The Compound and Friends - Talking Behavioral Coaching (Tadas with Brendan Mullooly)

Starting point is 00:00:00 Hey, Brendan, it's Tadis. Hey, Tadis, how you doing? Hey, I'm good. I'm on the line with Brendan Malooly, who's an investment advisor at Malooly Asset Management. I asked him on today to talk about a recent post of his entitled, I Need Behavioral Coaching, Said No One Ever. There's this idea in behavioral economics and finance called bias blindness, and the idea being that we can see behavioral biases easily enough in other people, but we have a hard time identifying them in ourselves.

Starting point is 00:00:27 So, Brendan, if one of the biggest potential value adds for being an investment advisor is behavioral coaching, how do we get clients or potential clients to recognize this? Yeah, huge issue trying to give people something that they don't necessarily believe that they need. I had always had a little bit of a hunch that this behavioral coaching was kind of taken as maybe a nice service that we offer to our other clients or something similar. Because it really is tough to admit sometimes that we need help. And I think that some of that stems from just the nature of maybe offering behavioral advice to others. I think to be a recipient of behavioral advice, you have to be able to admit that you have some flaws that you need help with. And that's not always easy for any of us to do, and that isn't necessarily exclusive to finance.

Starting point is 00:01:36 Yeah, no, absolutely. I think that you see in the business of advice that it's very much a sort of a relationship sort of business. And I think that you can see how, you know, being able to talk to someone on, you know, be able to reach them in a way that, like you said, is non-threatening and sort of recognizes, for lack of a better term, their humanity, I think is really important. And, you know, I think, you know, the idea of behavioral coaching sounds, you know, I think part of the reason why you wrote the post is that it sounds somewhat, you know, sort of intimidating or to a potential client. And so, I think, you know, being able to reach them on that level, I think is important. Yeah, I think it's almost like insulting almost. It puts the advisor in the position of being maybe like the responsible

Starting point is 00:02:31 adult in the relationship that has to put the child into timeout when that is almost certainly not the case. And a point that I made in the post was that behavioral coaching is not, the need for it is not predicated upon its recipient being crazy or stupid or reckless or anything like that. It's also not predicated upon the purveyor, the advisor, being a genius, a stoic, or somehow completely in control of their emotions as if that's a thing that even exists. It's just predicated upon all parties in the advisor-client relationship being human beings. And it's so much easier for me to say to someone else, hey, that may not be the best decision and here's why. It's so much easier for me to do that

Starting point is 00:03:19 than for somebody to recognize on their own, this isn't a great decision. Maybe I should think about doing something different. It doesn't come naturally. Yeah, no, you made that point about both clients and advisors being humans. And in a couple of posts ago, you asked a bunch of people in kind of the investment business to write about some of their own behavioral biases and what they might have done to offset them. And I thought that was a really sort of interesting exercise to see how other people have dealt with some of these issues. And like you said, it underlines the fact that we're, you know, since we're all in the

Starting point is 00:04:02 same boat in the sense that we all have these biases, since we're all in the same boat, then the sense that we all have, you know, we all have these biases, maybe just to in different flavors and different degrees. Yeah. And definitely, these biases are not exclusive to people without experience in the industry, which was the point of putting out that post, because these are some of the best investment minds out there that I respect. And everybody had an answer. Everybody had something they are able to recognize that they struggle with. And you even hear often that a lot of advisors use advisors for that purpose with their own money, just because you could be the greatest investor in the world, but it's really tough to see your own blind spots sometimes.

Starting point is 00:04:44 Yeah, and there's also something to be said for repetition. As an advisor, you don't just have one client. You have a number of different clients. And over time, you get that experience of dealing with people and dealing with their, for lack of a better term, their foibles. And there's a little bit of muscle memory and being able to see how people react either in times of stress, in terms of market stress, or in your different points of their lives where there are, you know, either the kids are going to college and they have to pay for it, or they're reaching retirement, you know, sort of these touch points in life which are, you know, by their nature stressful. And as an advisor, you know, doing this over a

Starting point is 00:05:25 period of time, you get a little bit more experience with that and you can kind of begin to see some of those issues in a different light. No doubt. And I think really, I mean, the importance of this cannot be stressed enough just because something that I like to share with clients is that we need to behave well, just to have a shot at earning market return, let alone, I mean, let's not even talk about like outperforming potentially, like we need to be on our best behavior just to get what the market's offering us. And so if we can even just get, you know, a little bit closer to that by behaving well, I mean, I don't think you can put a value on that.

Starting point is 00:06:06 Yeah, no, I think you're right in the sense that, you know, we aren't talking about trying to shoot the lights out or trying to hang on to some sort of high volatility strategy. We're just talking about the nuts and bolts of, you know of anybody who has a portfolio which involves some risky assets. Yeah, yeah. And just really, really tough because nobody comes in asking explicitly for help controlling their emotions. for help controlling their emotions. And there's nowhere in the advisory relationship where we're sending an invoice like, oh, that was the behavioral coaching. So, it's tough maybe to identify when this is even occurring for clients. And so, maybe that plays into people thinking that they don't need it or that it's not a valuable part of the advisor-client relationship

Starting point is 00:07:05 because it's never explicitly labeled as behavioral coaching. It just is part of the relationship that we have with clients. Yeah, no, absolutely. Morgan Housel had a post. There's another wrinkle I kind of wanted to bring up, and Morgan Housel had written a post last week, I think, talking about how it is that when we experience things in our own lives, they become much more salient and they almost kind of get ingrained in our DNA. And, you know, I think that's another aspect of this which we have to recognize. You know, sometimes, oftentimes, you know, an advisor and a client are from different generations and they've had very sort of different visceral sort of experiences with the market.

Starting point is 00:07:47 And kind of that's both an advantage and a disadvantage in the sense that, you know, it does give you some distance to look at, you know, other people's behavior. But it also, like we said, it can potentially create biases, you know, of our own. And so I thought that was a really that was a really interesting post of his, I guess, as all of his are. So, yeah, absolutely., as all of his are. Yeah, absolutely. Love what Morgan does. And yeah, it's interesting sometimes. An exercise I try to do a lot is to just imagine, not that I can do it perfectly, but try to imagine being the recipient of a piece of advice that I'm offering out and how it may be received by

Starting point is 00:08:25 somebody who has different experiences than I do. And so to just kind of play that mental game where you try as best you can to put yourself on the other side of the table or in the client's shoes to maybe try to go through advice you're offering and see how you could do it better, maybe how you could present it better or phrase it differently. That might also be a problem with behavioral coaching. Is it just a branding problem? Can we call it something different so it doesn't have the stigma attached to it that it does? I'm not sure, but worth thinking about. Yeah, no, I think being able to test drive a message or test drive some sort of advice of advice I think is a great point. And that might be one where we want to leave things. And so, Brendan, I want to thank you for coming on. This

Starting point is 00:09:12 has been a great talk. And I think everybody should read that post and we'll send them over to your website. Awesome. Thanks very much, Titus. Thanks.

The Compound and Friends - Talking Behavioral Coaching (Tadas with Brendan Mullooly)

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