Up-and-Comer Profile: David Gemmer

Discretionary assets under management: $506 million

Year firm was founded: 1991

Investment philosophy: Early on, I gravitated toward becoming an investment manager, so I concentrated on servicing other financial planners and wealth managers, working on their investment solutions. My partners work with the clients and have the relationships. We base our strategy on modern portfolio theory. Early on, we used actively managed mutual funds, and we use ETFs. We also oversee a tactical component for 30% of the portfolio.

Biggest obstacles to future growth: Since we’re local and don’t plan to go out of the Bay Area, we’re not a name brand. We’re not an AssetMark [Investment Services of Pleasant Hill, Calif.] or an SEI Investments [Co. of Oaks, Pa.]. Also, going forward, getting people comfortable with the stock market will be a big problem. People have to get over this and be reconvinced that asset allocation is the proper way to invest.
Toughest part about getting to where you are today: The biggest obstacle we had to overcome is that we had made the decision to just stay local. It was that lack of name recognition, and it takes you a while to get traction as a boutique firm. People don’t want to be early adopters or move to you unless you have a track record. But we’ve been in business since 1991. Now people see that you’ve been around, and they think you’ll stay in business.

Advice to young advisers: Stay focused and do what you do best. Don’t try to be all things to all people. I realize that this is tough to do if you’re just starting out, but it pays huge dividends if you can stay with your strong suit. Another bit of advice would be to define your market and develop a service model around its needs. A third would be to hire quality people and don’t try to do things all by yourself. You have to let it go to grow.

Best decision: We had two major decisions. We made the decision back in the early 1990s to be an investment manager, and not a wealth manager. It allowed us to concentrate on what we do best and service our advisers. In 2000, we also needed to hire key people and make them owners/partners. It’s amazing how their focus is motivated if they’re owners/partners — that was the best thing we could do. Over five years, they became investment owners, and it’s really been a big help to our success. The firm has eight people. You can’t get to the growth level we have without having strong, motivated people, and that was probably a key decision for our success.

Biggest mistake: Our worst decision would be every time we decided to pursue other opportunities and tried to grow the business through other markets. We once went down the path of 401(k)s and developed a product model to service them, because that’s where the money was accumulated. It was a huge mistake; those participants had different needs from our family clients. Another was offering too many strategies. We played around with developing a mutual fund and a hedge-fund-of-funds strategy. At the end of the day, you need to be focused.

Advice to clients: The first key is sitting down with a client and identifying how much risk they are comfortable handling. We always stress that one of the most important decisions is to have a client in the right risk profile so they can handle the down markets. None of us expected this down market. It’s important that the client have enough money set aside so they don’t have to be in serious liquidation mode.

Advice to advisers for navigating the financial crisis: Each adviser needs to sit down and have that heart-to-heart talk with their clients. Sitting where we are today, the biggest service you can give the clients is making sure they understand it’s a bumpy ride from here. But if you need a growth rate of 5% or 6%, you’re not going to be able to do that in just bonds — you need exposure to some equities. You need to counsel them to not abandon the equities if they need some growth.

Typical client: Our typical end client, which the adviser serves, has about $1 million with us. Half of that is in an IRA rollover, and the rest is a family trust. The typical client is about to retire or already has. Our adviser clients are local, in Northern California or the Bay Area, and have maybe $30 million to $50 million under management.

Client concerns: The end client needs to know that someone is there to understand their plight. We communicate that in our five special updates directly to our adviser clients, telling them what’s going on and where we think the market is. Clearly, a concern is not having enough to retire. If you move out of the market now, you may not recover. We always close each of our updates with: “Give us a call if you’re concerned, and we can talk about reducing your risk.”

Last book read: “The Age of Turbulence” by Alan Greenspan (The Penguin Press, 2007)