. It’s time in the markets, right? We want to be in the market. You want to be deployed. You want to allow your assets to work for you. I think that’s the biggest thing that we advocate. Again, we’re going to diversify, we’re going to balance the portfolios accordingly, and we may shift weights around, we may be overweight or underweight just depending on what’s going on.  But we’re never going to say “Ok, we are going all cash” to our clients and then “Nope, now we’re going back in”, because that doesn’t make us look sophisticated and makes us look like we’re reactionary in our investment management and not proactive. Again, statistically, it’s showing that is not the correct way to manage money and certainly to make meaningful returns for our clients. It is not going to allow us to do that.

It’s unfortunate what’s unfolding in the rest of the world, and my heart goes out to these families and to what’s happening it’s tragic. It is something we have to be cognizant of, what effect does that have on North American markets and global markets, as we do deploy capital for our clients?

Kevin Parton:

Yes, absolutely. I think a really important point to consider is when we’re having those conversations with clients, being able to talk directly to someone like you who can explain how that impacts the construction of their portfolio or the investment philosophy or decisions, understanding why things are the way that they are in your portfolio. I think it is going to make a big impact on how you react. We talked earlier about people wanting to move to cash, but we need to sort of enlighten them on how to structure their portfolios. So, if you’re sort of able to guide them through that process, it becomes a much easier decision for them to make good long-term choices.

Keith Allan:

Absolutely.

Kevin Parton:

Well, really appreciate your time today, Keith. Thank you so much for sharing all this valuable information.

Keith Allan:

Yes. Thank you, Kevin. Thank you for having me, Kevin, and I hope our clients enjoy it and if they’re not clients, hopefully they enjoy it as well.

Kevin Parton:

Absolutely. Take care.

Disclaimer

The information provided in the podcast transcript is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

We are thrilled to announce the release of the latest episode of the Polestar podcast by VELA Wealth, featuring an engaging conversation with Amar Doman, the President and CEO of the Futura Corporation. In this episode, Amar takes us on a remarkable journey through his life as a leader in business, his experiences in philanthropy, and his passion for community involvement.

Hosted by Jason Boudreau, this podcast episode delves deep into Amar Doman’s extraordinary entrepreneurial journey, starting from his grandparents’ arrival in Canada to his current role as the CEO of the Futura Corporation and the ownership of BC Lions. Amar shares stories of his family’s perseverance and hard work in the lumber business, the challenges he faced, and the valuable lessons he learned along the way. He discusses his approach to turning around struggling businesses, his involvement in both public and private ventures, and his insights into building and sustaining successful enterprises.

About the Guest – Amar Doman

Amar is the founder and sole shareholder of The Futura Corporation. Along with his team he has led and completed numerous acquisitions. Amar’s tireless dedication to creating shareholder value and his vision for long-term thinking when investing or buying companies outright has built The Futura Corporation into one of the largest and fastest growing companies in Canada. To read more, please visit the Futura Corporation website.

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

The episode is also available on:

The Podcast Transcript

Jason Boudreau:

Welcome back, everybody to the Polestar podcast by Vela Wealth. Today, I’m thrilled to have Amar Dolman joining me for a candid conversation. Amar is the founder and CEO of the Futura Corporation, located here in Vancouver, and I’ve got to know Amar a little bit over the last couple of years through the football community. Amar, I am grateful for you being here today, thank you so much for taking the time.

Amar Doman:

Hey, thanks for having me here.

Jason Boudreau:

Looking forward to getting into it. So, when we were leading up to this dialogue, I was sharing with you about what I thought would be a neat way to get to know you as a leader in business, life, and philanthropy, is to understand your back story and really get to know where you came from. If we could start the conversation from your grandparent’s story and their arrival to Canada, I’d love to hear that point on out all the way up to today, the story of Amar Doman, if that works for you.

Amar Doman:

Sure, let’s reach way back, I like it. So, back in 1906, my grandparents on my father’s side boarded a boat in India. They thought they were headed to the UK, ended up in New West and eventually on Vancouver Island, where my grandfather found work as a logger in manual labor. They proceeded to have five children, including my dad, my two uncles, my two aunts on Vancouver Island in the late 20s, early 30s. My grandfather continued to work till he passed away at a young age. My dad was only nine. He [grandfather] had kidney failure and back then there wasn’t a lot of good medical treatment for that kind of stuff.

My grandfather’s name was Doman Sing. He came up short and my uncle Herb quit school in Grade 7 to look after the family and put food on the table. So, quite a humble beginning there but that’s how things got started as far as my grandparents coming over. Then my dad and my uncles had to work to provide and my other uncle, he went to Grade 9 and that was it. He went right to work. The mid, my dad, the youngest brother, graduated from College Heights in Duncan, BC.

Jason Boudreau:

So, your dad was the only one then out of your uncles to graduate high school, correct?

Amar Doman:

Correct.

Jason Boudreau:

I guess maybe your grandpa as well. So, the first graduate of the family period.

Amar Doman:

I would say that would be the case.

Jason Boudreau:

So, he graduates from high school. What year was that?

Amar Doman:

That would have been somewhere around 1953-1954.

Jason Boudreau:

So, he graduates high school and then what? Does he join the family business?

Amar Doman:

Basically, he started to drive a truck as they all were. They were driving without driver’s licenses back in the day. They were picking up scraps of wood and selling them for firewood just to get cash to buy groceries for grandma. That is how it all got going.

Jason Boudreau:

So, he graduates high school, he’s driving a truck, they’re picking up wood scraps, and eventually transitions into sort of the lumber business mills, things like that. Tell me how that evolves?

Amar Doman:

They started by buying the trucks and then starting a trucking business for some of the local sawmills in the area. Then, the three brothers kept building and eventually bought a sawmill, saved all the money that they could, and one thing led to another. They had trucking going and then the sawmill generating money and they just kept working hard, reinvesting and built up to quite an enterprise over the years. There’s a bunch of children who came afterward out of the five siblings, of course.  I was the youngest sibling out of the whole five born in Victoria. My dad had moved down to Victoria to run one of the divisions there. So, I grew up on the island in Victoria, then I moved to Vancouver, back in 89.

Jason Boudreau:

When the business was growing on the Island with your dad and your uncles, was it primarily on the Island or was it all over BC as well?

Amar Doman:

Primarily on the Island with a couple of sawmills on the mainland, but the Iisland was pretty significant for the family.

Jason Boudreau:

Yeah, I bet, and it was a real hub for forestry back then too.

Amar Doman:

Yes, it was.

Jason Boudreau:

I could see that. I don’t know a ton about the history of that, but I just sort of feel like it would be that way. So, they’re building the business and then tell me the story about how your parents met and when that happened.

Amar Doman:

My mum was born in India. My dad went back on a trip, and they were all saying “No, he’s not going to get married back there”. My mom was arranged to be married to someone and my dad caught her eye. Then they went to go meet the family, and her family met his family and said “Hey, you know, maybe we should do this”, which is a little bit out of bounds over there when someone’s kind of prescribed to some you don’t really do those things. Anyways he’s a guy that kind of likes to go after what he wanted, and he came back six months later. He was writing letters to her, and  and we’ve seen the letters where he said he is going to get married back there. So, he came home with my mom, who’d never been to Canada before. At 19 she went to English school. She actually had four bad miscarriages before my brother and I came, which was quite sad. All boys, crazy. My mom had six boys in a row. And my brother and I were the only guys that survived. The last two. I am glad they kept trying. All I’ve got to say.

Jason Boudreau:

No doubt. Hey. So, you have an older brother. What’s his name?

Amar Doman:

His name is Rob.

Jason Boudreau:

What’s the age gap between the two of you?

Amar Doman:

18 months.  He’s definitely smarter than me. He’s got all the Degrees and everything like that. I was Grade 12 and went right into business. The school didn’t want any more of me and I didn’t want any more school.

Jason Boudreau:

Why don’t we go on that thread? I remember asking you last year about how you got going and you said “Right out of high school”. So, obviously, you and Rob grow up on the Island together in Victoria with your parents. I would assume a normal Canadian kid growing up, although you probably were spending time in the mills and getting to know the business.

Amar Doman:

I think you could say that.  That started when we were very, very young. My dad would take me and my brother to the mills around lumber since we were just tiny guys of six or eight years old. I look back now and wonder how we didn’t get killed or run over. We’re just let loose. Today you wouldn’t let anyone wander around these places, but he didn’t know where we were. We’d be climbing on lumber piles that are 50 feet high and when I look now at it – I wouldn’t let my kids go near that stuff. It’s crazy.

Jason Boudreau:

Neither would WCB, right?

Amar Doman:

Totally! All that stuff was absorbing. It was just sort of taking us around and, of course, osmosis you pick it up and if you like it, which my brother and I both did. Then we got to eventually start to work on the machinery and start to pile studs or load trucks. We did all those jobs all the way through every summer, every Christmas, Saturdays, dad would take us down there and we just go do it. It wasn’t sort of “Hi,  you’re coming to work”. You just kind of hopped in the truck with Dad and off you went. And it was awesome. I missed those days and I certainly wouldn’t trade that sort of education for anything.

Jason Boudreau:

No doubt! Obviously, then that led to you deciding at the end of high school to just get out and do this on your own. So, let’s talk about from that point on what happened when you decided to really start with, what is now the business.

Amar Doman:

So, probably around Grade 11, I started to map out what I am going to do. My mother thought that I was just going to pile studs my whole life and I wasn’t going to get too far. I’d be happy doing that some days right now, but I had my sort of business plan mapped out where I wanted to start a small lumber remanufacturing company because I had done a lot of the jobs and I thought to add some value. I didn’t want anything from the family. I wanted to do it on my own. And I’ve always had that sort of independent streak in me that I just wanted to do it on my own. So, certainly, my dad wouldn’t lend me any money, he was too tough. So, my mom lent me about 30 grand coming out of the high school Grade 12 in 1988 and I had formed a small company with three guys in Victoria. We manufactured lumber and when the phone rang I’d run off the green chain and go answer the phone and take an order and come back. It was awesome. Owning a small business a day after high school, I could not have been a happier guy.

Jason Boudreau:

That’s awesome. So that’s 1988, how many partners did you have in that business?

Amar Doman:

Well, there were three employees, and I was the sole owner.

Jason Boudreau:

And I know you’re the sole owner today, so does it always remain that way? You’ve been the sole owner through all your businesses?

Amar Doman:

Yes, with the Futura Corporation. We’ve taken some stuff public and we have ownership and public stakes, but I’m the sole shareholder in Futura.

Jason Boudreau:

Got it. So, in 1988 you started building up the business, let’s talk a little bit about the evolution of it. What did the first 10 years look like, from the late 80s into the late 90s?

Amar Doman:

Back around 1988, about one year later, an opportunity came up in Vancouver. A company that needed to sell in forestry that my dad had heard about and he said that maybe I should have a look at. So I took a look at it. I ended up buying it and moved to the big city of Surrey, business overnight. I stayed on my brother’s couch, he was going to UBC over there. So, I was his roommate, literally overnight. He was having more fun than me partying at the pub and doing other stuff while I was trying to figure out how to detangle a broken business. But that was the time of my life when I moved to Vancouver from the Island. It’s a big deal, move over to the big town, the big show and all that, and for me, I thought that this is where it would stop. However, I’ve turned that business around and started to grow it. Bought another one out of bankruptcy about two years later in Surrey as well that was competing with us. So, we gave it a tough time and it was fun watching that happen, then owned that competitor. A lot of people thought they were going to count me out in the industry saying I am taking on too much, that I am too young. Anyway, we haven’t looked back. I think that the work ethic that we commented on earlier, learning that from dad, it’s just instilled in me to this day.

Jason Boudreau:

I hear you there. That’s something I talk to my kids about all the time. Always be the hardest worker in the room and that’ll get you far.

So, late 90s. Now you’re got this business going. I want to learn a little bit more about this turnaround approach that you’ve got with these businesses. What were you seeing when you were coming into these companies? Why did they end up in the situation they were in? And then how did you feel you were able to turn it around and take it to the next level?

Amar Doman:

I think one of the things I’ve learned is that when you look at something that’s broken, try to analyze why it was broken. Don’t make those same mistakes and look at it as a big opportunity to try and do something the other guys didn’t do and make it work. It also allows you to create value because if you could buy something that’s broken at a good value that you can fix – the upside potential is just gigantic. That’s something that we pride ourselves on – we try to buy plants that are running 20-30%, and we don’t care if they are bankrupt. We are going to come in with our sort of surgical way of doing things and hard work ethic, and figure out a way to make it work. We don’t think any other way. We just have to make it work.

Jason Boudreau:

Got it. So, late 90s and early 2000s, what’s happening with you then? I know you mentioned that you acquired some public assets or took some companies public. When did that start?

Amar Doman:

So, we bought a company called Canwell Distribution from Canfor and Weldood, two large sawmillers here in BC, and it was a national distribution business. So I bought that. That was a big bite for us. It took us across Canada, added about 400 million in sales and it was losing money. A lot of money. And for the first time in my life, I had a bit of a panic at 29. It was 1999, I was thinking that I took too much and I wasn’t sure how I could plug all the leaks in this thing like I thought I could. I went out to sit down with the banks in Toronto, understanding what the “C” word is, which is a covenant, and I didn’t really understand all that stuff: big banking agreement that looks like 5 phone books … But I just came and sat with these guys and I said, “Look, I need about another six months. But I can see how this is going to get fixed, but think I’m in violation”. My CFO’s giving me all these notes saying there’s the pole pile of trouble here that I was out of bounds on. I just said look “I’ll fix it. Just give me a little more time”.  Those guys became very close with me. I was Wachovia Bank, which turned into Wells Fargo, and we’re still at that bank today. If those guys didn’t help me there, I’m not sure what would have happened, but turned it around and then eventually took that company public in 2004.

Jason Boudreau:

Is Wachovia Bank from the U.S. Aren’t they out of Washington?

Amar Doman:

They were, yes. They folded into Wells Fargo, probably through the financial crisis.

Jason Boudreau:

1. So, the bankers have obviously played an important role. Even for future acquisitions, it seems they’ve become your partners in a way.

Amar Doman

For sure. It wasn’t a debt issue. For me, it’s always a cash flow issue.  We’re not going to take on too much debt and bet the farm and risk on things that we don’t understand and take big long shots. We just needed more time to get the thing operationally efficient. And we’re bleeding, bleeding, bleeding, but we were bleeding to get to a point where they’re going to be a healthy body. So, you have to bleed out for a while and get the thing right sized and fixed, and the customers, and all this different stuff. We were never at the risk of a bank foreclosing on us because we did something stupid.

Jason Boudreau:

So, 1999 you bought it and took it public in 2004. What does that five-year gap look like? What does it take to get a company ready to be put it on a public exchange?

Amar Doman:

It’s painful. Halfway through my dad was kind of laughing, while checking in he would say “You guys are nuts. Don’t do this public stuff and stay private”. A lot of people say why would you go public if you didn’t need to? Well, there are a few reasons. Number one, I wanted the team I was building to be able to have straight direct equity ownership, something that’s tangible for them. Also, a stock or report card – it’s nice to see as well as to raise equity. I could start to see that being public and where I want to grow the company would line up collectively very nicely and your profiles are different and there’s two different paths, they’re both great as long as you’re making money. But I think that the public was the right time for us and took some chips off the table back then, which was nice just to kind of monetize at a young age, and take some risk off after working 16 straight years out of high school. I thought that would be an important thing to do. So, we did a little bit of that and also kept some of the companies private, which still are today.

Jason Boudreau:

Got it. So now, we’re sort of in the early 2000s, mid-2000s and I know you’ve got Canwell and Doman is the other one, correct?

Amar Doman:

Yeah, Canwell morphed into Doman and Doman now is the parent one now in the Toronto Stock Exchange.

Jason Boudreau:

There’s one other company, correct?  Under the Futura?

Amar Doman:

Yes, we control Tree Island Steel which is public.

Jason Boudreau:

Got it. What got you into the steel business? How long has that been in the fold?

Amar Doman:

We’ve been distributing Tree Island nails and mesh for a long time. I was watching the company become undervalued on the Stock Exchange. So, we ended up buying a pretty big ownership stake in it when we thought the value was right. The Board of the company owned less than 1% of the company and I owned 20% of the company and they wouldn’t let me on the board, which frankly pissed me off. So, we called a proxy contest, the only one I’ve ever done, and we lost the proxy contest, but the next day they called and said “You won. But really you won, not us. Our guns are down. The board’s yours”. So anyway, we went through this process, which I didn’t want to go through, but we took control of the company and it’s been a great business for us. It’s got a huge plant in Richmond, 450 employees and a bunch of staff in California. It’s been a great business for us and we continue to drive good cash out of it and run the business.

Jason Boudreau:

Well, obviously nails and mesh are complementary to the main business, right? So, just thinking back to mid-2000s. When did family life start to evolve for you? When do you meet Nat? When does that all start?

Amar Doman:

It was in my early 30s. I met my future wife in Vancouver. I started thinking that I’m in my mid 30s, setting my ways, maybe not getting married kind of guy and I’m building the companies up and having some fun. Certainly, when you meet someone who changes your life it’s great. We ended up dating for about a year and then got married. Right after that, we had three beautiful children. So, then I felt fully wealthy. Because being wealthy in a bank account is one thing. But when you’ve got children and a decent marriage – that’s all you can ask for.

Jason Boudreau:

Yes, that’s true. That’s very true.

We talk a lot about legacy in our business and obviously, a lot of the work that we do is helping families plan for that legacy. And really, it’s all about what’s the next generation coming into and the number one thing that comes up is the value set and these conversations about it. It’s one thing to transfer financial capital, but how do you transfer that family capital, the history, the stories, the knowledge, the values, all that kind of stuff, and that’s something that we’ve talked a little bit about the other week as well. I can see from hearing your story how that evolved for you being at the sawmills and climbing around on the lumber and all that. I’m curious from your side, when you look at your kids how do you envision their involvement in things?

Amar Doman:

That’s the 1-million-dollar question: do they want to be involved and carry on? I think the level children were born into is not their fault. I think it is up to the parents to assist in the navigation of where they’re starting from. It’s a lot different than not where I started, but how I had to get started.

I just wanted to know if the children do want to be involved in business, I’ll show them the path which starts with a very, very much hard-working foundation. That means starting to work somewhere else, which one of my children is already working at a young age. And he’s doing well and he seeks to work, which is great.

If they want to be an artist or whatever vocation they choose, they better choose something because I don’t want my children figuring out what they’re going to do in life during their four years in university. That won’t happen in our family. It’s “Choose what you want to do or you’re going to work”. Once you figure out if you do want to go to university for something specific, of course, we’re going to help you with that tuition as well as you’re going to pay a part of it. I don’t expect their path to be anything like mine. It can’t be, but if they want to carry on some of these businesses that we continue to build up, I’d be more than happy to teach them.

Jason Boudreau:

The other day we were talking about inviting them in to learn about the business firsthand, whether it’s taking them on a business trip or inviting them to a meeting or something like that. I know that’s something I really look forward to. It is really great to hear that they are already getting their hands dirty and earning some coins.

Tell me about the background of the Futura name. When did the Futura start as a company and where did the name come from?

Amar Doman:

I got to give my dad some credit. He had a small development company in Victoria way back in the day,  called Futura Developments for the Future and he built some apartment buildings. He always had a lot of stuff going on and he had this company name which he used for a long time and went into some building materials as well. I always used to draw when I was in school, not paying attention to the blackboard, I’d be drawing “Futura” all over my everything and just I used to always draw Futura Corporation since Grade 8 and I’d be drawing and drawing it. So, I formed that company in 1999 when we had purchased Canwell and restructured everything under one. I still remain the sole shareholder of that business, but it was kind of a nod to my father. He really liked me using that name, and I just love the name and still do. It’s my private corporation, so you won’t see it on anything public. It’s just got a very good sentimental history to me and my brother as well for sure.

Jason Boudreau:

When you told your dad that you were setting up the Futura of Corporation, what was his reaction to that?

Amar Doman:

He was very happy about it and he always just liked it. I think it felt like he’s still there because he taught me absolutely everything. I owe everything to Dad and I wish he was still around, and his anniversary of passing was just Saturday four years ago.

Jason Boudreau:

Thank you for sharing.

I’m curious about if we look to today and really look ahead, what’s in store for you and for Futura? When you look at the landscape of today, everybody talks about how fast the world is changing and commodities are moving like crazy. Obviously, you have the influence of expanded media out there impacting share prices and things like that. How do you navigate that? What do you see for the business today? If we look forward to the next 10 years, what does Futura’s future look like?

Amar Doman:

A couple of things. I’ve been through a lot of different cycles now and I’ve got some gray hair. So you can look back and see what to watch for a little bit, but the drive and focus and energy have not changed as far as building. So, there’s been no slowing down and catching our breath. It is more like keep looking for opportunities, keep running the main business as well as learn and stay close to our customers, do everything we’ve done to get here and then continue to build on. So, we don’t look out as far as 10 years. We look out sometimes 2 to 3 years, but we want to continue to build through acquisition.

As a group now with the Futura we crossed roughly $3.5 billion in sales, and we have 4,000 employees. So, it’s big, but for us, if we buy a company now that’s got 30 employees, that’s fine. If it’s got 300, that’s fine. But it’s got to strategically fit into our master plan that I share with our Board of Directors that we have. The word “retirement” doesn’t really fit in for a guy like me. I like to work, and you’ll see me working for a long time. So, we’ll continue to build and see how far we can take this.

Jason Boudreau:

That’s very neat. We were talking the other day and you were mentioning about that even though you’ve got 4,000 employees, you stay really close to the ground floor. How do you do that and why do you feel that’s important?

Amar Doman:

That’s a great question, Jason. I just think it always resonates with me that I feel like I’m one of the guys out there. All the time. So, I can go talk to anybody on the floor, whether it’s a forklift driver, whether it’s a Ship or Receive or whatever it is to the top executive. I just like people and I like working, I like working people. I relate to them. That’s why I don’t really stand for a lot of people that have picket signs out there. I am just grateful to have a job. I don’t think you should fight your company. I think that good companies take care of good employees and things work out. I really believe that there should be respect on both sides and I respect every single person that works in our companies, no matter what position they have. I fully respect them and appreciate them being part of our team.

Jason Boudreau:

Respect, for sure. That’s a big one. I’m very much the same way. I find it hard to not stay connected to the people because that’s the pulse of the business. It’s like a giant brain trust in a way. You ask questions and you’ll hear things that you never even thought of.

Amar Doman:

Right. Absolutely right.

Jason Boudreau:

I would like to touch base on the philanthropy side. And I know you’ve been actively giving back to the community and I know it’s not a philanthropic project, but it’s certainly a community-based project as you now own the BC Lions. Tell me a little bit about how that got going for you? It’s obviously a passion project for you, and you and I met through the football community. Then we’ll tie that into the more giving and giving back side. Let’s call it “The new side of the Lions”, how did that end up in the Amar Doman’s world?

Amar Doman:

This’s something that was on my mind for a lot of years, and we used to hear it wouldn’t come up for sale as David Braley owned it for 25 years and these assets are very hard to come by. For me, being a part of the CFL and part of the National History of the CFL it’s like a dream come through. To really help kids use sports here in BC, and to re-engage the football community here, invest in it, and obviously selfishly we want to grow the fan base. But really, it’s something that I tried to buy for seven years back and forth with David, going to Hamilton to his little office back there in Ontario, and thought I’d have a deal and then came back and he couldn’t let it go. He’s so passionate about football.

Then, of course, when we got the deal done back in 2021 it was surreal… Signing the paperwork back East and then knowing this is going to be announced… There’re those few moments in life when your children are or born or you’re married – these things are just etched in your mind. You can define them so well, like they’re yesterday. When I went out to Surrey to practice, they had all the players put on their uniforms with their names on them that day, and they blew the whistle and they’re all coming in there. There I was, standing there and that was one of those minutes I’ll never forget. They’d stopped the whole practice. And here they come and here comes the new introduction of new speech and that was one of the proudest moments in my life.

Jason Boudreau:

Oh, that’s so great. Well, I know, the BC Lions themselves, the team, the football community, everybody’s benefited so much over the last couple of years since you took over the helm there. I certainly see myself still being involved in the football community. Obviously, as you know, football was a big part of my life for many years and I’m hoping my boys get into it and they love the flag league that they’re in here on the North Shore and hopefully soon we’ll get into tackling all that. I feel like they got to at least put the pads on at some point, cause their dad did.

Amar Doman:

Yes, our boys play together, which is great too, and it’s awesome.

Jason Boudreau:

It’s so much fun. It’s really fun. I feel like for a young boy going through adolescence and coming to man, there’s probably not a better sport out there that they could play in terms of skills and all that. Obviously, I’m biased, but I’d like to say that it helped me turn out in a successful way.

I know one of the approaches for you with the BC Lions, and I think these ties into really kind of the giving back piece and philanthropy, is that BC Lions aren’t the Vancouver Lions, they’re the BC Lions, right? This is the province’s team, right?

Amar Doman:

100%.

Jason Boudreau:

And I thought that was so great and obviously it’s in the name. But given that they play here and practice locally, sometimes it feels a little bit like Vancouver Lions. I know you’ve done a lot of outreach to the province, and I remember last year you guys were helping to fly-in, ferry-in or bus-in fans. Tell me more about that sort of outreach to the BC community and get them reconnected with the team.

Amar Doman

So, we’re doubling down on that and what I mean by that is we’ve adjusted and worked with the TSN to sort out times across Canada for airing the games and then also CFL to get a bunch of four o’clock games here. The reasons for those are: number one, we can have people from Vancouver Island come over on a ferry, get back and not have to spend an arm and a leg in a hotel. Number two, we can have younger fans come in and be able to bring their two or three-year-olds in the afternoon, watch a game from four and be done at seven. Let’s face it, it’s Canadian summer, guys want to hit their barbecues on a Saturday night.

And the CFL has to always struggle with that. So, we’re trying to pull it forward a bit in the afternoon, enjoy it and then people can go to their house parties, do whatever they want with dinner. Also, do you want to get on a sky train at 10:30 or 11:00 at night? I’m sure I wouldn’t want to these days. So, families can get home safely out to the valley. You can even come from the island. We’ve got buses set up as well. So, we’re really trying to engage the whole greater part of BC wherever we can. I think some of those earlier start times will assist with that, Jason. And we’re always open to ideas to try to do better.

Jason Boudreau:

I know this season’s obviously starting soon and you’re getting excited about that. How’s it looking in terms of the growth that you’ve seen with the fan base and all that over the last couple of years with you in charge?

Amar Doman:

Super solid. Look, we’re coming off some tough numbers, we all know that. But we believe we’re going to double our season ticket holder base this year already. We’re very, very excited about it. And just to get almost under 40,000 and for that last playoff game in Calgary last year. It’s amazing. Once that thing gets going and people like being around people and of course at football the noise matters – we will get a good consistent fan base into BC Place for our home games, there’s only nine home games.

I think we’ve got a pretty good opportunity, we’re helping subsidize some of the concessions and big street parties coming up again here. It’s going to be the place to be.

Jason Boudreau:

Right on! Given that grassroots community level, I’m curious about your view on philanthropy and how you approach that because obviously you get approached a lot on giving to different organizations. What do you think about philanthropy in your world?

Amar Doman:

I think the term “Giving back” is used a lot, maybe too much. I just think it’s just about giving. I think that I really felt this way for a long time. We’ve helped out different organizations, whether it’s heart, stroke, cancer or other causes. The one thing that we differ on is as far as myself and part of the community, I don’t think hospitals should have their hands out into private corporations. These are big public assets and they should be run by our tax dollars- we’re taxed enough. But certainly when it comes to scientific research, going over and above helping children find different ways to find solutions for various diseases, someone that needs financial medical care – we do a lot of private donations. We do them anonymously as well. We like to write these cheques. We like to help. We like to help the Orphans fund. There is whole bunch of different things we’ve been doing for years and to me it’s just an automatic thing to do. When you’ve done ok and you can share – Share. I think it always comes back in some way shape or form and I believe that by just seeing some child happy or someone that’s had a life-saving operation – that’s great. What are we doing all this for anyway?

Jason Boudreau:

Yes, that’s very true, I couldn’t say it better myself. Amar, just to close out our conversation, I would love to understand from your point of view the given piece. What would you say if you were having a conversation with your kids or some young group of kids about giving and trying to really instill in them at a young age what it means to give?

Amar Doman:

I think number one is always remember that not everyone has what you have and don’t assume they do. Always help others and try not to choose the bad path. If someone’s doing a bad thing, don’t copy them. Try to stand down and it’s hard with peer pressure, but really try to just be your own person and try to help others. If there’s a new kid in class, be the person that goes up to that new kid in class. Don’t be the person gossiping about the new kid in class. Reach out, put your hand out, welcome them. That’s the type of citizens I want our kids to be – to help others and just be that good person. And don’t be the person giggling in the background and making fun of others. That person gets nowhere.

Jason Boudreau:

That’s a true story. Well, let’s wrap it at that. We spent a good half an hour together this morning. Amar, really appreciate you taking the time. Always pleased to speak with you and really enjoying getting to know you at a deeper level today. Thanks again.

Amar Doman:

Thanks, Jason! I really appreciate you doing this. We’ll see you!

Jason Boudreau:

See you tonight.

Transferring a farm or agricultural business to the next generation is a multifaceted and emotional journey, much like any other business endeavor.

Farmers face the challenges of estate planning, optimizing taxes, and ensuring the long-term prosperity of their business. It is vital for business owners to have a clear understanding of their current standing and future goals. Equally important is their awareness of the farm’s purpose and objectives for both the present and future generations, fostering effective intergenerational communication. Moreover, there are essential considerations to bear in mind when passing down a farm or agricultural business.

In this podcast you will learn the importance of:

• Acquiring a clear understanding of your business’s present situation and future objectives.
• Comprehending the motives and aspirations of both the current and future generations.
• Obtaining insights on essential factors to consider prior to and during the transfer of the farm business.
• Developing effective communication tactics to navigate challenging conversations with family members.

About the Participants:

Michael Baker
Licensed Life Insurance Broker, Baker Wealth
Michael Baker founded Baker Wealth to build meaningful success for people. A challenge-driven CPA, he wanted to help his clients forge a tighter connection between financial prosperity and a fulfilling life. Michael is your expert advisor and ally, with 25+ rich and illuminating years of experience as a professional. Talk to Michael about planning your future, starting a new business or welcoming a new family member. He’s an active listener; he not only hears your words, but he understands them – the key to solid financial results.

Shane Donner
Partner, Smith & Hersey Agribusiness Law LLP
Shane has been working as a Solicitor at Smith & Hersey Agribusiness Law for over 8 years. Shane’s practice is primarily focused on business transition planning (specifically agricultural operations), corporate finance, commercial/agricultural real estate, and negotiating renewable energy leases for wind and solar projects on behalf of landowners.

Shauna Trainor
Principal, A&O Partners LLP
Shauna works with enterprising families across North America to navigate the complexities of ownership, wealth, and family dynamics. Shauna engages in a planning process with family enterprises to help them identify, clarify, and articulate their ownership vision and strategy. In collaborating with families, Shauna helps them to establish relevant governance, enhance communication and engage in shared decision making. Shauna leverages her business and psychology background to help families and individual members achieve their desired objectives.

Rob Wallis
Partner and Senior Advisor, VELA Wealth

Rob has provided senior financial planning and advice to VELA clients for over 15-years. He excels at working with entrepreneurial professionals and business owners to define their individual ecosystems and establish meaningful life and financial goals. He has specialized expertise in guiding healthcare professionals who are building multi-location, and specialist clinics. To learn more, please visit VELA team page.

The episode is also available on:

Disclaimer

The information provided in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

In the upcoming Polestar Podcast episode, Rob Wallis talks with Dan Pultr from TMG The Mortgage Group (TMG) about the interest rate environment and lending. Dan explains the impact of dropping interest rates to zero during the lockdown and where it led us as well as provides some recommendations to borrowers on how to ensure they receive competitive offers.

About the Guest – Dan Pultr

Dan is a Senior Mortgage Industry Executive that helps individuals and companies grow. He takes a hands on approach to all engagements, loves to immerse himself in the details and works with passionate professionals to deliver comprehensive solutions. Dan’s goal is to provide an incredible Mortgage Experience to Brokers and ultimately to their thousands of clients. To reach out to Dan, please visit his LinkedIn profile.

About the Host – Rob Wallis

Rob has provided senior financial planning and advice to VELA clients for over 15-years. He excels at working with entrepreneurial professionals and business owners to define their individual ecosystems and establish meaningful life and financial goals. He has specialized expertise in guiding healthcare professionals who are building multi-location, and specialist clinics. To learn more, please visit VELA team page.

The episode is also available on:

Disclaimer

The information provided in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

The Podcast Transcript

Rob Wallis:

Welcome to the Polestar Podcast by VELA Wealth. Today, I have the pleasure of speaking with Dan Pultr from TMG, The Mortgage Group. We’re going to be talking about the interest rate environment, lending, and what awaits us next. This is a particularly interesting topic because, having been in the advice industry for 20 years, cash has never really been something that we’ve talked to people as an asset class for at least a decade. That’s because interest rates have been low for an extended period of time, and recently, that has come to the forefront of many conversations. Conversely, that also means that interest rates are high on lending as well, which affects people in different ways.

Dan, welcome! First off, how did we get where we are at?

Dan Pultr:

Hey, Rob. Thank you so much for having me. It’s a pleasure to be on the podcast with you today.

So, how did we get here? Well, we had a few things happen that set the stage for where we are today. First and foremost, I think many of us choose not to remember, but we spent some time in lockdown. The central banks from around the world came together and realized that during a lockdown, they really didn’t want any risk of an economic meltdown. So, they effectively dropped all interest rates to zero in most markets. That fueled a steady stream of borrowing for various different reasons – some corporate, and some personal such as people buying houses, investment properties, etc. The savings rates went through the roof – we saw people accumulating, as you mentioned, cash. People were saving at an incredibly high rate relative to what they had in the past. Following that, we had the steepest and fastest interest rate increase that we’ve ever seen in this country. When you combine those two, you create a lot of uncertainty and find yourself in a market where people are a little uneasy and stressed about what the future holds for them.

Rob Wallis:

So, with that stress, how is the sentiment in the market right now? We’re obviously talking about Vancouver, but there’s a whole world outside of here and Canada. If you could give a little proxy for Vancouver and then maybe the rest of Canada, that would be helpful.

Dan Pultr:

For sure. So, where does that put us today? I feel as though what we’ve seen is an overreaction, both among the central banks, which many would probably say is not an overreaction and that they needed to do exactly this. But I’m not a central banker, nor do I claim to be at the taps of monetary policy. However, where that led us is what they call a confidence issue, which is where the Central Bank told us that we can feel confident or rest assured that interest rates are going to continue to be low through 2023 effectively. So, everyone was caught by surprise. And when you catch people by surprise, after they’ve made some incredibly large financial decisions, such as purchasing a house, they don’t know if they’ve made the right decision. The biggest impact was probably with variable rate mortgage holders. So, anybody that had a mortgage that’s based on prime effectively, which is often used as an index for variable-rate or adjustable-rate mortgages, or lines of credit, felt a bit of a sticker shock as it relates to the payments that they were paying or the interest they were being charged.

There are a number of institutions in Canada that offer variable-rate mortgages where the payment does not actually adjust when the rates change. So, they’re paying less and less principal or no principal at some point in time. At future points in time, in some cases not even paying enough to cover the interest. So, people found themselves in these circumstances, and the rules of which the banks were supposed to govern themselves were kind of held true for a short period of time. Then it appeared that everyone just took the piece of paper they were written on, threw them out the window, and said, “the number one thing we want to make sure is that we put people in a home. People have gotten mortgages. We want to make sure that they’ve continued to make payments”.

We’ve seen a number of people that have seen their payments increase and are feeling financial stress, so they’re in a position where they’re making different decisions today as a result of their mortgage payment increasing.

There’s a whole other class of people who know that their mortgage payments should be increasing, but they know they can’t afford it. Therefore, they’re trying to save and put together a small sum of money to make a prepayment towards their mortgage. We also have people who are in a comfortable position but are anticipating some sticker shock when their mortgage renewal comes up in six months, twelve months, or two years’ time.

When we talk specifically about Vancouver, it’s probably not surprising to hear that Vancouver prices are quite high, and people carry very large mortgages. Therefore, that sticker shock could be quite significant for some individuals. You may have seen your mortgage payments or the interest required to cover your mortgage payments have increased by 45% to 55% over the past year. That’s a material jump! People started making different decisions with their debt. First and foremost, prior to that, there were many opportunities for homeowners and investors to refinance or restructure their debt to get cheaper money. However, those opportunities have effectively ceased to exist. We know that fewer people are making the decision to refinance purely to decrease their interest costs. Also we are still seeing some individuals needing to refinance because they may have a business opportunity or have gotten themselves into more debt than they would like, and they need to pay consumer debt with mortgage debt. It’s still relatively cheaper than a 19.99% interest rate. We have seen people have to make different decisions relating to that, and we see it a little bit on the front lines. We obviously see the homeowner making these decisions, but we don’t see their day-to-day decisions as much. However, that’s what these central bankers wanted. They wanted people to change their vacation habits, dining habits, and spending habits to try and curb inflation because that was the driving force behind the rate increases.

If you look at Vancouver, how is this impacting the real estate market? Effectively, the real estate market almost came to a standstill compared to where it was previously. Recently, I heard a comparison that if you’re going 200 kilometers an hour down the highway, and someone slows you down to 50 kilometers an hour or even a 100, it may feel as though you’re completely standing still relative to where you were previously. That’s kind of where we went to. We were effectively going at a very quick pace, and now things are much slower.

Over the past 30 days, with some changes in the monetary policy, or more accurately, changes in the words that the central bankers are saying about the future, we have started to find a little bit of stability for people to start making financial decisions again. There seemed to be a period of time where people were uncertain enough that they were unwilling to make financial decisions. We saw this with developers and homeowners. They just didn’t know where interest rates were headed, and when they don’t know, it’s really hard to make a decision. Now we kind of know that we may be at or very close to the peak of interest rates as it relates to variable-rate mortgages and home equity lines of credit, anything pending its prime. We’re seeing people start coming off the sidelines, and we’re seeing developers restarting projects that they may have paused for a period of time. Therefore, we’re starting to see that momentum start to build. We’ve only seen it for 30 days, so whether it’s a blip or a trend, that’s yet to be determined.

As it relates to other parts of Canada, I would say that two markets that were most largely impacted by this would be the GDBA and GTA, primarily because of the levels of wealth and prices in those areas. If you look at Alberta or Atlantic Canada, some of those markets have moderated a little bit but not quite to the extremes that we’re seeing in some of those other markets. And part of that is to do with some of the shift that has happened in real estate habits. Prior to COVID, it would be very uncommon for someone to pick up and move, lets say Hope and work remotely. Now we have some of those new habits, so we’re seeing those dynamics start to play out in how the real estate market is behaving as well.

Rob Wallis:

It sounds like you’re talking quite a bit there at the end about the demand for lending returning because people can see some stability. How are banks assessing and underwriting risk right now in the current environment, and how does that affect people’s ability to borrow, certainly to the extent they were able to borrow, to a couple of years ago?

Dan Pultr:

The fortunate thing, and a number of people actually point this out as sort of a saving grace that we had implemented previously, is that in Canada, we have a mortgage stress test. So, it has been put in place to essentially hedge against the future of rising interest rates. Because borrowers were already qualifying at whatever interest rate they were at, plus 2%, we were seeing that people, at least on paper, looked to be in reasonably good shape to withstand an increase. Now, whether they want to increase their payments or not is another thing, but from a bank’s perspective, I think they were reasonably stringent enough already that it didn’t make a material impact.

Now, one of the interesting nuances is how the stress test is structured. We did see a period of time where people were almost rewarded for going variable because the variable-rate interest rates were a little bit less and as a result, by taking a variable-rate mortgage, borrowers were actually qualifying for a little bit more. I know that’s something some regulators have looked at as a risk or a concern because we don’t want to see people taking on more risk to get a variable-rate mortgage than a fixed-rate mortgage. With a fixed-rate mortgage, we know what to expect over time.

Rob Wallis:

So banks are still okay to lend?

Dan Pultr:

We haven’t really seen much of a pullback. We’ve seen a few, let’s call them “less competitive” than they would otherwise be. We’ve seen that, but that’s because mortgages are a driver for a number of other consumer products. So, you may hear banks from time to time refer to a client’s as “franchisable” or “franchise a client” which essentially means how many products they can they offer to one individual. It’s kind of a sweet spot that they have, and they offer what they know if they bring in a consumer as their mortgage client, they now have an opportunity to also convert that person to a savings account, a credit card, or whatever else they offer. I’m sure you’ve all experienced or at least your listeners have experienced some of the offers that they may get from institutions when you’re new to them versus existing clients, similar to with cell phone companies. Because mortgages have always been the lead in drawing new clients, I feel as though they’re still going to continue. And because they’re in a much smaller market to operate within, some are choosing to be ultra-competitive, and some are looking to just work with their existing customers and focus on that aspect. So, each major institution differs in how they’re operating. Within that, the nice thing is that there’s a cluster of companies, and we use the term “monoline vendors,” but a number of people know them as mortgage finance companies – these are major Canadian financial institutions that only deal in mortgages, and they are finding this as an opportunity to be ultra-competitive to try and acquire some clients because they know that that’s their only bread and butter. So, mortgages are the only thing that they offer.

Rob Wallis:

So, one thing I picked up on from what you said earlier is that some lenders are not being as competitive as others. Is that down to risks in their mortgage business? Or are they taking advantage of the situation? As a result of that, as somebody who’s seeking debt at the time renewal or a purchase, how those people should be responding so they make sure that they get the best value?

Dan Pultr:

Right. So, the single best piece of advice I would say to anyone listening is if you’re getting a renewal offer from your bank, if you happen to have a mortgage with a mortgage finance company, I highly recommend talking to a mortgage broker in your neighborhood. The reason I say that is that first of all, mortgage brokers are independent in the sense that they don’t work for any of these financial institutions. Their mandate is to try and obviously earn your business, but obviously they want to make sure that they are effectively providing you with a sound advice and good options for you. What we’re seeing right now is great time for you to take that time, send them your mortgage statement, have them review your renewal offer, so that you can actually see what is real and you can see whether or not the offer that you’re being offered is in fact competitive.

Sometimes what we see is that institutions will just essentially send out blanket letters and they just hope that people sign on the dotted line. Other times, they will effectively ratchet up their behavior as time moves on or get closer to your renewal date, so they might just send a letter. Then they might wait for a period of time. Then they might follow up with a phone call and only once they realize that you’re potentially leaving, they do actually offer you a good deal. Versus when you’re dealing with a mortgage broker, you know that in fact they’re compelled to make sure you get the best offer that they have available for you from the onset and they can tell you all of your options whether you can leave early, or if you have to wait, would there be a penalty or any sort of costs associated with the move. And a lot of the institutions do bank on the fact that there is some friction to move it. There is some time, energy and effort that goes into you moving from one institution to another. And so, they do factor that in when they make you an offer, but it is very prudent to at the very least have a second opinion on what you’re being offered. Earlier you can do that in the process the better. If you start that process 90 days out, that’s great. You can even start it as far out as six months out. So, it’s worth starting that conversation early.

Rob Wallis:

So pre-pandemic, how long were people fixing for versus now? How long are people fixing for if they weren’t fixed?

Dan Pultr:

It’s interesting actually because right now what we’re seeing is probably the most competitive interest rate out there. It seems to be that sort of four-five year rate environment. So that’s where we’re seeing the most competition. However, the desire among borrowers is much shorter than that everyone seems to feel as though that within one year or two years that rates are going to be better. I’m not an economist, however, I did major in economics as an undergraduate. But I do feel similarly to it. However, if you look at every economist globally and their predictions, no one’s always right and you probably find 50% of them being right and 50% of them being wrong. The reality is that there’s definitely some risk to either of those strategies. The single thing that I would focus on is trying to ensure that your mortgage is aligned with your life cycle timeline. That is a really important thing to consider. There’s a thing in mortgage terms called prepayment penalties, and probably the single biggest frustration among borrowers is if they get stuck with a prepayment penalty and it’s material. They never forget and they always remember it and they want see why it shouldn’t be as much as it is. I’ve seen some very, very large prepayment penalties in the 10th of thousands of dollars. So, if you plan on moving or maybe your investment horizon is different, if you can match up your timeline, that’s really valuable to some of the mitigations as it relates to that. But currently, most people are interested in a one- to three-year term. However, when they’re offered the rates that are available in the four and five year it does sway their decision a little bit because they’re more focused and I think this is based on natural human behavior – while people have the best intentions of going shorter term to try and be in a position where in one or two or three years’ time they’re renewing at a better interest rate environment. Once they see the difference and interest rates, which may only be 50 basis points or 0.5%, but that may be enough to make the four-year option more appealing. And I’ll take that because it’s a compelling offer. So it’s just important to sit down with somebody and let them give you all those options and then you decide what works best.

The other interesting thing about the shorter-term ones is that you have a little bit less market competition available for you as the shorter the term is. So, some of these institutions will offer to compensate you for moving from one to the other and as the term gets shorter, essentially their ability to recoup the costs of moving you from one institution to another decreases enough that they say they’re not going to cover the cost if you’re only going to come there for one year. They may convert you and you might stay within the institution, but all I’m simply saying there are options. It’s just that there’s less options than if you’re, for example, trying to move and it’s a four-year fixed we are looking at.

Rob Wallis:

Do higher interest rates create more stable housing market pricing?

Dan Pultr:

Well, that’s interesting. Do they create more stable markets? What I can say is this increase in interest rates has significantly decreased the demand for housing or put it differently it’s at least stalled it because I don’t believe that the actual demand has dissipated I just think that people are uncertain enough that they want to wait. That’s a bit of a double-edged sword, because if everybody waits, then that just means we get right back to multiple offer circumstances.

Secondly, we have another market condition that is also a stimulus to demand and that’s immigration. In the last 12 months, we saw a significant amount of immigration and it’s going to continue. That included temporary foreign workers, which is a whole another class beyond the actual immigration that we typically would count. And the numbers were staggering there. The numbers that I saw in the most recent presentation was almost 1,100,000 in 2022, if you account for the temporary foreign workers. So that’s a significant amount of people that we’re having to house. So, you’re causing a significant stimulus to demand, all else being equal, and then you have a demand start to come back online because it was delayed. I think if you’re going to move, you’re going to want to change your home interest rates aside, interest rates may only stall for a period of time. Eventually, you’re just going to say “Look, we can’t live in this one-bedroom townhouse or condo with three kids…”. Eventually you have to make that decision, whatever that decision may be, you may move further out to find more affordability.

Thirdly, we did see a bit of a pricing correction. We did see a decrease in price, but it was almost offset enough that the payments were effectively close to the same.  There’s a rule in Canada around mortgage default insurance and that it’s only available for properties that are under $1,000,000. And this is where it did create a little bit of stimulus: if your property was worth $1.1 million and now is worth $980,000 there’re actually more people able to purchase that home because the amount of down payment that is required for a property that’s $980,000 is materially different than if you’re purchasing a property worth $1.1 million.

Now, we’ve talked a lot about demand, but the other piece that is more problematic, and which is going to continue to be a challenge for us and what’s going to keep home prices at least elevated, my comment on it would be – I think it’s going to be still elevated for a period of time. I think if nothing else it’s going to maintain stability and pricing it’s going to pose some frustration though, because it’s going to continue to see multiple offer situations, is that we still don’t have supply. We are not building enough housing in Canada for the number of people we have, nor for the amount of immigration we receive. And now, there is less willingness to sell homes because of some of the existing market conditions. People are seeing that interest rates are high, and they hear that prices are coming down. Is that the time when you want to try to sell your house for top dollar? Of course, if you’re selling you eventually buying, but we know that people are considering this option. We are starting to see some of those things play out. For instance, the provincial government in BC is trying to mandate the type of allotment you have on any single-family lot. So, we’re hopeful that this will increase supply and create more opportunities for affordable housing. However, it will take years for any of these changes to come into effect. Supply is not something you can turn on or off, and the impact of it takes quite some time through the cycle.

Right now, if you look at the current market, people are unwilling to list their homes. Therefore, the properties that are on the market have been there for some time, perhaps because the price is too high or it’s not very desirable. The properties that are desirable get a ton of interest, and if you talk to a realtor today, they will probably tell you they have a ton of interest. They may even end up in a multiple offer situation, where people jump on a specific property in the neighborhood. If there are only two properties for sale in the entire neighborhood, and 50 people show up at each, the price is almost irrelevant. It now becomes a matter of what someone is willing to pay for one of these properties, and they have a timeline and a budget. So, we are back to this sort of imbalance in supply. We need steady, long-term, consistent supply, and that’s what’s going to allow us to be in a position where prices will be a little more stable over the long-term, versus some of the big ups and downs we’ve seen. Those big ups and downs are a little concerning too, right? We don’t want to see wild swings because somebody always gets caught at the peak of that. We’d rather see some level of stability. Personally, I want some headlines about multiple offers right now because it might bring more supply to the market with people willing to sell their homes because they hear that prices are no longer falling due to low real estate activity. Only time will tell, and as I mentioned earlier, we don’t know if it’s a blip or a trend right now, but we’re seeing a little more stability over the past 30 days.

Rob Wallis:

Got it. So, Dan, I’m not going to hold you to this, and neither of our listeners, but will we be looking at lower interest rates in one year?

Dan Pultr:

I had the opportunity to ask a couple of economists a couple of weeks back, and both of them bet that if you take the five-year fix, which is what everybody looks at in Canada, we would all anticipate interest rates being lower from where they are today. I do think that there’s room for that to come down, so I would say yes.

As it relates to variable-rate mortgages or anything pegged to prime, I don’t think we’re going to see any central banker, I don’t think in Canada or the US, which we typically take a price from the US. I can’t see them lowering the interbank lending rate this year. I would be very, very surprised. Would they lower it in early 2024? Maybe. But all the sentiment from all the economists is that the Bank of Canada has said, and has now called it “a confidence issue”, that interest rates were going to stay low, and then they went the other way. Right now, they’re telling us they want to kill inflate and they want to make sure inflation is dead, completely dead, like never going to rear its head to the levels that it was. So, until they actually see something that gives them that sort of certainty, that inflation is dead, they will not start decreasing rates. They will hold firm, and that may result in some stress to the overall economy that we just don’t know where that is yet. We haven’t really seen any real material pain in the Canadian economy just yet.

Rob Wallis:

Yes, totally I agree with that. I think that’s a good topic for another podcast – “When is inflation dead?”.

Dan Pultr:

Yes, that would be no expertise of mine but it would be something I’d love to listen to. I’m sure there’s a bunch of interesting thoughts on that and interestingly enough, can you kill inflation when the rates are high and part of the driving force to inflation is interest rate costs on mortgages, right?

Rob Wallis:

Dan, thank you. It’s been awesome conversation.

Dan Pultr:

Thank you very much for having me Rob, I really appreciate it.

Rob Wallis:

Pleasure. Cheers, Dan.

Disclaimer

The information provided in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.