The Wall Street Transcript with Deep Creek Times advertiser and contributor Quantum Financial Advisors

Jul 9, 2020

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This interview transcript was sent to us by friend and advertiser Joseph Rinaldi, President and CIO of Quantum Financial Advisors, Inc.  We share it here as a service to our readers.

Dynamically Managing the Risk Profiles of Client Accounts
JOSEPH RINALDI is President and Chief Investment Officer at Quantum Financial Advisors,
Inc. Mr. Rinaldi worked in capital markets for nearly three decades for companies such as
Dimes Savings Bank, Morgan Stanley, Maryland National Bank — now Bank of America —
and The Resolution Trust Corporation. His career has encompassed asset securitization, risk
management and trading. During the S&L debacle, he traded over $40 billion worth of assets
from banks he took over for the government. Afterward, he started his own SEC investment
advisory firm that has a successful 20-plus-year track record. In addition, he teaches “Futures,
Options, and Derivatives” class at the Robert H. Smith School of Business at the University
of Maryland, the Carey School of Business at Johns Hopkins and the Stern School of Business
at New York University to both graduate and undergraduate students. He also co-authored A
Beginning Guide to Alternative Assets with Dr. Howard Lodge. Mr. Rinaldi graduated from
Hofstra University with a BBA and received an MBA from Pace University.

ANDRE WEISBROD is Director of Wealth Management at Quantum Financial Advisors, Inc.
Mr. Weisbrod has been in the financial services business since 1981 and loves to help
individuals, families, businesses and organizations create, manage and utilize wealth. He
joined Quantum in 2018 after the merger of his company, STAAR Financial Advisors, with
Quantum. He is an award-winning author, speaker, financial planner, as well as founder of a
private equity fund. He was also a mutual fund manager for over two decades. He has had
articles published in a variety of newspapers, magazines and newsletters; has been
interviewed by publications such as The Wall Street Journal, Investor’s Business Daily,
Mutual Funds Magazine and Seeking Alpha; quoted by commentators such as Paul Harvey;
and has appeared on numerous radio and TV shows, including on KDKA,,
Reuters TV and Business News Network.

TWST: Would you like to give some history about the
company and your priorities?
Mr. Rinaldi: Quantum Financial Advisors began in 1996. So
we have over a 20-year track record. The partners and senior advisers
with the firm are from Wall Street firms, banks and asset management
firms. Two of the four have Ph.D.s. We all teach at undergraduate and
graduate-level programs at some of the top business schools here in the
U.S. and in China. Mr. Weisbrod has almost 40 years’ experience in
financial services and investment management, including managing 1940
Act mutual funds.
Our focus is handling high net worth individuals. Our
competitive advantage is we focus on asset allocation, sector rotation, and
we overlay everything with risk management, generating extra revenue,
and smoothing out the peaks and valleys of the market cycle. We have
approximately $100 million-plus assets under management.
TWST: And could you explain why your priorities at the
firm make you different from other firms out there?
Mr. Rinaldi: We definitely put the needs of the clients ahead of
the employees and the firm. We promote financial literacy. We spend the
first three months onboarding them and educating them on why we are
doing certain transactions for them. Even though we have discretionary
trading authority, we educate them. It’s like taking a beginning guide to
investment class on investments: why we’re buying, why we’re selling
and why we are buying insurance or selling long positions. It’s an active
way to educate and manage clients’ expectations.
TWST: And do you want to explain the approach to
Mr. Rinaldi: Every client completes an investment onboarding
questionnaire. We take that information, put it into a black box, and we
propose an asset allocation to a client subject to their appetite or lack of
appetite for risk. What makes us different? Every client will complete a
discretionary trading authorization form as well as an option agreement.
That allows us to dynamically manage the risk profile of every client
account, which is what many firms don’t do. We compete well against
larger firms, say, Goldman Sachs Asset
Management, where you need about $20
million of assets just to be a client.
TWST: And you mentioned
risk. Right now, it’s a concern on the
part of a lot of investors. Do you want
to discuss that?
Mr. Rinaldi: I’ll start with
some of the themes at the beginning of
the year, which I think lends itself to why
we manage money dynamically. In the
beginning of every year, we put together
a hypothetical “what if.” It is what we
believe is going to happen in the world
politically, economically, interest rate
risk, etc. We call it the Nostradamus
Corner, where we make some predictions.
We adjust and modify our asset allocation,
risk, non-risks, stocks, bonds, etc., in the
beginning of the year.
And this year, in January,
February and maybe the beginning of
March, we actually lightened up on
stocks. We reduced exposure to stocks
because of the political uncertainty that
was evolving in a presidential election
year. We also bought portfolio insurance out to November because we
had to address the potential for, say, a left-wing liberal presidential
candidate who would not be friendly to the market — and we would
potentially lose 20% in market value. We had to be sensitive to that and
partially manage that risk.
The coronavirus pandemic threw us a curveball. I don’t think
anybody expected it, but because we reduced equities vis-a-vis the
beginning of the year, took steps to generate extra income and bought
portfolio insurance out to November to protect downside, we fared very
well versus the generic indices like the S&P, the Dow, International, etc.
Mr. Weisbrod: And one of the things that I can add goes back
to approaching clients. I look at each client’s situation: who they are,
where they are in life. Where do they want to be? And everything that I
do in terms of their planning or their investment portfolios, I try to put
myself in their shoes and not do anything that I wouldn’t do for myself.
And I know Joe has the same type of attitude there.
Also, chances are, wherever a client has their money, we’re
going to participate; we’re going to have our money in the same place.
And one of the things our clients know is this: not only do we own a lot
of what they own, but our fees are also based on the size of their
portfolios. So if nothing else, they know that we’re 100% on their side.
TWST: Has it been a challenge at times to keep people
focused on their long-term goals, especially given the recent news on
the market?
Mr. Weisbrod: A lot of people have asked me if clients have
been calling in a panic. I didn’t receive a single phone call. I spent the
better part of a week and a half ago calling every client just to make sure
that they were OK.
A lot of them have been with me a long time, and I believe, as
Joe does, in education, and they’ve also been through this before. We got
them through. I’ve been at this a long
time. I’ve been through the crash of
1987, the 2000 to 2003 bear market, the
early 1990s and 2008. The causes may be
different, but the dynamics sometimes
are similar.
Mr. Rinaldi: As we were just
speaking, I just got an email from one of
my clients. The timing speaks for itself.
It is just a “quick thank you for the
diligent extra effort all of you folks have
been doing recently. My family and
myself have carefully watched the
markets every day and are increasingly
appreciative that we have you, and
you’ve saved the principal of our hardearned dollars. You are the true experts.
Thank you very much.”
Mr. Weisbrod: That’s great. I
told people last year I got probably the best
compliment I could have ever gotten for a
career. One of my clients that had been a
client for over 30 years called me up. He
was dying of cancer, and I asked him,
“What can I do for you?” He said, “I’m not
calling for you to do anything for me;
you’ve already done it.” He said, “I’m calling to thank you because you
saved my ass in 2008. I know my wife and my family will be OK.”
TWST: What specifically about your approach put them in
this position?
Mr. Rinaldi: We always make an educated hypothesis every
year because you need a strategy, a plan for the year, to manage money.
What does your GPS say? Where are you going? More risk, less risk,
generically speaking, number one. Number two, we’ve overlaid all
derivatives and options across all our clients’ accounts, and that has
mitigated the volatility in client accounts.
For example, at the bottom of the market, I believe the Dow was
approximately 18,500, down approximately 40% or so from the highs.
Most of our clients were down about 10% — depending on individual
client risk tolerance. So you could see the delta of the decline with our
clients being much slower than the regular S&P due to asset allocation,
some market positioning at the beginning of the year and a huge, huge,
huge value-added utilizing derivatives to protect client assets.
TWST: And when you look at what investments you’re
going to put clients into, do you keep it very much on the micro level,
or are you trying to look at broader trends within the economy or
society that might lead you to favor certain sectors?
Joseph Rinaldi and Andre Weisbrod discuss
Quantum Financial Advisors, which focuses on
high net worth individuals. Mr. Rinaldi and Mr.
Weisbrod use asset allocation and sector rotation.
They also overlay everything with risk
management. Mr. Rinaldi and Mr. Weisbrod
explain that the needs of their clients are very
important, and they promote financial literacy
through their onboarding and education process.
According to a client’s onboarding questionnaire,
Mr. Rinaldi and Mr. Weisbrod are able to
dynamically manage the risk profile of the
account. Since the crisis, they have been buyers
of things people need to spend money on, such as
health care, utilities, online retail and cybersecurity.
Companies discussed: McDonald’s Corp.
Mr. Rinaldi: That’s an interesting question, and we talked
about this yesterday with a client. We always start with a clients’ initial
asset allocation. Then, we also are sensitive to certain sectors that we
think will outperform, and that’s a great segue into what we think has
outperformed coming into this crisis.
At the middle of the crisis, when the stock market was
declining precipitously every day to reach that low, we were buyers, but
we were buyers of things that people need to spend money on to survive
— for instance, utility stocks and health care stocks. We either went long
or bought the individual stocks themselves or the ETF — exchangetraded fund. For example, we have used IBB for biotech.
This is really neat, something that separates us from a lot of
other firms and where we could be considered almost competition to
hedge funds. We actually sold puts, on utility stocks, and generated a lot
of extra income for the month of March. So not only did we take a
position in these stocks, but we were getting paid to do so.
Mr. Weisbrod: And I would add that I call some of these
things the got-to-have portfolio. And one of the ones that we owned
some significant positions in, in terms of the sector, is online retail,
which of course held up beautifully during this period of time. We also
liked internet cybersecurity. And that has held up very well. And of
course, it’s something that, no matter what’s happening, these are the
kinds of things that, as Joe said, people are going to have to spend money
on. They’ve got to have them. And then, because it’s almost outlandishly
cheap right now, we have been doing some buying in the energy sector.
Mr. Rinaldi: One thing we are avoiding are the mid- to higherend restaurants in the area and nationally. We think that five out of 10, or
50%, could declare bankruptcy in the next month or so, and the reason is
empty seats. You can get that PPP loan program, but that’s only going to
keep you afloat for a month or two. Getting people back into your seats
at restaurants for a higher-ticket item, midticket to high ticket, is going
to be extremely difficult for the next three months.
Mr. Weisbrod: And there is only so much they can pass out
through the door.
TWST: And do you get the feeling that the public that
normally goes to those kinds of upscale places have to be convinced
before they’re going to go out there again and spend a reasonable
amount for dinner on a Friday or Saturday night? They have to be
convinced it is safe and the quality is going to be the same and all
those kinds of things.
Mr. Rinaldi: Yes, yes and yes. It’s almost like the airlines. I
want proper spacing. If you’re going to put somebody sitting next to me
in every row, I have no interest in flying on a plane again. If you’re going
to tell me there’s going to be an empty seat between each of us and
maybe a row, where you only have 50% capacity filled on the plane, I
may be more inclined to fly your airline.
TWST: And I would think these restaurants include places
like the fancier steakhouses.
Mr. Rinaldi: I would put them in that category. I would leave
the McDonald’s (NYSE:MCD) out of it, the Chick-fil-A, the CAVAs,
those out of it. I think those will continue to do fairly OK. The lower end
will survive, but the upper end will have difficulty making it.
Mr. Weisbrod: Fast foods — they are set up for the drive-thru.
When I’ve had go get the mail or go to the store for something, I’ve
watched all the fast foods, and they’ve got a line of cars going through.
I think Joe is right; you’re probably going to see survival there. You’re
going to see some of the creative individual mom-and-pop restaurants
and businesses figure out ways to sell and pass it out through the door
and do some other things. So some of those may survive.
I think the hardest ones are going to be the small chains and the
individual larger restaurants, as Joe said, that are absolutely dependent
upon filling up all those seats and having them refilled every hour.
There’s going to be a lot that are going to go under. And then, I wonder
about some of the support businesses for those. There’s a lot, I think.
It just depends on how long this whole thing lasts. You know,
the shorter, obviously, the better. But people are going to have to be
creative one way or another. We know that there’s going to be an attrition
of businesses. It’s a painful disruption. We’ve not seen this kind of crisis
before, at least I haven’t.
TWST: And some of these restaurants at risk are wellknown in places like New York City. I’m not sure if they’re part of
corporations or not. They are the ones where it’s an experience to go
there. People bring their guests there, maybe to discuss business, or
it’s a once-in-a-lifetime kind of experience. Are those the kind of
places that are going to be hurting also?
Mr. Rinaldi: I would be very sensitive to their viability and
their ability to attract the same type of clientele with the same strategy.
Meaning, if I’m going to go to a restaurant after this is over, and we have
a green light to do that by the state government and the federal
government, I want to make sure that I’m 6 feet away from someone. I
want to make sure that the waiters and waitresses are taking the
necessary precautions.
That’s going to be kind of weird to see them with a mask on.
It’s going to be weird to see them serving you with gloves, but that’s
something that I think people will prefer, to feel more comfortable at the
higher end, and with space, space is very important.
Mr. Weisbrod: There are going to be some major adjustments.
And like I said, I’m going to be interested to see how creative some of
these businesses can be to change their models, change their approaches
and attract people in ways that may be new. We may see there are more
restaurants out there — there are not many of them now — that are set
up for private dinners where you have your own little room with walls
“At the middle of the crisis, when the stock market was declining precipitously every
day to reach that low, we were buyers, but we were buyers of things that people need
to spend money on to survive — for instance, utility stocks and health care stocks. We
either went long or bought the individual stocks themselves or the ETF.”
between you and everybody else, set up anywhere from six to, say, 20
people. I wouldn’t be surprised to see more of that cropping up just for
the reasons Joe said.
I think there’s going to be some very interesting innovation in
the future. And I for one will be very interested to see it because I think
this is where, in crisis situations, we can rise to be at our best. And I hope
that’s what’s happening, that we are able to rise up and meet the
challenge. We’ve done it before. We’ve come through a lot of crazy stuff.
And so my hope and prayer is that we can be resilient.
TWST: And do you think some of the fast food places that
traditionally might have served hamburgers and fries and maybe
some chicken sandwiches are going to start to offer a more varied
menu to pick up the slack because people won’t be going to some of
these mid- and upper-level restaurants that offer complete dinners?
Mr. Rinaldi: That’s a logical statement. I know my kids love
McDonald’s, and I don’t know how much more McDonald’s can add to
a menu. They have chicken, meat, salads, breakfast 24 hours a day.
TWST: And as you’ve talked with your clients, as they look
past 2020 and into 2021 and 2022, what are some of their expectations
for their portfolios?
Mr. Rinaldi: I would think, first and foremost, they expect to
participate in the upside — meaning, if the market is up 10%, my clients
are expecting for us to keep pace with that. Though, my clients’
portfolios typically are not totally in equities.
Mr. Weisbrod: Most of mine are balanced.
Mr. Rinaldi: Very similar. They would like to see you keep
pace. If the market is up 10%, they don’t want to be down. So that’s an
expectation, having some correlation to the market is an expectation.
However, they all know they will never have a one-to-one relationship to
markets because of the way we manage risk.
We went through annual reviews in January and February.
Then, we got derailed and have had to communicate by phone and email
as well as snail mail. In March, most of our clients fared better than
average. They were in the equity market with only 30% to 40% risk. Net
net, we had a similar capture rate on the upside but a lot smaller capture
rate on the downside.
For example, 2019 the market was up 21%. Many of our
middle-age clients with moderate risk enjoyed a similar return; however,
when the market crashed in March down 40%, the same clients
experienced a limited loss of approximately 10%. This performance is
monumental to what we are trying to do here at Quantum Financial.
TWST: Is there anything we haven’t talked about you care
to bring up?
Mr. Rinaldi: We do have three accountants, CPAs, that are
registered with us. So we offer full-service wealth management. We
work hand in hand with tax experts in managing the new changes that are
occurring right now because of the CARES Act, the changes that have
occurred in the past and managing each person’s tax issues as well.
Mr. Weisbrod: Yes, we’re pretty holistic. Every one of my
clients receives financial planning. And their investments are a portion of
that planning. I consider that they have certain needs unique to them.
They may have a special needs child, or they may have a business that
they run. All of that is factored into the strategy that we might employ in
their investments. It takes some thought and effort in allowing them to
really articulate to us what it is they want to accomplish.
And then, we need to translate that into appropriate management
principles and actions so that, over the long haul, they can meet their
goals. I mean, that’s what it’s all about. I always have viewed my clients
as partners in this process. I want them to be educated. I want them to
understand our approach and what we’re doing. I want them to be able
to ask questions and feel comfortable. And so it’s a very personal thing
for me and for my clients. I know Joe feels the same way.
Mr. Rinaldi: Well said. I’d also like to throw in the notion
going forward, how we move forward together. There are some key
elements that we are sensitive to when we invest money for our
clients. I think one major factor is that global companies will rewire
their supply chains. That may be positive for the USA because most
firms will bring more production of widgets back here to the USA
rather than offshore.
And two, we will probably sacrifice the efficiency for
sustainability. Number three, we’re definitely going to focus on migrating
faster to the internet for delivery of services in areas like tele-education
and telemedicine.
Number four, companies will be very sensitive to reducing
their new debt load to get them out of this crisis. So they’re going to
focus on reducing costs and keeping or maintaining a large number of
opportunities for their workers, allowing them to telecommute from
home. That doesn’t bode well for commercial real estate. And the last
thing, I’d probably be sensitive to is, going forward, there definitely will
be more private-public collaboration.
Mr. Weisbrod: There’s one other thing that I would add. I’ve
seen a couple articles on this, but I think that the outcomes are not yet
understood. What about the large gatherings, the entertainment and sports
areas? It’s going to be very interesting to see how they adjust to this.
You know, when you’re used to filling a stadium with 75,000
people, and the next time you have a game in the fall, all of a sudden,
maybe 5,000 show up. I could see people being hesitant for a long time
to be in close contact. Just like Joe was saying, some will be hesitant to
even get on a plane. What’s that mean for the world of sports and
entertainment that requires closer quarters?
Mr. Rinaldi: That’s going to be dissected. I also think Millennials
and the younger group, which won’t care as long as they get a green light,
“I think there’s going to be some very interesting innovation in the future. And I for one
will be very interested to see it because I think this is where, in crisis situations, we can
rise to be at our best. And I hope that’s what’s happening, that we are able to rise up and
meet the challenge.”
will go out. But the older folks like us, over 45 or 50, might be thinking
more: “I don’t trust it yet. I’ll sit tight for another three, four months.”
Mr. Weisbrod: And it will depend on what they’re calling the
“herd immunity” — where you have a lot of people. I know people who
have had the symptoms in December, January or February. And there are
people who have had it but are asymptomatic.
I was just reading an article where the probability is that we
will develop immunity over a period of time. What’s interesting is, with
some viruses, immunity may only last for a few years, whereas some last
for a lifetime. These are the things they just don’t know right now. If it’s
found out that those people that have had it are immune, and/or there’s a
vaccine that comes on board, say in a year, then all of a sudden normality
could be restored to a great extent. And then, those stadiums are filled,
including with us older folks.
TWST: And are these all issues and trends that investors
might want to keep in the back of their minds as they look at
different holdings or different investments that they might have?
Mr. Rinaldi: Absolutely.
Mr. Weisbrod: Yes. And it’s going to be very fluid. I think that
it’s going to be something you just have to watch and see how it goes.
Some of these things that are in the tank right now could change
overnight, just with an announcement that is very positive. There are so
many dynamics going on.
I mean, the whole world of energy and oil is crazy right now.
And that’s not directly because of the virus. It was already in process
because of the dynamics of that entire industry and the politics, with
countries waging energy war with each other. There are so many
dynamics going on that if nothing else, it’s really hard to be bored.
TWST: Thank you. (ES)

President & Chief Investment Officer

Director of Wealth Management

Quantum Financial Advisors, Inc.
51 Monroe St.
Plaza West 06
Rockville, MD 20850
(301) 296-6203
(202) 955-9204 — FAX
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