The Compound and Friends - Every Financial Advice Firm Will Have a Chief Behavioral Officer (with Blair and Daniel Crosby)

Episode Date: April 12, 2019

Ritholtz Wealth Management's Blair duQuesnay caught up with Brinker Capital's Daniel Crosby to talk about how central behavioral investing has become to the financial advice proposition. It sits at the center of the value-add that advisors are bringing to the table in the modern era. Will every financial firm someday have a CBO - Chief Behavioral Officer? Read Blair each week at her blog, The Belle Curve! http://blairbellecurve.com/ Follow Daniel Crosby on Twitter: https://twitter.com/danielcrosby Enable our Alexa skill here - "Alexa, play the Compound show!" https://www.amazon.com/Ritholtz-Wealth-Management-LLC-Compound/dp/B07P777QBZ Talk to us about your portfolio or financial plan here: http://ritholtzwealth.com/ Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/   Subscribe to the mini podcast on iTunes or Spotify Enable our Alexa skill here - "Alexa, play the Compound show!" Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey guys, this is Blair Ducanet. I'm down in Fort Lauderdale this week for the CFA Wealth Management Conference and Daniel Crosby is speaking and so he is joining me for just a quick chat, a little update on what's going on in his world. Daniel, thanks for being here. You are now the Chief Behavioral Officer at Brinker Capital. Are you the first person to be a chief behavioral officer? I don't know that I am. I wish I could say I was. I think the honor belongs to Greg Davies in our industry. He was the head of behavioral finance at Barclays. So one of the first, maybe not the first though. Shout out to Greg though. Cool, cool. It'll be really neat to see if maybe RIA firms in the future have CBOs. Yeah, no, I think I see it happening. I mean, we're at this conference here in beautiful Florida and every conversation, even the ones that ostensibly aren't about behavioral finance, end up being about behavioral finance. So I think everyone is seeing that this sits at the center of the value that advisors add. And I see more and more of me coming up. It's nothing but a good thing. That's really cool. So in your new

role at Brinker, are there any exciting pieces of research that you're working on? Anything you can share with us that's new? Yep. Building out a couple of really cool things. So my job is to build out training tools and technology for advisors. We want to take the world of behavioral finance out of the academy, out of the ivory tower, and bring it down and sit it on advisors' desks. So we are working on something. We'll come up with a better name for it. We're calling it the Behavioral Guide to Markets. So we interviewed 50 advisors,

came up with their most common sort of FAQs from their clients around behavioral considerations, and then we're building out visuals that help advisors in a concise visual way respond to the most common behavioral concerns of their clients. That's one big project. Doing some research around couples and money. It's the number one cause of divorce in North America. We think that financial advisors are very well positioned to do good in the world by helping couples have better conversations around

money. So you can look for an assessment coming and some conversational tools there. And then finally, we're building a technology called Tulip, which is going to be a one-stop shop for helping advisors become better behavioral coaches. So after years and years on the conference circuit, I want every minute of my time to be devoted to building practical tools and technologies that advisors can use. And I'm super excited about it. That sounds really interesting. We spend a lot of time thinking about what are common investor mistakes and how can we build our practice around that. Anything new in the research world that you've read recently on behavioral finance that's of note? You know, I think I think some of the most interesting work comes from, you know, work that we're trying to do and work that like Dan Egan's doing.

You know, I think technology enables the delivery of behavioral coaching in such new and fascinating ways. in fascinating ways. You know, I thought the research that he shared, you know, at Betterment, they had initially, anytime there was market volatility, they would ping their clients and say, hey, don't freak out. And effectively, what they found was they were causing people to freak out that wouldn't have otherwise. And so now they sit back and effectively wait and see if people log in. And then if they log in, then maybe we try and have a conversation. But, you know, I think stuff like that, that's not exactly intuitive. You know, that's maybe counterintuitive to what we would have thought. I think technology is enabling deeper and better conversations around behavioral finance in some cool ways. Yeah, we've heard a lot about

data collection and the combination of data and machine learning turning into AI. Yeah. If you were to envision what the world would be like for an advisor such as myself in five years, what do you think would be some of the biggest changes? So I think we're going to get deeper and deeper on goals-based investing. I think as it sits now, someone in the last session, I'm going to screw up the quote, but they said, you know, calling goals-based planning is like saying oxygen-based breathing. Like it just needs to be part of the conversation. But I think most advisors are still doing a relatively surface job of having that conversation around goals. I think there's a lot of psychological and emotional richness when

you're really, really having a deep conversation with someone about what matters to them. And that can be mined for their benefit and the benefit of the advisor. So I think we're going to have tools for having better, deeper conversations. And I think candidly that we're going to have technology and hopefully I'm the one that builds it. But I think we're going to have technology that that tells advisors, you know, who's in trouble, who's about to make a mistake before they make it. I think we're going to have technology that tells advisors who to call, when to call, what to say so that we don't have to rely on, you know, going to a conference once a quarter, picking up some behavioral finance tidbits, and then hoping we can execute them. We're going to get just-in-time advice from behavioral experts on how to shepherd our clients.

And I think it's going to be powerful. That's really exciting. I never envisioned when I went into wealth management that I would be acting as a coach or sometimes it feels like a therapist at times. I think a lot of advisors never expected to be having these difficult conversations with their clients. Any tips on how to help a client who isn't really able to articulate what their goals are? Yeah, you know, there's a couple of things you can do. One, you know, I learned some of these from a friend of mine, a mentor of mine who's a spy.

And so he was a spy. He started a corporate espionage company after working for the CIA for years and sold it for a gajillion dollars. But one of the things I learned from him are what's called these elicitation techniques, which is how to get people to talk when they don't necessarily want to, which is a spy's whole job effectively. And so he has a couple of great things. So he talks about getting people to complain, you know, is actually one way to get people talking, you know, start talking about taxes or the weather, you know, whatever. If you can get people complaining in some ways, you can get them opened up a bit. Other thing

would be expressions of mutual interest. If you can connect over a shared value or a shared interest, there's also quid pro quo. So like, you know, if we're having a conversation and you ask me about my kids, my natural next response will say, you know, how's your kid doing? There's this natural give and take in conversations. And so if our clients are clamming up a bit, maybe it's time for us to share a bit about our own journey and some of the own mistakes we've made and some of our own goals and see how consistent those are. So, yeah, there's a bunch, but, you know, connecting over common values and even common struggles, exploiting this instinct to complain,

and then, you know, then this quid pro quo sort of give and take approach are all good places to start. That's interesting. I've focused so much about listening, right? And so there's a fine line between making sure you don't talk too much about yourself and there's definitely some nuance to that technique. Oh, no. You are absolutely right because back when I was a therapist, you know, it's a weird line to walk. And I think it mirrors the advisory relationship in some important ways because, you know, you don't want to make it all about you. They're not paying you to come talk about you necessarily. But then it can be weirdly lopsided, too. You know, if you're in a friendship or another relationship, there's should be 50, 50 give and take. And then suddenly you pay a therapist or you pay an advisor

and it's all about you and it feels a little lopsided. So operating within the bounds of good taste and reason there, but understanding that your clients do want to know a bit about you, you know? Yeah. Yeah. Well, maybe not, but. So we've had almost a full day now of listening to presentations at CFA Wealth Management, which is typically more focused on, you know, technical types of topics. But everything today has been about the human connection and people. Any of your key takeaways so far from the day? No, it's just job security for your boy. I'm very excited. I'm very excited. I think I think I got another decade of job security out of this conference.

But no, it's it's incredible to me that at a CFA conference where you would think we exactly would be talking about all these technical topics, all the blocking and tackling of asset management. It's all all have been about the human connection. And it shows, I think, the degree to which our industry is recognizing where our true value lies. And, you know, I cite a study often that Natixis did a few years back, and they showed that 83% of wealth management professionals think that behavioral finance, behavioral coaching is the biggest value that we add, but that only 6% of our clients do. And so we need to do a better job

of positioning ourselves, taking the things we're learning at these conferences and positioning them in a way that our clients can hear it. Yeah. Well, Dr. Crosby, it's been so great to see you here in Fort Lauderdale. Thanks so much for chatting with me. Thanks so much, War Eagle.