[Rotman] 5 Great Speakers at Rotman

[Rotman Series: 1, 2, 3, 4, 5]

Jaime is a part-time student in the MBA program at Rotman. He has worked in the sports media industry since 2002 and is currently Manager, Digital Media for the Canadian Football League. He and I went to the Latin America study tour in May last year. He was gracious enough to do a write up for me on his favourite guest speakers which follows:

By Jaime Stein

One of the first things you notice when you obtain an e-mail account at the Rotman School of Management is the sheer volume of e-mails from a guy named Steve. At first it can be overwhelming, but if utilized wisely, it can be your ticket to an exclusive roster of speakers. Steve and his team are the masterminds behind the A-list speakers that regularly visit the Rotman School.

The hardest choice I have to make each week is which speakers I will NOT listen to. This is a good problem to have because choice is always welcome when working full time and attending school part time. I simply don’t have the time to listen to every speaker that passes through Rotman. However, in almost three years, I have been privileged to listen to close to 100 guest speakers.

Most of the speakers that I have seen have delivered outstanding talks, but for the purpose of this blog I present five of the best speakers I have listened to during my time at the Rotman School:

1. Paul Martin – Former Prime Minister of Canada

Imagine you are in your second semester of a three-year MBA degree and you are studying Macroeconomics. A large focus of the course stems around Canada’s macroeconomic policies during the 1980s and 1990s; specifically the country’s battle with debt and inflation. One day you find out that the man behind the plan to battle inflation will be speaking at your school. That would be like a young basketball player having the opportunity to shoot hoops with Michael Jordan and ask him for tips.

Fortunately for our macro class, Mr. Martin came to speak at the Rotman School one morning and for about an hour took us through his plan that brought Canada back from the brink in the mid-‘90s. Following his talk he took time to speak to each of us and share some more personal insights and war stories from his time as both Finance Minister and Prime Minister. This was one of the great days at school that left me wanting to explore a subject further.

2. Isadore Sharp – Founder, Chairman and CEO of Four Seasons Hotels and Resorts

One of the main selling points of the Rotman School is its focus on Integrative Thinking – the theory coined by the current Dean, Roger Martin. In one of his books on Integrative Thinking (The Opposable Mind), Martin focuses on the story of Isadore Sharp and his path to building the greatest luxury brand of hotels in the world. In many of our classes we study the Four Seasons Model for customer service and other best-in-class management techniques. We were fortunate to have Mr. Sharp visit the Rotman School and explain firsthand how he went from one Four Seasons hotel in 1961 in Toronto to operating a chain of approximately 100 properties worldwide.

For anyone with an ounce of entrepreneurial spirit this was a motivating discussion. You could see the passion, courage and drive that Mr. Sharp possessed to launch his vision and stay true to it along the way. Any successful company will create a competitive advantage – however, these are eventually replicated by the competition over time. When people are your competitive advantage, it becomes truly sustainable as Mr. Sharp has proven. While other hotels provide outstanding service, none of been able to match the formula created by the Four Seasons.

3. Rahaf Harfoush – Digital Strategist and Author

It was November 27, 2008 when Ms. Harfoush spoke (for the first time, I believe) at the Rotman School. There was lots of hype surrounding her talk that day because Barak Obama had recently been elected President of the United States and Ms. Harfoush was a part of his wildly successful digital media campaign. I also remember this talk vividly, because it was one day later on November 28, 2008 that I joined Twitter. A lot in my personal and professional life has changed since that defining moment – all for the better.

The topic of conversation at Rotman that day was, “Applying Barack Obama’s Social Media Strategy to Your Brand’s Communications Needs” and it was Ms. Harfoush’s talk that became the inspiration for a lot of what we have done at the Canadian Football League over the past two seasons in the social media realm. To me, this is what an MBA program is about – an exchange of ideas to help stoke peoples’ imagination and potential. I’m glad I made time to attend her talk that day.

4. Michael Lee-Chin – Founder and Chairman of Portland Holdings Inc.

In October, 2009 I attended the Rotman School MBA Leadership Conference in downtown Toronto. It was a star-studded event with speakers like George Butterfield, Co-President of Butterfield & Robinson, Beth Comstock the CMO for GE, Don Morrison, COO of Research in Motion, Robert Deluce the CEO of Porter Airlines and Michael Lee-Chin, the Founder and Chairman of Portland Holdings.

Mr. Lee-Chin is one of the most engaging speakers I have had the pleasure to listen to in person. Mr. Lee-Chin spoke for about an hour on a variety of subjects including how to create wealth. He focused on a small number of blue chip businesses with long-term growth potential. But he was adamant that you know and understand where you are investing your money. One quote from Mr. Lee-Chin that sticks with me is, “If you don’t understand what you own, are you investing or speculating?” This is important advice that too many people continue to ignore this day and age.

5. Jay Hennick – Founder and CEO of FirstService

Mr. Hennick spoke to our class recently at the Rotman School. He runs FirstService, a company that provides services in commercial real estate, residential property management and property services and generates about US $2 billion in annualized revenue. Mr. Hennick told us his amazing story of how he achieved his current standing atop a multi-national company. He got his start with a company he ran as a tenth grader that brought in an income of $200,000. Yes, you read that correctly – he was in grade 10.

His key message was focused on people management; what he believed was the differentiating factor for the success of his current company. His “Partnership Philosophy” states that impact players must have more than a salary and bonus invested in the business; they must have an equity stake. His company focuses on aligning employees’ interest with shareholders in building long-term value. This was both fascinating and eye opening for most students who believe this is hard to do in a company of 18,000+. Yet FirstService continues to succeed. Listening to Mr. Hennick and his passion for success was rewarding.

As you can see, there are some overarching themes from these speakers such as focusing on people and establishing long-term strategies. But ultimately, each of these speakers is among the leaders in their field and that is why I feel fortunate to have spent the past three years at the Rotman School. The access to these great minds alone was worth the price of admission – well almost!

Enterprise Value - House Analogy with Excess Cash

Another common question that comes up is related to enterprise value, particularly as it relates to excess cash. Recall that enterprise value is the value of the entire company and should be capital structure neutral.

EV = Equity + Debt - Excess Cash
or
EV = DCF Value + Excess Cash

The initial reaction is: "Wait, how can that be?" How is it that in one formula excess cash detracts from EV whereas in the other it increases? Does that make sense? In explaining, I find that a house analogy is helpful for understanding how to calculate EV.

Scenario 1:
Imagine Steve ownes a house worth $100k. Over the years, Steve has paid down his mortgage to $50k. Therefore, Steve's house's capital structure is $50k debt and $50k equity.

Dave is interested in buying Steve's house. For simplicity, let's say the house hasn't appreciated in value and is still worth $100k. Dave doesn't care what Steve's mortgage is, how much he's paid down etc. After all, that is Steve's capital structure. Dave is a new home buyer and is starting with a $20k downpayment and $80k mortgage.

The main point is that it doesn't matter who is buying the house (over simplified assumption), the house is worth $100k. It is an attempt to understand an unbiased (unlevered) way of looking at value of the company.

Scenario 2:

Let's assume a few changes:

• The $100k price of the house includes $10k in cash which is sitting on the floor of a room
• The house is being rented out as an investment property for $4k per year forever and the appropriate discount rate is 5%

Using the following formula:

EV = Equity + Debt - Cash = $100k - $10k = $90k

Does this make sense? Dave buys the house with $80k of debt, $20k of equity for a total price of $100k. However, immediately upon buying the house, Dave takes the $10k sitting on the floor and pays down his mortgage. Effectively, Dave has only paid $90k for the house.

Using the alternate formula (using a perpetuity formula for DCF):

EV = DCF Value + Excess Cash = $4,000 / 5% + $10k = $80k + $10k = $90k

That is to say, forgetting the cash, the house is worth $80k only from the income it generates. However, because the cash sitting on the floor is not integral to operating the house, it can be taken out of the house without affecting the income stream.

While it isn't an entire conicidence that the end numbers are the same (I've deliberately selected convenient numbers), it should hopefully demonstrate how excess cash in one formula decreases EV whereas in another in increases EV.

Legacy: The Million Dollar Question

I look at my classmates, what rock stars they will be in the future and I ask them: "What do you want your legacy to be? 10 years from now, when you make heaps of money and your tax accountant suggests you need to make a million dollar contribution to a charity, where will you put your money? Would you want your name on a junior highschool? A cancer ward in a hospital? A park bench?"

I used to ask my friends at McMaster Engineering to remember McMaster in their donations (Mac Lab Endowment comes to mine) in a half joking attempt to "keep DeGroote out of McMaster" (Micheal DeGroote has been buying up parts of McMaster including the business school and life sciences department... We've been wondering when they'd rename the school DeGroote University).

Joking aside, the question is intended to provoke introspection. Most people will give to something they feel is a worthy cause or something which helped define them as a person. When presented with the prospect of where to make a significant contribution (the amount itself is trivial, whether people feel their ambition would be better accomplished with 10k or a billion dollars is not important - increasing the fictitious sum of money is an easy enough task) people think a little harder about what's important to them and you get some surprisingly personal answers. I'd also like to think that people learn a little bit more about themselves when confronted with the altruistic challenge.

Mechanics of Retirement Planning

A question I posed to some of my classmates who wanted to practice DCF or time value of money questions:

John is 20 years old and is making $100k annually. He plans on retiring at 65 and will require 70% of his current annual income every year thereafter. The general life expectancy is 'til 85. And he can earn 8% on any money he invests.

How much does John need to save per year in order to retire at 65 according to plan?

[Solution]
You would break this question into two parts.

Part I: Nest Egg - Understanding the PV of the money he needs in retirement (aka how much he needs to have saved by 65)
Using a financial calculator:
PV = ?

FV = 0 (Doesn't plan on giving any inheritance when he dies)
PMT = 70,000 (70% of 100k)
P/Y = 1 (1 period per year, NOT semi-annual)
I/Y = 8
N = 20 (Retires and lives for 20 years, 85 - 65)
PV = 687,270.32 (How much his nest egg should be at 65)

Part II: How much he needs to invest every year
PMT = ?

FV = PV @ 65 = 687,270.32 (How much his nest egg should be at 65)
P/Y = 1
I/Y = 8
N = 45 (Works for 45 years, 65 - 20)
PV = 0 (Starts with nothing)
PMT = 1,778.16

John needs to save 1,778.16 per year. Now most people will say: "That seems really low"

That's true, but look at the scenario: John is saving for 45 years and spending for 20 years. For all of those 65 years, John is earning 8% on every dollar he's invested (aka he's not using). This returns to our original point when it comes to personal finance: "You can buy stocks. You can buy bonds. You can even buy good advice. But the one thing you can't buy is time."

Using the Right Metrics: Time and Dollar Weighted Returns

When benchmarking the performance of financial consultants and portfolio managers, the realities of life such as demanding withdrawals from financial portfolios and uneven cash flows can make understanding the performance rather murky.

For instance, you may have a need for cash between years or maybe an unexpected windfall which changes how your cash flows from investing affect your current position as well as your investment portfolios overall performance. Understanding this, we should look more closely at time-weighted versus dollar weighted returns.

Time-weighted return is the easiest and is the fairest measure for understanding a portfolio manager's performance. Looking at any 3 given years, assume the following annual returns:

Year 1: 8%
Year 2: 10%
Year 3: -4%

The annual time weighted return is the cube root of the combined returns or:

(1.08 x 1.10 x 0.96)^(1/3) = 1.14^(1/3) = 1.0448 or 4.47% gain

However, if assessing performance becomes more difficult for dollar-weighted return if there is cash flows happening between years not directly related to investment gains or losses (adding or taking capital from the investment portfolio). For example, assuming the same percentage gains, assume the following cash flows:

Year 1: $10M initial investment inflow
Year 2: $3M withdrawal outflow
Year 3: $5M investment inflow
(assume cash flows happen at the beginning of the year)

What happens? What model can we use do understand the dollar-weighted gains? By using a cash flow model (which incorporates gains and losses from portfolio management) looking at what happens between each year:

1. Year 1 Starting Balance:
   $10M
2. Year 1 Ending Balance:
   ($10M x 1.08) = $10.8M
3. Year 2 Starting Balance:
   $10.8M - $3M = $7.08M
   
4. Year 2 Ending Balance:
   ($7.08 x 1.10) = $7.788M
5. Year 3 Starting Balance:
   $7.788M + $5M = $12.788M
   
6. Year 3 Ending Balance:
   ($12.788 x .96) = $12.276M
   

Now you have a more detailed description of the cash flows (including a final terminal cash flow value), you can use DCF in order to determine the dollar-weighted rate of return (IRR @ NPV = 0):

Recall that:

NPV = CF0 + [CF1 / (1 + IRR)] + [CF2 / (1 + IRR)^2] + + [CF3 / (1 + IRR)^3] + ...
0 = $10M + [-$3M / (1 + IRR)] + [$5M / (1 + IRR)^2] + [-$12.276 / (1 + IRR)^3]

Also recall that for accurate reporting, the terminal year is assume to be withdrawn in full. Using Excel or a Financial calculator to solve for IRR, the dollar weighted return. In this example, the result is calculated as 0.943%. Why is this value so low compared to a time weighted return? As it turns out, the investor in this scenario made a few unlucky mistakes:

1. Took money out after an ok year ($3M withdrawal after a year gaining 8%) and didn't capitalize on the upcoming year with 10% gains. The investor didn't gain $3M x 10%. In otherwords, they missed out on $300k in gains.
   
2. Put more money ($5M) in after a good year (10% gains) just in time for a bad year (4% loss or 96% retention). This action lost $5M x 4% or $200k.

It becomes painfully obvious that timing is everything, as someone with a small amount of bad luck recieves a disporportional cut in their investment performance as a result.

A few assumptions / extensions:

• The portfolio doesn't have to be "managed". The time-weighted returns can simply be based on market indicies such as S&P 500 or a portfolio constructed against the DJIA.
• Good timing can reward as much as bad timing punishes.
• There is a liquidty premium in the form of economic opportunity cost (in the case of the $3M being withdrawn for "investor needs", that was unavailble to participate in the 10% increase that year).
  

Financial Planning - Boomer's Delaying Retirement?

The current economic climate has made many baby boomers reconsider retirement as they reach out to financial planners to understand what benefits they are entitled to as well as what savings they have left in RRSPs. The precipitous decline of the markets has many would-be retirees holding out longer in the hopes that markets will recover and in an attempt to build up more equity.

The worse news is that many people only have a rough idea as to their retirement plan in general. This doesn't just include the money they are putting into their retirement savings, but also in terms of the consumption planning once they are in retirement.

There are a host of other financial investment opportunities available to retirees also (just because you have stopped working doesn't mean your money has to as well). There are Registered Retirement Income Funds which keep your money invested to produce moderate gains but also provide a liquidation schedule for you to access your money according to your plan.

Of course the best retirement planning (as reiterated repeatedly) is as early a possible (suggested early twenties). However, sooner is better than later as people can still make changes and plan for retirement as late as in their 50's. The suggested course of action is to see a financial planner to run through different scenarios to determine your financial flexibility and freedom.

No Money? Poor? Doesn't matter: Open a TFSA

Why? What's the difference between a RRSP and a TFSA?

• An RRSP contribution is taken from *pre-tax* earnings. Withdrawals (before retirement or outside of special programs such as the Home Buyers Plan) are taxed as income with a penalty.
• TFSA contributions are after-tax income, but all interest earned does not need to be reported up to a $5000 limit per annum (accumulated over the life of the account). <-- This is the key part

Even if you don't have money (like me now), it's a good idea for you to open this account *ASAP*. Why? Because even if you can't make the $5000 contributions, you can accumulate the limit you are permitted to contribute for the day when you can make contributions (or if you get an unexpected windfall). At some banks, the minimum required to open an account is $25.

In the meantime, you can accumulate your contribution limits year-over-year in order to contribute in greener times. If you are making money now, it's a good tax-free savings vehicle which you can withdraw from today (unlike your RRSP) without penalty.

The suggested investment strategy is to use the TFSA to hold GICs which are traditionally taxed at high rates (making them generally unattractive). However, since this account shields you from taxes, the equivalent "before-tax" calculation translates into a much higher yield (and a better Sharpe ratio - same risk, more reward).

For full details, check out the Canadian Government TFSA website and speak to your financial advisor.

First Time Home Buyers

Based on this Sunday's Reflection post Steve asked:

"If I have a very short term investment horizon (1-2 years before buying a house) do you think I would benefit from meeting with a financial adviser?

Or does it make sense for me to just hang onto cash until I'm ready to take on home ownership?"

What a fantastic question. I was writing the answer when I realized that so many of us are in this exact position and there were so many dimensions to his question that I thought it warranted its own post. (Also note: The older you are, the more relevant this becomes).

The short answer is a resounding "Yes!", and here's the process and reasoning as to why (and what you should look for from the adviser):

Step 1 - You want to buy a house
Buying a house is the single largest purchase you will ever make. A mortgage will be the largest expense from your pay cheque and will longest lasting recurring payment.

Whether you're married, engaged, dating or single, you've probably done your homework with regards to what you want, need and can compromise on with regards to your houses location / size / features to come up with a price range.

This price range determines what deposit you need, your monthly mortgage payments and pay back period. Ok. So far pretty basic stuff.

Step 2 - Making your money work harder for you
Steve makes a good observation that he has a short investing horizon which implies high liquidity needs. He expects to be buying his house within a year or two (not sure if that means he is A. passively looking for a house while building his deposit B. waiting for the market to cool a bit more to get a better price or C. Has everything in place and is actively looking for his dream house).

Either way, this is a *textbook* example of what the Home Buyers' Plan (HBP) was designed for. It allows you to take up to $20k from your RRSP to buy a house for the first time. Also remember that RRSPs are funded with your *PRE*-tax income, giving you another reason to consider using this savings vehicle (As is a Tax Free Savings Account - TFSA, another new pre-tax savings vehicle started in 2008). Those of you with company sponsored RRSPs have another dimension of financing to consider (but check your vesting period). With a short time horizon, his adviser could help him use an RRSP that has conservative growth and low risk as part of his saving strategy for home financing (RRSP's don't have to be made up of aggressive growth stocks. Some RRSP qualified mutual funds are made up of less risky instruments like bonds or GICs and can be liquidated with relative ease - although you need to be aware of all performance, front or rear loaded management fees). These are just some of the solution strategies that a good financial adviser should be able to provide you with.

Aside: At most major banks or funds, if you have *any* type of investment: RRSP, RESP, RSP, discount brokerage etc you probably already have an adviser assigned to you. You should go meet them.

This also brings up another important and relevant topic... RRSPs in and of themselves and how they are affected by house purchases.

Step 3 - Retirement.
It may *seem* far away, but you have to think about it now. Ask your parents. One of their biggest regrets (unless they were born incredibly wealthy) is that they felt like they should have started thinking about their retirement sooner. Needless to say, the impact of buying a house has a *huge* effect on your retirement planning. On top of your mortgage, you have to pay for maintenance (you're the owner now), property tax and a host of other expenses.

Do you remember those adverts which compare a 22 year old person straight out of university who starts saving money versus a 30 year old saving money for retirement? The point they were trying to make is this:

For all the good investment advice in the world, the one thing in life you can't buy is time.

Therefore, for that reason alone, I think it's good to see a planner sooner rather than later. Even if you feel like you don't have a lot of money right now, that's all the more reason to start addressing that issue to plan for your future. Make them earn your business and trust while you build your nest egg and plan for your goals.

Another consideration: If you are married, you have a whole host of options available to you regarding income distribution for taxation and retirement saving which can save you a lot of money especially if one spouse is making more than another and is in a different tax bracket.

There is also a crucial point which is highlighted: the need to revisit financial plans. Your outlook as a young person buying a house will change in the next two years. Envision when you have a house (and a mortgage) and how that changes your cash flow. How will this affect how you save and plan for the future? What we're really saying here is that you have TWO obvious time horizons - 1. Saving for your deposit in two years time 2. Saving for your retirement (please never lose sight of this goal). Don't forget to make sure you also have enough cash on hand to enjoy life now.

Steve, I hope this answers your question, but I would love to follow up or address anything else I may have missed.

Sunday Reflection: Financial Planning 101

In an environment where investing isn't as simple as dumping some money into a tech stock and watching it soar, it becomes even more important to find the right adviser and put together a financial plan to match your goals. Many naive investors will "chase stocks up", buy distressed companies because "they're cheap", or perform some other form of investment hara kiri.

Although the focus of this blog is to understand the mechanics of the market and occasionally look at potentially interesting stocks, picking equities to invest in is the last step of an investment plan not the first.

You should begin by meeting with a financial adviser. The first sign that they have your best interests at heart is if they get to know your current income and goals. Other important topics which should be covered before you even consider buying anything are:

• Do they know your current financial position? Income? Expenditures? Savings?
  
• Do they understand your risk tolerance?
• Do they know your time horizons?
• Are they aware of your goals for home ownership, further education, raising children?
• Are they aware of your retirement time line and income expectations?

Based on this, your adivsor will start to lay out a plan for you including:

1. Liquidity needs
   
2. Risk tolerance
3. Expected growth plans
4. Asset allocation
5. Suitability - Will you be able to sleep at night?
   

You also have to understand that these advisers are usually in it to sell their own products. Unfortunately, many of them are sales staff first and investment planning professionals second (and you want it the other way around). You also have to be careful of conflicts of interest which they may not disclose openly (although they are supposed to). For instance, if they recommend a stock, how is their commission structured? Identifying how they are paid will make it clear how you can best use their advice. After all, they have to be paid something to compensate them for their assistance.

If you ask the right questions, you will feel more confident about the advice you receive and if you pick the right advisor they won't mind a collaberative approach to the mutual success your partnership will create.

Sunday Reflection: Real Estate as an Alternative Investment

I've often heard the argument from naive investors (usually ones who have been burned by the market) that purchasing stocks is inherently risky because you are only buying a "piece of paper" (or now adays, even less with electronic brokerages). The argument is that if you buy real estate, you can collect rent to pay against the mortgage and build equity. From a "solutions" perspective, you are essentially providing financing and profiting from your renter. There is also the argument that it will always be worth "something", even if the building burns to the ground you'll still have the land.

Generally speaking, anyone who invests according to cliches had better be prepared for a rough ride. Just like anything which can be bought and sold there is always a timing risk when it comes to investing. A prime example is what is happening in the Calgary housing market (as a result of falling oil prices and companies pulling investment from the area).

I always like returning to numbers to prove a point. Assume you buy a cheap investment property for $150k. Some of the obvious inherent risks are 1. You can't find a renter. 2. The principle value of the property drops below what you payed for it (capital loss). But assume that these aren't the case here. Assume you can rent out the house for $1k a month or $12k a year (net, excluding maintenance, taxes etc). That's an 8% annual return, which seems decent. However, consider too, the following: As an investment vehicle, you have little liquidity (if you sell the house with an agent your fees are approximately 6.5% of the value of the house) and you can't sell "portions" or units of your $150 investment to liquidate portions of equity (without complicated financing agreements which have fairly high price tags).

In this case, what is the difference between buying a house with the intent to rent versus buying $150k worth of preferred shares with a high annual yield?

I have always believed that (as it is with any sales transaction) the buying side is easier to execute than the selling (ceteris paribus regarding market conditions). If you have the financing in place, you can pull the trigger and decide to buy, but you can't pull the trigger to get people to buy from you.

Not that real estate is a bad investment. Suitability is an important factor when choosing investment vehicles. Perhaps buying something you can see and feel makes helps you sleep at night. Or you have long term goals for the property and can weather housing market volatility.

As with any investment, the biggest risk is not throughly understanding what you are buying.

Ethics and Due Diligence

I'm shocked by the number of investors I talk to who don't do due diligence or don't investigate further. What is also disheartening (but maybe not as shocking) is that people put complete faith in their financial advisers. You have to understand the quality of the advice you are given. If you aren't very knowledgeable about the market, here is some advice for choosing a good financial adviser:

1. Know what their position is in the stocks they are recommending. Generally, I won't buy anything that my adviser doesn't already own (at a price similar to what I'm buying at).
   
2. Ask what price they will sell at. If you buy, have a sell price ready. Don't become emotionally greedy. You can re-evaluate your positions, but understand what you're getting into. Also, this is a great lead in to the next question:
   
3. Be aware of conflicts. Some advisers are market makers, part of an underwriting team or make commission based on trading volume or sales. This means that they don't really care if you make money or not (in fact they may never really want you to sell... At least until they've liquidated a signification position). Technically, according to CFA and CSC standards of ethics, advisers are supposed to disclose any conflicts, but often they don't. You aren't supposed to have to ask, but if you care about your money, you will.
   
4. Track the performance of your adviser against relevant indicies or benchmarks. Just because the economy is down 30% doesn't mean that your portfolio should be too. Understand beta, correlation and market risk. Or if you don't, make sure your adviser does.
5. Asset allocation. This is the boring part of investing as people tend to just gamble and shoot the moon when it comes to equities. But understand your financial goals and targets puts things into perspective. A smart CFP will usually sit you down and discuss your life style and retirement goals before even discussing equities. That's actually the *last* piece. The idea is to find investments suitable to your risk tolerance and time horizons. You may not think of this now, but you definitely will when you start to lose money in the short term (which is too late).
   

Advisers must be complete the Canadian Securities Course (CSC) or Series 7 in the US before they can sell securities products. Also, most firms require their advisers to become Certified Financial Planners (CFPs). Check out this great article on selecting a CFP and financial adviser.