Financial advising with a

S3 EP01 Financial Advising As Behavioral Coaching with Dr. Daniel Crosby

03.01.20 | 0 Scale Transform

My guest today is Dr. Daniel Crosby. 

Daniel is a psychologist and a behavioral finance expert who helps organizations understand the intersection of mind and market. He is responsible for bringing together behavioral tools, training, and technology that allow for practical application of behavioral science to advisor-client relationships.

In this conversation, we discuss that a great advisory practice is, at its core, a behavioral coaching practice. Daniel reflects on his 10+ years of experience in the financial services industry, and on how advisor-client engagement can bring about better outcomes through meaningful relationships and value-focused behavioral changes. 

Don’t miss one of our favorite moments, when Daniel talks about the 3 E’s an advisor can work through to provide their clients with the best behavioral coaching. In Daniel’s model, Education, Environment, and Encouragement together can help clients make incremental behavioral changes and achieve their desired financial goals. 

As you think about this conversation, do you see yourself engaged in behavioral coaching? Or are you unsure of how to bring these practical applications to your client experience? The tools that Daniel discusses will not only help you shift your thinking, but will also demonstrate how the behavioral coaching aspects of your practice can make a real dollar impact in your clients’ lives.

Looking for more ideas about growing your practice? Join the Model FA Facebook Community, where you will find expert advice on how to launch, grow, scale, and transform your firm with an incredible client experience. Or, check out our Model FA Accelerator, a premier coaching and practice management program for entrepreneurial financial advisors.

Resource Links
The Behavioral Investor
Tulip Advisor
PREMA Model
The Science of Happiness Podcast
Connect with Daniel

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FULL TRANSCRIPT

Daniel Crosby (00:03):

I've been speaking about behavioral finance to advisors for about a decade now. And so consistently when I go to speak to a group of advisors, people come up to me after the show and go, "I love this stuff, I believe in it, but what do I do about it? How do I systematize this? How do I bake this into the very fabric of my practice?"

Patrick Brewer (00:25):

Welcome to Model FA podcast. I'm your host, Patrick Brewer. Today's guest is Dr. Daniel Crosby who's a psychologist and behavioral finance expert who helps organizations understand the intersection of mind and markets. Dr. Crosby's written a couple books. His latest work is The Behavioral Investor. It is a comprehensive look at neurology, physiology, and psychology of making sound financial decisions. Daniel, thanks for coming on the show.

Daniel Crosby (00:53):

Thanks for having me.

Patrick Brewer (00:54):

I'm looking forward to our conversation. Honestly, it's been a little while since I've sharpened my skills in the behavioral finance arena. I mean, I got the CFA and I got a couple chapters in there that I probably kind of breeze through. So I'm looking forward to to learning a little bit on this episode as well. So just appreciate you being willing to come on the show and share your perspective with the listeners.

Daniel Crosby (01:15):

Yeah, it's my pleasure. I'm familiar with the CFA materials and they're surprisingly comprehensive. So I'm actually pretty, pretty glad about how comprehensive the CFA, the behavioral finance piece of the CFA is they've done a good job with it, I think.

Patrick Brewer (01:29):

Nice. Is that a recent change or am I just forgetting the fact that I studied Behavioral Finance in depth a few years ago?

Daniel Crosby (01:36):

I couldn't speak to how recently. I couldn't speak to sort of the different iterations of it, but when I've seen it in recent times I was like, "Wow, this is pretty good. I'm surprised at how thorough this is." So good job CFA.

Patrick Brewer (01:50):

Nice CFA Institute. Here we go. We got a plug for you. All right, let's get started man. So why don't you give us a little bit of an overview of your background, where you came from. I know that right now you're the chief behavioral officer at Brinker Capital. You're working on some behavioral FinTech that advisors could potentially use and integrate into their practice. You've obviously done a lot of writing on the topic of behavioral finance helping consumers make better decisions with their money. I mean, what got you interested in, I guess behavioral finance. Talk us through where he came from and why you're doing all this stuff?

Daniel Crosby (02:22):

Yes. So I think the very earliest exposure I had was my dad as a financial advisor. He's still practicing there in my hometown in North Alabama. So I grew up, you know the son of a financial advisor, and so I think sort of uniquely. I grew up talking about shares and stocks around the dinner table. I grew up learning about the miracle of compounding and looking up to people like Peter Lynch and Warren Buffett. So I had a sort of a strange childhood in that respect, but when I got to school, I entered my freshman year of college without really any preconception of what I wanted to do. I was pretty aimless generally and I just absolutely fell in love with the psychology courses that I took my for part of my general education requirements.

Daniel Crosby (03:09):

And so I quickly decided I wanted to be a psychologist and pursued that path all through undergrad, loved it, started a PhD program three days after I graduated with my undergraduate degree, really enjoyed it, until I got about three years into my doctoral program and I really just started to burn out. I mean, just meeting with 40 or 50 clients a week, people who were addicted to drugs, people who were suicidal, people who were just coping with really heavy stuff was beginning to take a personal toll on me.

Daniel Crosby (03:43):

And so I sort of said, "Look, I love psychology, I love studying human behavior but there's got to be a non-clinical application of this for me." And so I found my way into the world of banking and my first gig out of school was actually doing pre-employment psychological assessments of bankers, so I would give them IQ tests and personality tests and the like and determine whether they were a good fit to work at the bank. Long story short, within the bank, I ran into this world of behavioral economics and behavioral finance and it was a combination of two great passions of mine. So it's been an improbable but a great career.

Patrick Brewer (04:24):

Would you say that your interest primarily lies with helping consumers make better financial decisions as it relates to their behavior or is it educating advisors about how to best talk to consumers so that they make better decisions? What's the intersection of your path? Is it both as far as the intersection of behavioral finance and how you like to apply those concepts? Is it working with consumers? Is it working with advisors? Is it working with the industry and creating solutions that people can leverage? Where do you find you have an interest at this point?

Daniel Crosby (04:58):

Yeah, it's interesting. There's two broad applications of behavioral finance. One is to help individuals make better financial decisions, whether that's through an advisor or directly with the end client. I enjoy both of those things a great deal and there's a huge value add there. I think the second way that behavioral finance can be applied is to the actual investment decisions themselves. The actual selection of securities, the actual way that you manage money. I think there's behavioral lessons there. And so my next to the last book, the book previous to my most recent book was called The Laws of Wealth and that was all about the former.

Daniel Crosby (05:40):

It was all about how do you make good decisions. And then the latest book, The Behavioral Investor is sort of like for asset managers, for professionals what are some of the things we should consider? So I love them both. In my day job, I spend a lot more time helping advisors help their clients. That's primarily where my professional focus is now. But I think both are rich areas for exploration. I think there's very little progress that's been made in many respects and in both areas and I think there's a lot of exciting stuff ahead in both areas.

Patrick Brewer (06:14):

Nice. In the most recent book, The Behavioral Investor, so you said that one is focused more on helping asset managers and those in the profession make better decisions. What are some of the things that you, I guess, talk about in the book? I had a career in the asset management space for a number of years. I was at Vanguard and then DFA, and about the time when I left DFA, I want to say about six, seven years ago, they were starting to incorporate momentum and to their investment allocations, and it was up for debate whether momentum was behaviorally driven kind of phenomenon or it was just kind of randomness like people basically trend following. Trend following obviously would be kind of a behavioral phenomenon.

Patrick Brewer (06:55):

I forget what the other explanation was. It's been a little while and I kind of been removed from the investment side for a while. But what are some of the things that you talk about? Is it stuff like that on dealing with momentum and making decisions around that as you start to build portfolios? What are the primary things that you discuss in that book.

Daniel Crosby (07:13):

There's many things. I talk about being sort of a risk first investor. So one of the cool things I think about the book is I took the universe of investor biases which was about nearly 200 different biases now, and I boiled it down into what I think are sort of the four primary biases. Once you have a manageable number, you can create risk protocols and risk procedures that are robust to those four. And so those for are ego which is excessive or overconfidence, emotion, attention and conservatism.

Daniel Crosby (07:50):

So we can talk more about those if you'd like. One of the things we talk about is sort of behavioral risk. I'm a big believer in systemic or rules-based investing. I think that's one of the most powerful ways to mitigate bias and get out of your own way. I think that's a much more effective way to get out of your own way and get out of your own head, then say just trying to learn about yourself and learn about your biases and discretionarily avoid them.

Daniel Crosby (08:23):

Then we even talk about stuff like you talked about. What are the hallmarks of a good signal. What do you look for in a good signal? I write in there about how we can be sort of head faked by bad signals and cutting to the chase. I think that behavior is the element that makes a factor or a signal endure. You talk about something like value or momentum, trend, these different things, they all have behavioral components to them and I think that's why they've persisted over time even when we've discovered literally thousands of different market anomalies that are quickly arbitraged away. The ones that endure and the ones that tend to work over time are the ones that have a behavioral component to them.

Patrick Brewer (09:10):

Interesting. On the consumer side, I mean the one thing that I found is... Because I understand investing, I understand marketing to a fair degree now since we have a marketing company, we do a lot of it, and I find psychology pretty fascinating as well and one thing that I've learned the hard way is it's very hard to change people's behavior and it's also hard to sell them things that require them to change their behavior. They want to buy a painkiller. They want to buy something that doesn't require them to take a lot of action. That's why I guess you see advertising that centralizes around take this pill and get a six-pack or put this little weight belt on. It'll jiggle your stomach and before you know it, you've got rock-solid abs.

Patrick Brewer (09:49):

I mean what is the application on the consumer side? I mean obviously, if you want to get ripped you eat a well-balanced diet, you track your macros. If your body building, you will go to the gym. You do all these things. As it relates to consumers, I mean that's kind of... It's hard to change people's behavior. What are you finding for the consumer? What is their application as it relates to them, a behavioral finance context or otherwise as far as that's concerned?

Daniel Crosby (10:16):

Yeah. So you're absolutely right. I mean, one of the hardest things you can ever do is ask people to change behavior. I make the case in my last two books that effectively God or nature could not have designed a worse investor than you or I. I mean, we are like wired backwards in just about every conceivable sense when it comes to making good investment decisions. So I mean if it's hard for us to change our behavior around other things that are more intuitive, it's doubly hard for us to change our behavior around financial principles.

Daniel Crosby (10:50):

So I think there's a couple of things that we need. I say there's sort of a three-legged stool of what you need to make the right decisions. So the first one, and they all start with E, so the first one is education. So we need to know what to do, of course, and there's a ton of talk right now about financial literacy and financial literacy initiatives, but I'm writing a white paper right now on financial education programs, and cutting to the chase there, the track record is fairly abysmal.

Daniel Crosby (11:24):

People lose 90% of their recall of what they learned in class within six months. I think we could all attest to have forgotten basically everything we ever learned in high school. And so financial education, financial literacy is a start. It's not like it does nothing. But mostly what it helps with is meta knowledge. So meta knowledge is sort of knowing what you don't know or knowing where to look for the right answers. So the first E is education, but it's admittedly imperfect and it's basically a guidepost for the rest of the journey. The second E is the right environment.

Daniel Crosby (12:05):

So this is the right portfolio. At least part of the reason why investors are so unable to take the ride sometimes is because they're misallocated. So it's a natural precondition of having a good investment experience to be allocated in a way that is both going to get you to the finish line and do so in a way that is palatable enough for you that you don't get sort of bucked off the ride in the mean time. And then the final one where we're advisors come in and is perhaps the most powerful, and this is encouragement which is basically another word for behavioral coaching or just-in-time advice.

Daniel Crosby (12:48):

So financial literacy, in terms of like a one-time class setting is not very powerful, but just-in-time advice like targeted specific to you real-time advice real-time education is very, very powerful and very, very predictive of good behavior. So if you want to make a decision, you need the right knowledge, you need the right portfolio and you need the right coach. And if you've got all three of these things, I have a great deal of faith in your ability to take the ride.

Patrick Brewer (13:21):

Love it. What about folks that can't... Because part of the challenge is, and I've seen this happen recently because as you know a lot of advisors are leaving more traditional structures. They're setting up their own firms, they're charging a monthly retainer to be able to help folks who may not have the financial resources, they're a million dollars in assets to be able to invest and buy that portfolio with the hopes of getting them on a more productive path so they can accumulate assets. What if someone can't afford that behavioral coach? Because being a coach is hard. You've got to be able to know someone very deeply to understand kind of what their biases even are, what their goals are, how they think, what they want, what their vision is for their life and you can really only do that with so many people.

Patrick Brewer (14:02):

For me, I'd say like maybe is the most. I could really retain that information for and actively be able to recall it and coach them. I mean, how does someone who doesn't have the financial resources or maybe doesn't really buy into the value of that, how do we either, A, get them to see the value so that they would move forward or B, how do we address that as a society for someone who can't afford that level of one-on-one coaching?

Daniel Crosby (14:28):

Yeah. So I think there's never been a better time to be an investor. Asset management fees are falling effectively 10% every year, and the cool thing is I don't think I'm biased. I don't think there will ever be anything to truly replace the behavioral coaching of a trusted confidant, and a trusted advisor. But for people whose account sizes might not make them attractive for traditional advisors, or who are just getting started, there's thoughtful solutions. There's thoughtful solutions like Betterment. Betterment has a chief behavioral officer or a head of behavioral finance in Dan Egan who designs these just-in-time nudges within Betterment.

Daniel Crosby (15:18):

If you're going to sell a stock in Betterment, they will nudge you to say, like "Are you sure you want to do that?" For instance, here's the tax consequences of that. And so that is in a real sense just-in-time education as well. So I don't think that anything ever quite takes the place of the human coach, of the human advisor but I think it's a wonderful time to be an investor and I think that automated solutions are in some cases becoming very thoughtful about these things as well.

Daniel Crosby (15:51):

The other thing that I would say, I think you brought this point up nicely is that human advisors needs to do a better job of leading with this. For a very, very long time, I think Wall Street has told this story that the value that the financial advisor adds to a client's life is that they put them in outperforming funds or they're going to find them the next hot dot or they have this knowledge that the client doesn't have. And the belief in that and the evidence for that is vanishingly small.

Daniel Crosby (16:25):

And so I think where there is a great deal of evidence is there's a great deal of evidence that when advisors take a holistic approach, when they lead with behavioral coaching, there's stat after stat that finds that advisors who lead with behavioral coaching help their clients to the tune of 2 to 3% per year and improved outcomes every year which would over a long time period potentially double your wealth. So behavioral coaching has been shown to increase happiness. It's been shown to increase wealth. It's been shown to increase levels of preparedness and feelings of calm.

Daniel Crosby (17:06):

So behavioral coaching as a value-add has an enormous literature behind it. It has a ton to recommend it, and I think advisors would be wise to lead with that more because I think that's where they do the most good and I think that's a story that the average client has not heard yet.

Patrick Brewer (17:25):

Yeah, I would agree that it absolutely does the most good. I mean, we've seen it in our practice at SurePath. That's primarily how we help folks is by educating them on their behaviors and helping them make better financial decisions so that they can eventually get more assets and make decisions more leveraged. But I think part of the challenge though putting my marketing hat on here for a second is if an advisor goes to the marketplace and says, "Hey, you have a behavior problem and you need to modify your behavior in order to achieve wealth or in order to achieve the things you want," you're back to that point where you're selling the gym membership instead of steroids.

Patrick Brewer (17:59):

Most people, they don't want to go to the gym. They don't want to lift the weights. "It's heavy, it hurts. I got to change my behavior? What do you mean? I have a behavioral problem that requires me to actually understand that I'm operating in an egoic state, and that there's aspects of my personality that may not be productively serving me. So I think it absolutely works and I think it will lead to more referrals, it will lead to a practice that flourishes over time, but I think leading with it from a marketing perspective could be costly and it could create challenges for an advisor in the early stages of their practice, and I've actually seen this because there's been a number of people who have joined my programs, marketing programs over the years.

Patrick Brewer (18:39):

They had a desire to help with either cashflow coaching or kind of lead with that on the behavioral coaching side and it was hard, it was expensive. It was hard for them to get people's attention. So I would love to hear if you have specific examples or if you disagree, I'm happy to take disagreements on this, but I've just seen for some advisors this has been kind of a tough road. I've even seen it in our own firm. We were selling primarily marketing funnels and all the, quote-unquote, "the sexy stuff" as it relates to market like, "Click this landing page. Get your email. Oh my gosh, the conversion becomes a client right away."

Patrick Brewer (19:16):

It sounds a lot sexier than, "Join my coaching program and I'm going to coach you to make better decisions so that you can effectively create more awareness around these behaviors and then after you create this awareness, you're going to be making better more leverage decisions that's going to create more income for you, that's going to create more space for you, which is absolutely true and it's exactly what most advisors need in their business. But they want to buy the steroids. They don't want to buy the gym membership. So how do you reconcile those things when an advisor or a consumer what they really need is somebody to know them to see where their blind spots are and to help them guide them through that process, but they just want to buy the quick steroid injection and get super jacked and get on the beach? What's the solution to that or do you disagree?

Daniel Crosby (20:01):

I think it's a framing consideration, because you're not wrong. No one wants to be told. Again, this is why I tried to get away from this sort of long lists of biases approach. No one wants to step into your office and you go, "Hey, I'm glad you're here. There's 200 ways that you can screw this up." You're brain doesn't work right but luckily here I come to save the day."

Patrick Brewer (20:23):

To the rescue.

Daniel Crosby (20:24):

I think the good news is though, a lot of this stuff... I have young kids and so sometimes if you're trying to get them to eat their vegetables, you have to grind them up and hide them in something. And I think that we can effectively sort of Trojan horse some of these behavioral interventions because things like goals based planning, talking deeply about your goals and integrating them into a financial plan. That is a behavioral intervention. I wrote a whole book on behavioral aspects of goals based planning. That's a deeply behavioral thing that doesn't lead with look, you're a dummy and you can't do this without me.

Daniel Crosby (21:05):

I think you know focusing on the long-term is a behavioral thing. I think that a socially responsible element to your practice is a behavioral consideration because so many people look at capital markets like their video games and they're just kind of pinging up and down. But if you have a socially responsible or ESG element to your practice, this sort of reconnects people with the reality of fractional ownership of a business and says, "Hey, you're owning businesses that impact the world and impact people's lives and let's be thoughtful about that."

Daniel Crosby (21:43):

Oh, yeah the next time there's a 20% drop in the market, do you think this concerned citizen is more likely to sell the S&P or more likely to sell this fund that maybe mean something more to them on a personal or values-based level. So all these things, we do, I think have a behavioral component to it because you're absolutely right. You do not want to lead with advisor as savior and client as confused a dummy with behavioral problems. And you're also absolutely right that people don't like to do hard work.

Daniel Crosby (22:20):

But I think the more that we can make this seem fun, informal, the more that it can be tied to people's values and preferences and goals and lifestyle. I think we can effectively sneak in some really powerful behavioral stuff in a way that doesn't feel quite so sterile, or quite so hard.

Patrick Brewer (22:41):

Yeah, I would agree. I think that's a great response. I think the broccoli example just drove it home for me. It was perfect. Is that what you guys are doing with this program that you're building? Tulip advisor. Is it along similar lines as far as trying to get people to control their behavior or trying to help advisors better demonstrate the value of behavior modification and get people's attention with that? Can you talk me through what you're working on here with this FinTech platform Tulip?

Daniel Crosby (23:10):

Yeah. What you can see it tulipadvisor.com or sign up for it. It'll be demoed early next year, but it's actually a game, a very fun game that's a market simulation of 30 years of market history. So you get to make decisions about your portfolio, you get real-time reporting updates. You get news alerts and market prognostications, and all the things that a real investor gets over an investment lifetime. And the client goes through this and in the background, we're of course running a host of behavioral analytics that gives you insights into their sort of preferences and so we do this for a couple of reasons.

Daniel Crosby (23:48):

First of all, we're going to create a portfolio for you that allows the client to take that ride that maximizes the potential that they'll be able to last the 30 years of that market cycle. We're going to give you insights into that client's behavior and give them insights into their own behavior, and then finally we give you just-in-time alerts. We give you real-time alerts so when the actual market and their actual portfolio encounters the sort of scenarios that gave them trouble in the game, we alert the advisor in real-time and say effectively, "Hey, Patrick. You might want to call Mrs. Smith. She's feeling a little freaked out. And you might want to say the following script."

Daniel Crosby (24:31):

So we effectively tell you who to call, when to call, what to say on to be a great behavioral coach and then, "Oh yeah. It's also got a sales component to it because we monitor the cost of doing it alone." We monitor how this client does in the game versus how they would have done with good advice, and I can tell you that in almost every case, it's very, very bad.

Patrick Brewer (24:58):

Very different, I assume.

Daniel Crosby (25:01):

I think it's going to be a great tool for advisors to start integrating behavioral finance into their practice in a more systematic way.

Patrick Brewer (25:08):

That's really neat, man. I think it would even be cool, let's say you had 10,000 people go through this tool and then you can start to draw some conclusions around what that difference is statistically. And somebody goes through the game and plays without any behavioral coaching and advice versus if they're getting the right type of advice. So I think that that has some neat applications on the data side too. What would you say is the primary value of the tool? Is it for the advisor to showcase the benefits of behavioral coaching so that the client sees it and moves forward or is it more for the client so that they understand what the journey could potentially look like?

Patrick Brewer (25:46):

It sounds like it's both but is there kind of a primary lien as you start to kind of build the platform out more? Is it more for the advisor, more for the client or do you just kind of view it as kind of having a joint benefit?

Daniel Crosby (25:56):

I'll go back to my three E's. It helps educate them as to the correct use of a financial advisor. It helps put them in the right environment, right in the right portfolio and it gives them that just-in-time encouragement. The thing that I always see. I've been speaking about behavioral finance to advisors for about a decade now. And so consistently when I go to speak to a group of advisors, we have a good laugh because this stuff is funny. A human behavior is goofy and weird and funny and it's cool to learn about. So everyone eats it up, everyone loves it. People come up to me after the show and go, "I love this stuff. I believe in it but you know what do I do about it? How do I systematize this? How do I bake this into the very fabric of my practice?"

Daniel Crosby (26:43):

That's where Tulip comes in and that's where I think it can be powerful. It's just systematizing this. 83% of advisors already say that behavioral coaching is the biggest value that they add in their practice, but it's very sort of ad-hoc right now. And so my hope is that Tulip will be successful in sort of streamlining and integrating this in a systematic way.

Patrick Brewer (27:06):

Yeah, that sounds pretty neat and I definitely want to go ahead and opt in and sign myself up. Is it still in beta or have you released a version of it? Where is it currently at?

Daniel Crosby (27:13):

We have not released a version of it. So we're actually doing the exact thing that you're talking about is we're norming the data right now. We are giving it to thousands of people so we'll know what the normal curve of different behaviors looks like. So everything from greed, fear, to overconfidence, to lack of confidence and excessive attention to the news and everything in between. It's built right now. It's sort of functional but ugly. So we're in the process of making it look pretty, making it more intuitive and also norming the data and it should be ready probably about the end of Q1 of 2020.

Patrick Brewer (27:49):

Nice. I'm definitely looking forward to testing that out. As you mentioned, there really aren't a lot of good tools for that. I mean the closest one I can think of is, I guess Riskalyze. We don't use that in our practice, but I guess what that does is it asks the client of behaviorally driven questionnaire with the goal of identifying their risk tolerance, and it produces a score which I think advisors probably get more out of than the client. Do you view this as a competitor to something like that or is it a completely different category? How would you view something like that?

Daniel Crosby (28:22):

So there's probably a 20 to 25% overlap between what Riskalyze does and what we do. So there's there's some common features but not a ton. So if I'm thinking about sort of the Venn diagram, I'd say there's a 20 to 25% overlap. I have nice things to say about Riskalyze. They've helped introduce this conversation in a meaningful way and we're just hoping to take it that next level deeper.

Patrick Brewer (28:49):

Yeah, it's pretty neat. And then just so I can kind of wrap my head around it, it sounds like the advisor makes this available during the onboarding process potentially even before the person signs the client contract to get a better sense of who they're dealing with and they get access to this dashboard? I'm assuming both the client and the advisor have access to this dashboard and then the alerts are sent to the advisor in the event that there's a market cycle or something happens that would create a behavioral trigger for the particular client that went through and selected the different preferences around market cycles and things.

Daniel Crosby (29:27):

Yeah. What we call the dashboard would only be available to the advisor.

Patrick Brewer (29:35):

Advisor. Okay, got it.

Daniel Crosby (29:35):

To see sort of who among their clients is in which emotional state at which time. What the client would have is a pretty cool report. And the neat thing about the report is it allows you to kind of go through your simulation and go, "Okay, here's my behavioral tendencies. I'm very emotional say. So what would being less emotional do to my returns over a 30-year hypothetical time period? What would paying less attention to the news do in a very dollars and cents way to my returns? What would not being so conservative, and so scared of being in equities have done to my returns?"

Daniel Crosby (30:17):

So the cool thing about it, I think from the client perspective is it takes something ethereal like a behavior or an emotion and it puts a real dollars and cents value on it. So I think that's going to be an invaluable tool for clients and advisors to have good conversations about this stuff.

Patrick Brewer (30:36):

For sure. Yeah, it's definitely going to work a lot better than telling a client that they could make a bad decision in the future when they're operating in a state where they don't make any bad decisions. It gives them the opportunity to work their way through a platform and realize that the decisions have real, real consequences. So I think it's a neat tool, man. Nice work. How long has this been in development? Have you been working on it for a number of years? Is this something that just kind of popped up over the past couple quarters? What's the life cycle of this?

Daniel Crosby (31:01):

So I'm learning that this stuff all takes a lot longer than I thought. So there's something in behavioral finance called the planning fallacy which is effectively you think everything's going to get done a lot faster than it does. I have people call me about writing books and they say, "Hey, I got two or three months. You think I could knock out a book?" And you go, "Not so fast." So we've been working on this in earnest for about a year, probably more like a year and a half in sort of the incubation or the idea phase. It's slower going than I would have liked but we're committed to doing it right and I think people will be excited about it.

Patrick Brewer (31:40):

Nice. We'll definitely keep us posted on that. I'll be sure to include a link in the episode below the show and then the notes so that people can get access to the beta version. I mean, I guess like any platform is it going to be accessible to any advisors for just a monthly fee? Do you have to affiliate with a particular organization in order to use it? What's the distribution strategy look like?

Daniel Crosby (32:03):

So it would be premature for me to say much about the pricing model which is very much a work in progress. But I could say a couple of things definitively which is it'll be well integrated into a number of platforms as well as available standalone and it'll be product agnostic, so you won't have to use any sort of specific product. So we'll just give you the good behavioral coaching. You fill in the gaps with what you'd like or what makes you comfortable.

Patrick Brewer (32:33):

Good stuff. So what's next in behavioral finance? I mean, obviously this has been your focus for the past 18 months. What else do you have kind of going on? I mean is there another book in the works? Is there anything else that advisors should be keeping up with as far as making sure that they deliver better outcomes for their clients or just things they need to be aware of in the behavioral finance arena?

Daniel Crosby (32:55):

So I think in terms of thought leadership the development of behavioral finance has very much mirrored the development of psychology more broadly. So if you think about psychology kind of burst onto the scene, not that long ago, just a couple hundred years ago with Freud who really popularized it. And Freud studied what was wrong with you. He studied how you were broke, how you were sad, how your mom messed you up, whatever. It was only in the '90s really that we got positive psychology and solution focused therapy where we stopped studying how people are broken and we started studying what makes people a great leader, what makes people happy. What gives people meaning in their lives.

Daniel Crosby (33:40):

And so I think you're starting to see a turn in behavioral finance. It was important for behavioral finance to break with traditional economics and traditional finance and say, "People are not perfectly rational. People don't make rational decisions. The average investor is not homo economicus as it's called." But now that that break has been well and truly established, the Nobel Prizes have been given out, I think behavioral finance can kind of turn its gaze on what makes clients happy and what brings transcendent good into their lives and how can we as advisors bring a little more meaning into this.

Daniel Crosby (34:21):

So I think sort of a more positively focused behavioral finance is what to look out for. The second thing I would say is that tools like Tulip Advisor that help integrate behavioral finance into the very, very guts of what someone is doing, and it's not just this thing that advisors are doing off the side of their table, but it's very much a part of the core of their practice. So those are the two trends I'd be on the lookout for.

Patrick Brewer (34:52):

In the business coaching, performance coaching, there's a lot of talk about mindset, maintaining a mindset that's of abundance that allows you to be successful. I've read a number of books, some of which I found be a little hokey, some of which have actually helped me a lot. I mean, being a psychologist and studying this and working with advisors, I mean is there anything that you would recommend for advisors specifically. Maybe they've been stuck in a rut and they haven't been growing their practice as much as they had hoped. Maybe they're getting up in the morning and they're procrastinating. They're not working as hard as they would like or they just feel like they're off track.

Patrick Brewer (35:27):

I mean, I'm sure that a lot of the things that you've written about and you've studied could be applied to that as well. I mean, do you have any thoughts on that particular topic in general just the idea of being a higher performer or having a mindset that allows you to create more wealth and abundance in your life. I mean what are your thoughts on things like that?

Daniel Crosby (35:48):

Yeah. I have a lot of thoughts on this. So when we look at mindset, about 50% of your disposition, your mindset if you will is genetically hardwired. Your predisposition to be negative or happy or optimistic or pessimistic and the like, quick or slow to anger, about 50% of this is genetic. So some people just sort of naturally have a better mindset than others, and there's not much you can do about that in some respects.

Daniel Crosby (36:25):

Now, the remaining 50%, about 40% of is down to choices that you make and only about 10% is due to circumstantial things like whether or not you get lucky in life. So we have some power. We even have some sizable power but there's also some considerable luck in this. So in general, I think we tend to overemphasize positivity, we tend to overemphasize mindset, we tend to overemphasize willpower. All of these things are kind of ephemeral. If you look at the behavioral research, I think the best thing that you can do is to put yourself in new places. If you want a new result, do a new thing. Don't try and will yourself into some power positive thinking hokum. Try a new program, get a new support group, get a new coaching program, try new behaviors.

Daniel Crosby (37:27):

We've talked a lot about the gym today. Go to the gym or try a new diet. Try something new. Place is a much better predictor of behavioral change than positivity. I'm not trying to poo-poo the power positive thinking or having a positive mindset. That's all good stuff. That's all important stuff. But I think we tend to overemphasize it relative to making literal behavioral changes with respect to the kind of people you hang out with, the kind of books you read, the kind of places you find yourself in. All of those things are easier to do from a behavioral perspective and I think they'll bring about quicker results that will then hopefully allow you to bring your mindset along as well.

Patrick Brewer (38:15):

Do you recommend like stark big changes across the board or do you start with kind of small behavioral changes to see... How do you test whether something, let's say influences you in a way that you're excited about and is producing positive outcomes versus maybe something that isn't. What are your thoughts on big sweeping changes versus just a little kind of micro changes. What's the feedback mechanism for that?

Daniel Crosby (38:43):

Yeah. The desire to make big sweeping changes is one of the reasons why no one's new year's resolution stick because everyone... I think it's like 7% of people hit their new year's goals, and the reason is someone who hasn't gotten off the couch in a decade decides on December 31st that they're going to run a marathon next year and it's just too much. So the best behavioral interventions are incremental. So first you run a mile. First, you run a mile, you walk run a mile, then you run a mile, then you run a 5K and so on until you can run that marathon.

Daniel Crosby (39:22):

Oh yeah, all along the way, it's rewarding. All along the way, you pat yourself on the back, you're proud of yourself. You hold out some carrots and some rewards so that you make it a more palatable process. So yes, you're absolutely right. An object in motion tends to stay in motion. An object at rest tends to stay at rest. But make that first step. So take that big goal of yours. Take that big goal of yours on the vision board and break it down into the five or six incremental steps along the way, and then take that first step and attach a reward to it, and I think you'll be pleased with what happens, because most people especially at this time of year try to do way, way too much.

Patrick Brewer (40:03):

Yeah, it's good advice. Have you noticed anything in particular in the research or just in your life that has allowed people to thrive? I mean, is there any small changes or big changes that you've seen in the data that says, "Wow, if everyone adopted this, they'd be much better off for doing it." So one in particular that I've seen that's worked well for me and for others is just kind of maintaining that mindset of being grateful for things. So just practicing a routine of just actively saying that you're grateful for certain things and then more things will kind of just magically show up. Magically or not magically, but they just show up for you.

Patrick Brewer (40:38):

In your opinion, that might just not be I haven't read the research on it and I might be wrong, but what are you what are your thoughts on that? Is there anything that you've seen that is convincingly shows up in the data or shows up in people's behavior time after time and you're like, "This is tried-and-true. You have to do these things because they will produce positive outcomes for you." What do you think?

Daniel Crosby (41:00):

So first of all your gratitude example is a great one. There's a podcast that I would recommend called the Science of Happiness where every week they go through sort of the science of behavior change, the science of happiness and they take things that are talked about in the literature and they just live it. They live it for a week or two weeks or a month and on a recent episode they were talking about gratitude journals because as simple as it sounds, the magic you're talking about, the magic of seeing good things everywhere when you keep a gratitude journal is really just a form of confirmation bias which is like you see what you're looking for.

Daniel Crosby (41:36):

So when you're looking for good things to happen, you start seeing good things and vice versa. When you're looking for the world to be against you and the world to suck, you can find that if you're looking for it. So gratitude journal is a very powerful thing. There's a model of happiness called the PERMA model, P-E-R-M-A that talks about these sort of five facets of happiness. I would encourage everyone to look at that. But the R in the PERMA model is the one that I'll talk about which is relationships.

Daniel Crosby (42:08):

So there's a lot of overlap between nutritional and fitness type goals and financial goals, because both of them are sort of easy to know what to do, but hard to do like hard to implement. And I read an article recently that said the best predictor... There were two best predictors of weight loss and so one of the predictors in this study was frequent feedback. So weighing yourself every couple of days. So you just have an accurate sense of how you're doing and you're accountable. And then the second one was whether or not the people closest to you, it's kind of the people you hang out with on the regular had gained or lost weight.

Daniel Crosby (42:52):

So we're all benchmarking whether it be with our stock returns or our weight or fitness or anything else to the people around us. So the longer I live, the more powerful I believe relationships to be from everything, from happiness to gratitude to trying to make changes. If you want to make changes in the new year, surround yourself with people for whom those changes are the norm. So going back to our gym example, you want to get in shape in the new year, surround yourself with people for whom going to the gym is just what you do. It's just second nature and soon you'll become one of them, you'll become one of those people. So there's five in that model but relationships I think are probably my favorite.

Patrick Brewer (43:39):

And you said that was called the PERMA model?

Daniel Crosby (43:41):

Yeah. PERMA, P-E-R-M-A.

Patrick Brewer (43:42):

The podcast was Science of Happiness, correct?

Daniel Crosby (43:46):

Mm-hmm (affirmative).

Patrick Brewer (43:47):

Nice, man. Well, I appreciate you sharing that. We're pretty much at time here, but I've got like a million questions as it relates to behavioral psychology and those types of things. I mean for anyone looking for personal development and growth, I mean is there any other resources that you would recommend? Because I feel like that's big for financial advisors especially if you're an entrepreneur because you're always going to have blind spots and those blind spots, you have personally, you're going to manifest in your business, in your relationships, in your life.

Patrick Brewer (44:15):

Any other resources that you've seen the average entrepreneurial advisor who's listening to the podcast, let's say above average because they're listening to the podcast could benefit from if they deployed them in their life and their business?

Daniel Crosby (44:31):

I'd be sort of hesitant to recommend any of the coaching services out there, not because they're not good just because I'm not aware of how they compare. I think if you just want a cheap easy place to start, go google behavioral finance reading list and go read three or four behavioral finance books with this specific mindset, with the mindset to look at these things as a mirror and not a window. So I think many times when advisors read books like mine, they do so as a window into their clients' lives like a window into why their clients do the things that they do.

Daniel Crosby (45:09):

But I think if you read good behavioral finance books with an eye to them as a mirror into your own behavior and as a way to deepen your insights into your own actions, I think you have a much richer experience and you become much more cognizant that you're no different or better really than your clients when it comes to doing silly things in life and with your money. So that's sort of where I'd start for a cheap easy place to start in the new year.

Patrick Brewer (45:37):

Thanks, Daniel. Full of great advice, man. I really appreciate you coming on the podcast. Thanks for sharing your perspective. We'll be sure to include links to all the books, the Tulip Advisor website and I recommend everyone subscribe to that and get access so you can get updated on this progress. So Daniel, thank you so much for coming on the show and I look forward to hopefully having you as a guest in the future.

Daniel Crosby (45:57):

My pleasure. Happy to do it.