Client-Centered Investing: Q&A with Ron Albahary

Ron Albahary Client Centered Q&A

To his work as CIO of LNW, Ronald G. Albahary, CFA®  brings more than 30 years of experience managing portfolios for high-net-worth and ultra-high-net-worth clients and their families, first at major Wall Street firms and then at prominent family offices that he helped become national investment powerhouses. Highly energetic and analytical, Ron’s career spans precipitous and protracted market downturns as well as rip-roaring bull markets. We sat down with Ron to find out what inspires and motivates him. 

RON: It’s actually a combination of things, which seldom come together at one firm. First, the culture, values and incredible stability of LNW, given that its first clients – the Laird Norton families – remain clients (and owners along with LNW employees) more than 50 years later. This ensures that despite tremendous growth, the focus will stay on serving our clients at the highest level.  

Add to this LNW CEO Kristen Bauer, with whom I worked as CIO for seven years at a previous firm. Kristen has unparalleled experience working directly with families to help them achieve what is important to them; she has the highest emotional intelligence I have ever encountered. 

Finally – and most importantly for me – the specialized knowledge, industry experience and ingenuity of our 12-person investment team. All my colleagues and I are mindful that the work we do as investment analysts and strategists must serve our clients’ actual needs and goals; it’s not abstract or hypothetical. The real-world focus incentivizes us to perform for clients at the highest level and is very fulfilling.  

This rare and powerful combination of factors is the reason I think LNW is poised to become an increasingly attractive destination for both clients and employees in the 2020s and beyond. 

RON: Having started out at the big investment firms, what I’ve learned is that ultra-high-net-worth individuals, families and foundations are usually better served by smaller, independent RIAs [registered investment advisors]. The larger firms tend to be less nimble and adaptive; they’re less likely to design creative solutions for the complex planning and investment needs of ultra-high-net-worth individuals and families. 

When you’re at a larger firm, it’s all about scale, operating efficiency, and for public investment companies, an eye toward maximizing earnings and supporting the stock price versus putting client needs first. I challenge the big firms to deny this: that their ability to serve idiosyncratic client needs is constrained by the desire for scale and the resulting profits. 

RON: The 2020s began with Covid-19. While that was a health crisis, it highlighted social and racial inequality and environmental vulnerabilities at the same time. Those concerns are not likely to go away. Fiduciaries are beginning to recognize that more clients want to use their portfolios to achieve not only their own financial goals but to impact environmental and societal issues. LNW has been helping clients do this for nearly 20 years and we have continued to thoughtfully and effectively expand our impact investing capabilities over time. 

With that said, as wealth advisors our job is to serve ALL clients; meet them where they are and help them achieve their goals — whether they be solely financial and/or non-financial objectives. 

Another effect is that people have become increasingly tethered to our screens, social media. And I think this has exacerbated the tendency to focus too much on the headlines. All this does is stoke emotional and cognitive biases, often leading to poor investment decisions in the long run. 

RON: Having been in the wealth management business for over 30 years, I can’t remember a time without challenges — what fun would that be? But seriously, it’s important to recognize that challenges can give rise to opportunities from an investment perspective. 

A major challenge now is the re-calibration of risk as the unprecedented fiscal and monetary stimulus at the start of the 2020s has been winding down and the world is becoming multi-polar due to rising global conflict and shifts in political power. All this is creating new investment opportunities but also the potential for outsized risk.  

After more than a decade of risk-on mentality and buying the dip, investors seem to be less sensitive to all forms of investment risk. But even before that — during my entire career actually — most of the investment industry has focused on maximizing returns, with risk being secondary. That is completely upside down. Mathematically, losses are far more damaging to a portfolio than gains are beneficial — the laws of compounding clearly illustrate this. With that said, calibrating risk first doesn’t mean risk-averse; it means ensuring clients are taking the risk they need, can tolerate that, and are compensated appropriately for such. 

RON: People who have accumulated significant wealth have often gone all-in on a business or some other investment they felt they knew and/or could control and that paid off. Staying in that risk-taking mindset is not unusual; they want higher-risk portfolios. And then you have another group of clients who want to focus on preserving wealth. These are general tendencies that don’t actually tell you much about how someone will behave in a market downturn when their wealth is in exposures they can’t control. 

Getting at someone’s actual risk tolerance requires asking the right questions and also asking the same question in different ways. A client might say they’re totally OK if their $10 million portfolio drops 20%. But ask them if they’re OK seeing it go down $2 million and you might get a different answer. 

To know thyself is actually not easy, especially when it comes to emotional and cognitive biases related to investing. So I am a firm believer in asking an exhaustive array of questions related to our clients’ objectives, needs, biases, aspirations, and fears. We want to have a deep understanding of how a client thinks and what drives their decision-making. Understanding this psychology is paramount to proposing investments that make the most sense for them as opposed to applying an academic approach to portfolio building and wealth planning. 

RON: Getting wedded to any one exposure, be it to U.S. growth equities or your company stock, can work for a while but ultimately means higher risk and potentially lower return relative to diversifying. Diversification is about applying a full set of strategies that can work in tandem to generate a favorable risk-adjusted return over many market cycles. These days, diversification is actually more important than ever, and it is harder to achieve given the higher correlation among asset classes. It requires exposure to different geographies, capitalizations, sectors, individual securities, factors (value, growth, credit, interest rates, currencies, etc.) via public and when appropriate, private markets. Currently, for example, there are new opportunities being created overseas as companies change their supply chains and sourcing to favor countries closer or more friendly to the U.S.   

RON: Wealth management is a broad and challenging undertaking, focused on deploying wealth to fulfill needs, goals, as well as aspirations during an entire lifetime and often into the next generations. This of course includes investment management, which aims to preserve and grow wealth by taking on an appropriate level of risk; otherwise, wealth dissipates due to distributions, inflation, taxes, and losses. 

As investment professionals at LNW, we work closely with client wealth managers, in-house tax specialists, trust administrators and estate planning experts. We are fully aware of the non-investment aspects of clients’ finances and their goals/aspirations, allowing us to contribute to finding truly integrated solutions.  

Having been in the industry for three decades, I have seen many investment advisors attempt to practice wealth management and planning. Ultimately, where most advisors’ value proposition breaks down is the actual execution of each client’s plan. And I think this is where LNW excels – implementing the many aspects of a comprehensive wealth plan (cash flow management, trusts, estate and legacy plan, business succession etc.) in alignment with the client’s investment portfolio. 

RON: Many great investors have impacted my investment philosophy, but the one who stands out for me is Richard Thaler, the Noble prize-winning economist and one of the mavens of behavioral finance. I was a portfolio manager working directly with clients when the tech bubble burst more than 20 years ago. At the time, I was managing two portfolios for one of my clients, a retired doctor: a retirement portfolio that he was drawing from; and a family limited partnership (FLP) for his kids and grandkids. 

During the first 30 minutes of our quarterly meeting, he focused on the diminishing value of his retirement portfolio and wanted to reduce equity risk. But during the second half of the meeting, this same person was pounding the table that his FLP needed to take on more risk since it was intended to be very long-term, multi-generational. This was a transformational moment for me as it taught me the power of labeling and bucketing portfolios for different purposes to condition investors to make rational decisions. At the time, I didn’t know that Richard Thaler had already come up with the theory of mental accounting. Every investment platform I have designed and constructed for clients since then has been influenced by this concept. 

RON: One of the benefits of gray hair is having lived through many market cycles generating many, many lessons learned. To name a few in shorthand: Humility; maintaining a steady hand when others are panicking; and exceptional planning that takes into account volatile markets and proactive client communication. It’s important to anticipate and answer client questions before they’re asked so people know their wealth management team truly cares, is going to shepherd them through the downturn, and is monitoring their portfolio to ensure risks are being managed and opportunities are being seized. 

RON: I am most proud of how many of my former teammates — people I had recruited and/or managed — are flourishing in their careers. Few things are more fulfilling than getting unsolicited messages from them as they progress in their careers acknowledging how much I impacted their professional lives; it is inspiring and humbling at the same time. Equally as important, I am proud of the innovative solutions my teams have designed for clients, enabling the latter to live their lives and achieve their goals with the utmost confidence.