This article originally ran in the North Bay Biz Magazine, April 2013.
By Nancy Sands Johnson
North Bay residents have embraced the concept of “going local” by purchasing goods and procuring services from locally owned, independently operated businesses. What they may not realize is that they can also apply that “local” mindset to the way they make investment and financial planning decisions.
“Investing money in sectors close to home has been an important wealth-building strategy since the early days,” says Suzanne Killea, a Merrill Lynch wealth adviser who counts North Bay residents among her roster of clients. “There’s an advantage to being informed in your investment decisions, and it’s easier to achieve that when your investments are in your own backyard.”
The North Bay offers a plethora of choices for local investment, from buying stock in publicly traded companies or funding private business ventures to banking at a community-based financial institution or making a donation to a local charity. But most experts agree that putting all your eggs in one basket—even if it’s one as prosperous as the North Bay—is neither realistic nor financially sound.
So, just as advocates of eating local foods might purchase pineapples grown in Asia from a grocery chain as well as apples grown in Sebastopol from the neighborhood farmers market, savvy investors will likely choose a mix of hometown, national and global investments as part of their diversified financial plan.
“You might consider a municipal bond portfolio that tilts toward local municipalities or buy stocks in biotech or global distribution companies because you see drug breakthroughs or distribution trends in the North Bay,” says Killea. “There are always a number of ways to achieve a goal.”
Local investment starts with self-awareness
During his 25 years as a financial adviser in Mill Valley, Roger Gainer, president of Gainer Financial and Insurance Services, Inc., has seen more than a few marketing trends sweep the investment community. So when asked about local investing, Gainer responds cautiously.
“On one hand, you risk imbalance any time you dramatically limit your investment alternatives,” he says. “On the other, it makes sense to take advantage of opportunities around you.”
In addition to serving his clients, Gainer offers free workshops to the public and writes a blog on financial issues. He also volunteers at Renaissance Marin, a nonprofit business incubator that opened in 2012 with funding from the Marin Community Foundation.
In these various settings, he advises people not to chase current trends, but rather to invest in what they understand and are comfortable with. He cites local real estate investments as an example of his philosophy in action. “A lot of people get into trouble with rental properties, because they have no idea what they’re getting into,” says Gainer. “They imagine money flowing into their pockets from rents and tax benefits, but they don’t factor in maintenance costs or bad tenants.”
Yet many of Gainer’s clients have built tremendous wealth in local real estate. The difference? They visit their properties on a regular basis, know how to properly vet renters and can tap other investments during periods of vacancy.
Others have found entrepreneurship financially and emotionally rewarding. But whether they run their own local business or simply provide startup capital for someone else’s venture, these individuals must be hands-on in their analysis of the opportunity and financially able to wait for a return on an investment (ROI).
“If I put my money into a local startup, I can look management in the eye and talk to them about their business plan,” says Gainer. “But I have to be capable of doing that analysis and, if I’m not, I don’t belong in that investment. Similarly, if I lend money to somebody to start a new venture, I can’t expect to be paid back right away, because the money will be needed to make the business successful.”
Finally, Gainer emphasizes that every investment, whether it be on Main Street or Wall Street, needs to be evaluated regularly. That stock you bought 15 years ago because your neighbor worked at the company? Maybe it’s time to dump it—or buy more. The cherished business you built from the ground up? Maybe it’s time for you to let the kids to take over—or to sell it and let them pursue their own dreams.
In that respect, Gainer suggests the most important local investment people can make is in understanding themselves and their own relationship with money.
“Investments by themselves don’t make you rich or financially secure,” says Gainer. “Managing expenses, reducing taxes and avoiding losses are, for most people, a greater determinant of being financially successful than hitting an investment home run.”
Soaring with the North Bay Angels
North Bay Angels is the oldest and largest angel investment group north of the Golden Gate. Active since 1998, the group brings together local accredited investors—defined by the SEC as investors with more than $1 million in assets, not including their home—who are interested in making money while helping entrepreneurs start and grow businesses.
“We invest primarily in early stage and current return deals where our participation will have a significant impact on the success of a company,” says Che Voigt, a longtime Sonoma County resident and chairman of North Bay Angels. “We seek out opportunities where we can deploy our expertise as well as our financial capital.”
North Bay Angels doesn’t require members to make a certain level or number of investments. More important, it doesn’t make investment decisions for its members: Investment opportunities are identified and screened by a committee and then presented to members, who individually decide whether or not to invest. Those interested in a particular investment organize into a smaller group and delegate among themselves all responsibilities related to the deal.
The group charges a $500 annual membership fee and draws members exclusively from Marin, Sonoma and Napa counties. A desire to support North Bay companies pervades the group.
“Although we also look for opportunities outside the North Bay, we find the homegrown deals get the best traction,” says Voigt.
North Bay Angels’ Flex-Mezz program, launched in 2012, exemplifies the group’s commitment to local businesses. North Bay Angels member Michael Adler recognized that many good companies couldn’t get banks to lend them money to grow. Although these companies weren’t candidates for traditional angel investment, Adler and other North Bay Angels wanted to find a way to help them.
“Flex-Mezz enables solid companies to borrow the money they need at a reasonable interest rate and participating North Bay Angels to make a return on their capital above what they would earn at the bank. It’s good for the investor and good for the local economy.”
Angel investing requires plenty of capital—and patience. “You’re 100 percent non-liquid and you will, no doubt, lose money on some of these deals,” he says. “There definitely are easier ways to make money.”
Despite the risks, North Bay Angels continues to thrive. In 2012, members invested more than $7.8 million total in a wide range of angel-related ventures and added five new companies to its portfolio. But the promise of a financial return is only one reason Voigt and others continue to participate in these deals.
“North Bay Angels keeps me involved in starting and growing businesses, which I love to do,” says Voigt. “I can help local business owners think about how to get their message across or connect them with other resources they might need to grow.”
Local success you can bank on
Thomas Duryea, president and CEO of Summit State Bank in Santa Rosa, exudes job satisfaction. And from a purely financial point of view, it’s easy to understand why. The publicly traded bank [Nasdaq: SSBI] reported a 55 percent increase in net income from 2011 to 2012 and has paid a dividend for the past 12 years.
But Duryea loves his job for reasons that go beyond numbers on a ledger. “I wake up in the morning and I want to help my local banking customers,” he explains. “Why? Because their success adds to the success of our entire community.”
Opening an account at a community bank like Summit State Bank is a direct way to support local economic growth. Deposits are invested into the community in the form of loans, which help small businesses expand and create jobs, as well as donations to local nonprofits.
At Summit State Bank, 100 percent of all local deposits have been invested back into the Sonoma County community through loans. Buying shares in the bank takes that investment in community a step further, particularly if you spend your dividend money in Sonoma County or donate it, as some shareholders do, to a Sonoma County nonprofit.
“Investing in Summit State Bank through a stock purchase and opening a deposit account supports the economic foundation of Sonoma County,” says Duryea. “Local investors can influence the bank’s development and its impact on the community by voting with their shares. They can find out what we’re up to by walking into one of our branches or calling me directly. As Warren Buffet says, ‘Invest in what you know.’”
The bank’s financial results and direct access to leadership appeal to investors and banking customers alike. Among the latter: well-regarded businesses like Oliver’s Markets, Hotel Healdsburg and more than 100 nonprofits, including Valley of the Moon Children’s Foundation. Summit State Bank promotes its many customers in print ads, billboard ads, branch displays and statement stuffers. “The quality of our clients helps define our brand,” says Duryea. “We want to be their ambassadors as much as they are ours.”
Because they attract primarily local customers, community banks like Summit State Bank serve as good barometers of the local economy. Duryea is pleased to see many customers’ deposit balances trending higher, an indication business is picking up in the local economy. Every piece of good news about Sonoma County—from tourism awards to job growth—holds the promise of more deposits, more stock sales and more community investment.
“Community banks support business growth, job growth and financial growth,” says Duryea. “We’re not about winning at the expense of our clients, we’re about taking care of our customers and our community. If we’re successful in doing that, then and only then will we be properly compensated. We’re chartered to do for the greater good of the community, and that’s where it starts and ends.”
Investment through philanthropy
Seeing your investments through the local lens requires attention not just on how you’re accumulating wealth through local sources, but also on how you’re distributing it within your community.
Community foundations help people take a strategic, localized approach to their philanthropic investments. Part financial planner, part grant-maker, a community foundation creates individual charitable funds from assets donated by individuals, families, businesses and nonprofits. The funds are pooled, invested and then distributed according to each fund’s goals as well as the foundation’s broadly defined mission.
According to J Mullineaux, vice president for philanthropic planning at Community Foundation Sonoma County, philanthropy is too often impulse-driven. Community Foundations work with clients to flesh out their values and their interests, and then create a plan focused on mission-driven giving.
“Our clients tend to be highly motivated to make wise decisions in other areas of financial planning,” says Mullineaux. “Bringing that sense of focus to the philanthropic arena contributes to their personal fulfillment and overall happiness.”
Community Foundation Sonoma County works with donors with a range of financial resources, from people with sizeable estates to those who want to endow a $10,000 scholarship fund. Often, a life event such as a milestone birthday, a financial windfall or a move to Sonoma County triggers a phone call to Mullineaux and his team, who customize a philanthropic solution for each client.
“We’re trying to build a more engaged base of donors who want to learn more about our community and work together to make Sonoma County a better place,” says Mullineaux. “But if a donor just wants us to manage a donor-advised fund, we can do that, too.”
Community Foundation Sonoma County is a philanthropic hub that connects wealth holders and their estate planning teams—including estate attorneys, CPAs and financial planners—with local nonprofits. To strengthen these relationships, the organization recently stepped up its outreach to investment managers and is creating more flexible policies that will let financial advisers manage their clients’ philanthropic funds.
“Today’s donors want to know how their grant-making is creating results,” he says. “They expect nonprofits to be able to clearly articulate their goals and demonstrate their community impact.”
Community Foundation Sonoma County will mark its 30th anniversary beginning September 2013, and with $146 million in assets to support programs in Sonoma County, it has much to celebrate.
“We not only bring in money, we grow it,” says Mullineaux. “Of what we give away, 80 percent comes directly from our donor advisers and 88 percent stays in Sonoma County.”
Now that’s a wise local investment.
Wall Street smarts, Main Street values
When it comes to managing more than $3 billion in assets across its 16 mutual funds, Novato-based equity management firm Hennessy Funds sticks to both quantitative formulas and actively managed portfolios, not matters of geography. The company’s disciplined approach has earned consistent results for shareholders and garnered accolades and attention from major media outlets like CNBC, the Wall Street Journal and the New York Times.
Yet even as it operates on the global financial stage, Hennessy Funds remains devoted to local philanthropic and economic interests. Neil Hennessy, founder and CEO, encourages employees to volunteer and, as a result, each one of them contributes time to local organizations. The company also provides financial support to more than 122 organizations, many of which are located within a 30-mile radius of Novato. Its largest charitable effort is focused on the Okizu Foundation, a North Bay nonprofit dedicated to easing the burden of childhood cancer.
The fact that Hennessy Funds’ headquarters is in Novato is intentional, according to Terry Nilsen, company CFO and COO.
“Neil Hennessy likes to say we have Wall Street smarts with Main Street values,” she explains. “Being headquartered here in Novato lets us run our business and provide exceptional service to our shareholders without the distractions of a Wall Street locale. We feel lucky to be able to produce great results for shareholders of both the Hennessy Funds and Hennessy Advisors, Inc., while supporting the North Bay economy and employing North Bay residents.”
Angel investor Voigt echoes that philosophy. “The North Bay offers a fantastic balance of world-class lifestyle and a cost of doing business that’s generally lower than the rest of the Bay Area, plus access to an excellent workforce,” he says. “I hope entrepreneurs and engineers recognize that, if they want to start a business, they don’t have to do it in Silicon Valley; they can do it here.”
Often, it takes collaboration across government, business and nonprofit sectors to show entrepreneurs, here and elsewhere, the advantages of running a business in the North Bay.
“We know people are going to make business investments,” explains Robert Eyler, CEO of Marin Economic Forum and professor and Frank Howard Allen Research Scholar of Economics at Sonoma State University. “The question is, what will motivate them to choose the local option? Once we know the answer, we often can offer an incentive to boost their rate of return and reward them for investing here.”
Merrill Lynch’s Killea, a former architect, relishes the chance to help individuals and businesses reap the financial and emotional rewards of investing in themselves and in their communities. As her clients’ goals evolve, it’s her challenge—and joy, she says—to help them reevaluate their needs and react to change. Frequently, these conversations include discussions of local philanthropic efforts and local business endeavors.
“We operate in a truly global economy, and our investment strategies should reflect that reality,” says Killea. “Yet we should also recognize local strengths and look for ways to weave them into a diversified portfolio. It’s a matter of leveraging local products and expertise and applying them in a global context.”
Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance and a Certified Paralegal for Estate Planning.
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