As advisors, we often encounter situations in which clients resist recommendations that we know will improve their lives. Sometimes our initial reaction is to counter with facts and logic, but this can actually lead the client to further resist change. Dr. Daniel Crosby, psychologist and New York Times bestselling author, has researched how client behavioral tendencies affect financial decision making—and how advisors can best respond to those tendencies.
On this episode of Elementality, Reese Harper welcomes Daniel for a discussion on client behavior. As Daniel writes “it’s not the soundness of an argument that matters, it’s understanding where they’re coming from and not attempting to make the logical argument until you’ve resolved the emotional concern.” When we understand the client’s full story, we are better equipped to respond to behavioral blocks and keep the client moving forward.
Podcast Transcript
Dr. Daniel Crosby:
All of this behavior that seems irrational, when you know someone’s full story, there’s always a reason. Nobody gets out of bed in the morning to try and be difficult or to make you angry or make your life hard. If people are doing something that seems irrational, there’s always a reason if you hear their story long enough. So keeping digging. Stop pushing them. Stop showing them charts and dig for that story. And once they feel understood, I think more times than not, they’ll make the right decision.
Abby Morton:
Welcome to Elementality. I’m Abby Morton, CFP and Producer of our podcast here at Elements. I love being a financial planner, but I know it’s a challenging profession as well. That’s why the number one goal of our show is to help you prosper as an advisor as you better connect with your clients. We know your time is very valuable. Plan on a good return when you spend it here with us.
Reese Harper:
Welcome to Elementality, everybody. We’ve got another episode here and I’m sure stoked to bring in the big wig himself, from Georgia, Atlanta proper, Dr. Daniel Crosby. Daniel, how are you doing today?
Dr. Daniel Crosby:
I’m good, man. Thanks for having me.
Reese Harper:
We were talking before the show about life has been for you and me. Me and you had a chance to meet years ago, prior to your most recent career, which we’ll talk about in a minute. But during COVID, we haven’t really talked at all, and you said that this COVID experience has been an interesting one for you. And I wanted to hear what has been so crazy for you about COVID, and maybe I’ll share a little bit about mine too.
Dr. Daniel Crosby:
Yeah. It’s been a wild year. Here we are, first of March, first week in March, I guess, and we’re coming up on the one year anniversary. And over that time, we’ve been super locked down. I mean, everyone has varying levels of comfort with this whole thing. But my family has made a decision to stay pretty close to home, and so, I mean, it’s been about a year since I’ve been to a restaurant. And this is just things that I never thought I would say, so it’s definitely been a weird year on the one hand. And then on the other hand, enormously blessed, we’re healthy, I have a job. At a time when a lot of people are struggling, it’s hard to complain. So it’s definitely been a weird year though for me and for everyone.
Reese Harper:
For those of you who don’t know, Daniel is a very successful author, and our firm has, in several cases, bought his books and distributed them to clients. I’ve read both of his most recent books that I feel like have been great staples. If you haven’t read The Behavioral Investor, you can go on Amazon and find it there, variety of places, but it’s a great book. Daniel, most people would assume that you during COVID are probably been hold up in writing. Has that been happening, or is it little hard to find the space to be creative and write during COVID?
Dr. Daniel Crosby:
So, not only have I not written a book, I’m not even sure I’ve read a book in the last year. A lot of people, early on in the pandemic, we’re talking about, I can’t remember which of Shakespeare’s works was written in quarantine. And so all of these people were like, oh, Shakespeare wrote whatever it was, Macbeth, or whatever, in quarantine, when’s your next book coming out? We’re homeschooling three kids. About six months ago, my employer sold to my now employer. And so we had a whole merger in the midst of that and getting to know all my new coworkers, immediately put on some very big projects. So for me…
Reese Harper:
It just feel like you’ve been overwhelmed with just a lot of kid stuff and family stuff kind of is taking every spare minute you got.
Dr. Daniel Crosby:
I haven’t been able to operate in some gears and writing has been one of them.
Reese Harper:
Yeah. It’s interesting how much emotional energy and creativity it takes to actually… and find inspiration to be able to write. And The Laws of Wealth, you wrote in what year was that? 20…?
Dr. Daniel Crosby:
2016, maybe? I think that one was 2016 and Behavioral Investor was 2018. So I’m due. I mean, [crosstalk 00:04:49].
Reese Harper:
[crosstalk 00:04:49]. I want to dive through a couple of important topics that I feel like you’ve got unique perspective on. When you talk about the sociology of investing or sociology in general in The Behavioral Investor, what are you really talking about there?
Dr. Daniel Crosby:
Well, we’re really talking about humankind’s greatest strength, which is cooperation. And so one of the themes in The Behavioral Investor is that things that have served us well evolutionarily, things that have served us well as human species often serve us very poorly as investors. And so when you look at us, right, as a human race, we don’t have sharp teeth, we don’t have claws, we don’t have fur, we don’t have all the things you need to survive or slow, we can’t swim well. We don’t have all the things that other animals have to survive, but what we do better than other animals is we get together. We put our heads together and we cooperate, right?
Dr. Daniel Crosby:
I even start out one of my chapters, talking about imagining you are shipwrecked with a monkey, right? So if it’s just you, one human and one monkey, you’re on a plane full of monkeys, right, I don’t know.
Reese Harper:
Yeah.
Dr. Daniel Crosby:
The plane crashes, one human and one monkey, right? You come back in two years, who’s left? Well, the monkey’s left, right? Because the human doesn’t have what he or she needs to survive and the monkey does. But if you had a plane crash with 100 humans and 100 monkeys, the humans would wipe those monkeys out, right? The humans would work together. They’d eat those monkeys. They’d work together and they’d cooperate. So, humankind works together really well. We overcome our limitations by partnering and forming cultures and economies and collectives and religions and governments, and that’s sort of our competitive advantage from an evolutionary standpoint.
Dr. Daniel Crosby:
But when you look at markets, it’s also what causes us to do stupid things. We’re wired for cooperation, but we’re also wired to blow GameStop’s stock through the roof when our friends start doing it. So in the same way that we’re wired to build great governments and great art and great institutions, we’re also wired to do stupid stuff in markets. So that’s kind [crosstalk 00:07:27]…
Reese Harper:
And by stupid stuff, I guess, what are you thinking of when you’re saying that? Is it group think, is it herd mentality that you’re kind of emphasizing when you talk about sociology?
Dr. Daniel Crosby:
Yes, exactly. So one of the things that we do, another sort of differentiators that human brains are much bigger than most of the rest of the animal kingdom, relatively speaking, right?
Reese Harper:
Yeah.
Dr. Daniel Crosby:
So we’re born too early. You look at other animals, they’re born, and the next day, they’re out running around. Meanwhile, humankind, you’re 18 and you’re still living in your parents’ basement, right? You still don’t know how to get along in the world. And so the reason is because we have to cooperate and we rely on sort of coasting off of others’ decisions. And so when we see people making poor financial decisions, we often follow them down that same path.
Reese Harper:
Hmm. I want to pivot to just a different topic. There’s really insightful and actually a real critical reason why a lot of investors struggle. In your book, you talk about another topic. You talk about the brain. I think the chapter actually starts with a quote from Sir Arthur Conan Doyle. It says I am a brain, Watson. The rest of me is mere appendage. Why did you dedicate the space to the brain itself? And what were you talking about in this segment of your book?
Dr. Daniel Crosby:
So one of the big takeaways there is that, I started to touch on it in my previous comment, the brain is 2% to 3% of your body weight, but it’s something like 25% of your metabolic expenditure. So it’s not very big but it’s really calorically expensive. And so one of the things we’re always looking to do, we’re looking for ways to think less. We’re looking for ways to sort of go into auto decision making mode. And almost all of the ways that we do that lead to bad investment decisions. So, we can coast off of the opinions of others, we can sort of mimic what others are doing, we can rely on biases or stereotypes or emotion, all of those are shortcuts to thinking. So understanding sort of the mechanics of the brain are important to understanding sort of where these behavioral missteps come from.
Reese Harper:
I guess, how does the brain and the physiology of the body, like our human physiology, really start causing us problems then? Because herd mentality, like you just highlighted, is one of those dimensions. What else, I guess, are you… for a lot of financial advisors, when they hear the scientific kind of explanation of the brain and physiology, they’re kind of waiting for the and what. So what’s the and what to the brain and the physiology?
Dr. Daniel Crosby:
Yeah. I mean, I think the and what highlights the importance and the primacy of the role of a financial advisor as a decisional coach. Because I talk about basically how frail we are. There’s all kinds of research about when people get hungry, they make horrible decisions. There was of interesting research and a book about if people had to pee, if people had to use the restroom, they totally skew their whole risk perception. So there’s 100 different things. Anything that moves our body away from homeostasis, right? Lack of sleep, lack of nutrition, needing to use the restroom, 100 different things, anything that moves our body away from homeostasis leads us to bad decisions and clearly, we’re not all walking around at 100% everyday, especially not one year into a pandemic.
Dr. Daniel Crosby:
And so I think it shows the importance of having a financial guide by your side and someone who can keep you on the straight and narrow when, for whatever reason, you’re feeling like making a poor choice.
Reese Harper:
Hmm. And one of the graphics that you kind of highlighted in your book was this inverted U model. It’s related to this topic. It’s a concept that, my understanding at least, is that you’re trying to highlight what boredom can actually do to someone’s decision making. Can you kind of highlight or talk a little bit more about that?
Dr. Daniel Crosby:
Yeah. So think about two axes, think about stress on one axis and think about performance on another axis, and think about an upside down U. You got to adopt this for the podcast genre, right? So if you think about this, people with really low levels of stress have terrible performance, right? They’re not stressed out enough to ever get off the couch or to do anything. But people with really high levels of stress have equally catastrophic low levels of performance. And so the trick is I think with a lot of these things, learning to feel the fear and channel that in a good direction.
Dr. Daniel Crosby:
So, it’s not that… a lot of times, when people talk about behavioral finance, it’s like, oh, we’re going to make things emotionless. That’s kind of a fairytale. We need stress. We need stress. We need fear. We need a lot of these things we feel, but we need them in appropriate doses to make optimal decisions.
Reese Harper:
Sounds like every once in a while, I get hints of you talking and you’re sounding like you’re pulling from Hindu Chakra kind of dimensions. Do you find that your interests have taken you into any other spiritual practices or things that affect this? Because you’re talking about imbalances, you’re talking about centeredness, homeostasis, I’m just kind of curious what has influenced you there.
Dr. Daniel Crosby:
Yeah. I do believe that when you read enough and you think enough, I think especially about human behavior, the truth starts to overlap, right? And a lot of times, I think the arts and religion and other places have sort of noticed truths about human psychology that psychologists are just getting around to documenting. So, I wrote in depth in my latest book about meditation, and I’m a very, very regular, very [inaudible 00:14:19] meditator. That’s something I picked up through my study is that these things that are spiritual or religious practices can actually have very practical upside when thinking about how to manage your money. The CFA society did a whole long white paper about meditation, and that’s pretty crazy to see from a financial body, but it works.
Reese Harper:
I feel like there’s a movement a little bit more right now towards centeredness and present living. It’s a more Buddhist idea where we’re not judging ourselves too harshly, we’re not living out in the future or the past too much. We’re just trying to figure out how to live right now in as healthy and as happy of a way as possible. Does that resonate with you? And I guess I’m just trying to share that as a perspective that we’re pursuing. And I felt like when I read your book, you’re talking about ego, you’re talking about meditation, you’re talking about centeredness, homeostasis, physiology. I’m like, man, he’s really exploring beyond just how do we get higher IRR, it’s how am I going to arrive at a place where I’m actually happy as an investor.
Dr. Daniel Crosby:
Every year, since the American Psychological Association started measuring stress in America, every year, there’s this big sort of comprehensive study on the causes of stress in America, and every year, money is number one, every year since they started measuring, which is about the year I was born, so 40 something years now, they’ve been measuring this, and money’s always it. And so a lot of times, we as an industry have overlooked the good we can do in people’s lives. When you look at people who work with financial professionals, not only do they tend to have better returns, right, to have the better IRR, but they also have greater happiness, greater feeling of preparation, like sleeping better at night, the old euphemism.
Dr. Daniel Crosby:
All of this is true, and we do an important good for others when we help them get clarity and get centered around money. So, yeah, I am a little bit of a hippie though. I’m the psychologist who found his way into finance, but my hippie starts to show sometimes.
Reese Harper:
For those of you who don’t know Daniel, I guess from my perspective, you have to know that a lot of authors who write about behavioral finance approach it from a lot of different lenses. And I think that it’s very interesting to see the philosophical roots that are kind of driving Daniel’s financial philosophy, especially in his most recent book. Now one of the chapters is about ego, and it has some important implications for financial advisors. And ego’s definitely about as philosophical and rootsy as you can kind of get, and you won’t find a lot of people that are writing about behavioral finance talking about ego, and I just think it’s interesting.
Reese Harper:
The audience should be at least aware of the dimension your background is kind of drawing you into this topic from a different angle. I find it incredibly valuable because elements itself is more of a philosophy than it is a piece of technology. It’s technology that empowers a philosophy of centeredness around money and behavioral finance and behavioral change. But talk to me a little bit about ego and how that made its way into the book, and then how ego affects investors.
Dr. Daniel Crosby:
Yeah. So a quick word on philosophy. One of the things that was driven into me in grad school early on that I really keep with me is the primacy of having sort of a philosophical underpinning to whatever it is you’re doing, right? So like you, with your technology platform, there is a strong philosophical undergirding there that is the thread that goes through everything that you’re doing and it informs everything you do. Otherwise, it’s sort of hodgy-podgy and sort of weakness can slip in. So that’s something that I really keep with me and that I keep top of mind when I’m working with my firm to develop technology or to write.
Dr. Daniel Crosby:
In terms of ego, ego or overconfidence, we’ll talk about overconfidence perhaps here, not ego in the Freudian sense, but overconfidence is sort of the meta problem for behavioral finance because it’s the problem that emboldens every other problem.
Reese Harper:
Yeah.
Dr. Daniel Crosby:
The thought that this stuff doesn’t apply to you and that it applies to other people is sort of the meta problem. And so when we look at the literature, we know there’s a couple of specific ways in which people demonstrate this ego, right? So they think they’re better than other people. People tend to rate themselves as whatever, better looking, better drivers, on and smarter-
Reese Harper:
Smarter, yeah.
Dr. Daniel Crosby:
… yeah, on and on, than they actually are. We know people also think that they are luckier than they actually are. When you ask people what’s the likelihood of you getting divorced, no one’s ever going to get divorced, and then we know that half the people get divorced. So the odds of you getting divorced are quite good but no one sort of owns up to it, so smarter, luckier and then better at predicting the future. So those are sort of the three facets of ego is we think we’re better than average, we think we’re luckier than average and we think we know what’s coming. And those three are sort of a deadly, deadly combination.
Dr. Daniel Crosby:
The thing about overconfidence is we, actually, as a society, we need some, right? Every time someone opens a restaurant, that’s a stupid bet. Every time someone starts a small business, right? Like what you did, right? You starting a technology firm, what’s the success rate on tech place? It’s terrible, right? And yet we’re glad that in aggregate, people start businesses, that people start restaurants, so yeah, we kind of need overconfidence, but it can be problematic when making investment decisions. Sorry to bum you out about your math there.
Reese Harper:
Yeah, no. You mean, you’re sorry to bum me out that I’m facing improbable odds right now as a tech entrepreneur?
Dr. Daniel Crosby:
You knew that.
Reese Harper:
Oh, yeah, I knew that. Yeah. It’s part of what makes me tick. I want to hear a little bit more about, then what’s the problem with how that correlates to… how can a financial advisor use this in language and in practice, right? This idea of ego and overconfidence, how is a financial advisor going to use this knowledge to sort of help improve their retention, their churn, their investor success?
Dr. Daniel Crosby:
Yeah. So, one of the trickiest things, and again, another theme of some of my writing is that stuff that works in one facet, in one part of your life, doesn’t work in another part of your life. So, when I was in my 20s and I went and talked to my wife who is far too kind for me, far too smart for me, and far too hot for me, that was low probability but I’m glad I did it, right? And I think a lot of people, when they start businesses and things, they’re glad they did it even though the failure rate is high. So a lot of advisors are going to have people who came into wealth by taking risky bets, right, by betting on themselves, by doing something improbable that paid off, I mean, that’s kind of an advisor’s dream client.
Dr. Daniel Crosby:
So you have to help them understand the contextual nature of this and have to help them understand that getting rich and staying rich are qualitatively different pursuits. You get rich by concentration. You get rich by doing the improbable. You stay rich by playing the probabilities, right? I mean, that’s just a conversation that has to be had because I think a lot of people have learned the lesson that big risks pay off in other parts of their life.
Reese Harper:
I think that, that is a really critical kind of foundational philosophy to engage with entrepreneurs on business owners and especially, could be professionals, like I had worked with in my career with dentists all over the country. There’s still this dimension, even in a service business, of taking risk and getting some kind of reward. And a lot of times, when people have… the faster that they earn that liquidity, the faster that it materializes, I think the more likely they are to take even more risk the second time around, at least that’s been my experience, I don’t know what the data shows.
Reese Harper:
But anecdotally, when I meet someone, a 20 something or early 30s who had a liquidity event, it’s interesting to listen to two people about the same liquidity event, two people that both have a liquidation event of $1 million, let’s say, and they have $1 million liquidity event. One person might frame that experience as unsuccessful that I had an unsuccessful exit and I’ve got to get right back to work. And someone else might frame that as I have life changing money, I never thought I would be in this position, and I don’t have any idea what to do with this. The first person basically saying, just put this to work, I got to get back to work and this isn’t a substantial amount, and I know I’m still way short.
Reese Harper:
Another person saying, I don’t know what to do, I just want to start taking vacation. I got to start… this is time to live the dream. And I feel like knowing… the way that someone earned the money, the first person, maybe it was a long slog of a seven-year battle that finally resulted in a liquidity event that they considered modest. Maybe the second person was an immediate liquidity event that happened after a year and a half of software development that then was bought in some arbitrary patent dispute by a large multinational conglomerate, but it wasn’t a strategic really rationale for whether business was thriving.
Reese Harper:
I’ve seen just so many cases where people’s approach to either how much money they have or the risk that they’re willing to take then with that money is really dependent on their previous experience. And as an advisor, it’s important to kind of center yourself in kind of some objective metrics, I feel. Objectively, to some people, $1 million is a significant sum of money, where to someone else, it might just be the starting point towards financial security. It’s such a gift we have, an opportunity to be able to shepherd or to guide or to help someone properly navigate their emotions and how they view money and the confidence by which they invest and manage it.
Reese Harper:
It’s a huge responsibility because they really… to a lot of people, you really provide an amount of wisdom that only time and experiences can give you. And as a financial advisor, you’re not dealing with just your own life experience wisdom, you’re dealing with watching dozens of people and you get to see all of these choices. It really gives you a huge step-up in terms of gaining wisdom that you can share.
Dr. Daniel Crosby:
Yeah. I mean, to your last point, my dad is an advisor, and I think one of the things that set me on such a good path as a young man is that my dad had effectively lived 100 financial lifetimes vicariously through his clients, right? Because most of us only have one financial timeline. The only reality we experience is our own. I think advisors and people who work in this space experience sort of multiple simultaneous financial realities and see the good, bad and ugly of different things.
Dr. Daniel Crosby:
A lot of what you’re talking about with the $1 million example and was it accrued slowly or quickly, and that is what psychologists would refer to as mental accounting. So the way that we frame money has a ton to do with how we spend it. So if you think back, we’ve had a lot of stimulus checks going out lately, but if you think back to the Bush, Obama era, when W. Bush was leaving and Obama was coming in, this was, of course, during the great recession, and Bush and his team sent out a round of checks that they framed as a rebate, right, that they framed as a rebate and they were frustrated that people weren’t really spending it.
Dr. Daniel Crosby:
And the Obama administration, Obama’s from Chicago, a lot of great behavioral economists at the University of Chicago, and Obama got together with some of these behavioral folks and said how can we position this so that folks will inject this money back into the economy. And they had them frame it as a bonus where it was almost like found money, and it’s called the house money effect, right? If you’ve ever been gambling and you won some money, you spend money you win gambling very differently than you spend money that you’ve got from work in your W2 job, right? You spend money that’s a bonus very differently than you spend money that you got at your W2 job.
Dr. Daniel Crosby:
So, one thing that advisors can do is be intentional with their clients about how they frame their wealth because it turns out that simple thing of what do we call it has profound implications for how we spend it, save it and invest it.
Abby Morton:
I know one of your biggest challenges is delivering a consistent financial planning experience to your clients on an ongoing basis. You get off to a good start, onboarding a client, and then what? There just doesn’t seem to be a good process for nurturing the new relationship.
Abby Morton:
The Elements Financial Planning System can help you easily organize and evaluate client financial data. Then, based on key indicators of their financial health, deliver timely insights to your clients. Using our system gives you the structure you need for ongoing planning. To learn more, schedule a time to talk to us today by going to getelements.com/meet.
Reese Harper:
One of the concepts I want to make sure we have a chance to touch on here is the idea of conservatism and how conservatism can also have a pretty negative impact on people’s investment results. Talk about conservatism just generally and define it for those who are not familiar with it, and then we’ll go into how it affects investing.
Dr. Daniel Crosby:
Yeah. So conservatism is sort of my umbrella term for things like risk aversion and status quo bias, and just the general human tendency to [inaudible 00:30:22] effect, the general human tendency to want to hang on to what you’ve got, to not rock the boat, to not make changes, and to be more scared of loss than you are happy about gain. Now, from an investment perspective, I’ll kind of talk about it from an investment perspective, and then, because we’re waxing philosophical, from a life perspective, from an investment perspective, it’s people having inadequate risks, right, or not taking adequate risks, right? It’s people jumping in and out of the market because they get twitchy and they get scared. It’s people always thinking that this is the top. It’s people wanting to take less risk than they should to keep up with their goals.
Dr. Daniel Crosby:
And in a weird way, it’s people not even getting enough insurance because they’re scared to talk about or think about their own impermanence. One of the things that’s tricky is to be a good advisor and to make sure your clients are adequately protected, you got to get people to talk about the inevitability of their own death, and that’s very, super, super tough. I mean, there’s all kinds of great psychological studies that show that when you remind people that they’re going to die, they get very, very angry, right? I mean, nobody likes to talk about this or to think about this, and they tend to take it out on us when we bring it up. So that’s how conservatism plays in to investing.
Dr. Daniel Crosby:
If I go back to being a therapist, conservatism is also one of the biggest things that wreck people’s lives. When I was doing therapy, I worked with what we kind of jokingly refer to as the worried well. So, this is not severe mental illness, this is people like you or I who are just having a hard time, but they’re high functioning, right? They’re holding jobs, they’re married, they’re your neighbors and your friends at church and whatever. But one of the most consistent things I found is what I started to refer to as emotional graying, so people just kind of muddling through, right? People not wanting to fall in love because falling in love might mean getting hurt. People not taking the risk to start that small business they’ve been dreaming about for a decade because it might fail.
Dr. Daniel Crosby:
So there’s this tendency to take so few risks that you get to the end of your life kind of never having done what you wanted to do, and there’s an element of risk taking that’s inherent in any kind of worthwhile endeavor, building a family, falling in love, starting a business, all this takes risk, and people who don’t embrace that are poor for it in every conceivable way.
Reese Harper:
Yeah. I think we’ve podcasted about this a while back about the top regrets of the dying, and that is definitely one of them, that people feel like they just weren’t true to themselves, they didn’t follow the path that their values were kind of pushing them towards. What’s the balance or the advice you would give advisors who are struggling to know how to encourage people, to move away from maybe a conservatism kind of mindset to become more fully engaged as investors? What’s your general advice?
Dr. Daniel Crosby:
Yeah. So we’ll keep it hippie, we’ll keep it philosophical. I mean, I give some specific pieces of advice in the book, but I recently had an encounter with this. So I have a friend, I live here in Atlanta, there’s lots of Fortune 500 businesses here and there’s lots of wealth that’s been created by these large… by UPS, by Coke, by Aflac, by these other businesses here. And so a friend of mine worked for one of these large companies and had a couple million bucks, he was retiring, and he had 80% of his net worth in this single stock. And so I became aware of this as he was retiring, and I said, hey, you’ve got to fix this, right? This is not okay. You know this doesn’t make sense. You’re a smart guy. Promise me you’re going to fix this. Okay. Okay.
Dr. Daniel Crosby:
I see him a couple of months later, hey, did you fix this concentrated [inaudible 00:34:48]? No. So I tried him, I chastised him, I fussed at him. Okay, fix it. Don’t let me catch you sitting 80% of your wealth in UPS stock. So see him a month later, I go, did you fix it? And he goes, no. And then finally, I do what I tell other people to do was instead of pushing on him, right, instead of chastising him, instead of scolding him or showing math, because I was sending him articles, right? I was sending him articles on investors in GE and Enron and different companies where a concentrated bet had served them poorly, and I said, help me understand, I know that you know what diversification is, so help me understand why you’re doing this.
Dr. Daniel Crosby:
And he launches into this extremely sentimental, personal anecdote about how he was a poor farm boy, UPS gave him a chance when no one else would. They employed him for 40 something years. He’s a wealthy guy now and it’s all thanks to this, and it felt like a betrayal. It wasn’t math to him at all, like selling this stock felt like a personal betrayal to an organization that had taken a chance on him and that had made him wealthy. And so it was only after I understood his reasons for that, that I was able to empathize with it, that we’re able to have a conversation with it. And for me to say, yeah, man, that makes total sense and it’s still dangerous, right? And then he did it. He diversified a way from this position but he needed to have that conversation.
Dr. Daniel Crosby:
So I think the thing that I hope your listeners will pick up is all of this behavior that seems irrational, when you know someone’s full story, there’s always a reason. Nobody gets out of bed in the morning to try and be difficult or to make you angry or make your life hard. If people are doing something that seems irrational, there’s always a reason, if you hear their story long enough. So keep digging, stop pushing them, stop showing them charts, and dig for that story. And once they feel understood, I think more times than not, they’ll make the right decision.
Reese Harper:
Yeah. Ultimately, it sounds like what unlocked the value there in your story is that he was finally heard and really understood to the point to where he knew that your advice was coming from a fully informed… he probably didn’t identify this but a lot of times, I don’t know, I’ve been through a lot of therapy so I kind of know what works in therapy and what doesn’t, and not because I’m a therapist but because I’ve been a patient a lot. And when the therapist finally understands you deep enough and they recite back to you, like what you did, oh my gosh, that’s an incredible story. I can’t believe what that would’ve been like to have gone through that experience and seen a company contribute so much to your wellbeing and your life.
Reese Harper:
What an incredible experience. You’ve really had a great ride with this company and you guys have become stronger together than you would’ve been apart. At that moment, then he’s able to kind of go, okay, Daniel gets me and I think it’s time for me to maybe make a different decision now because he really does understand. But, man, how many times do we put a piece of paper in front of somebody with a recommendation that is kind of abrasive? It’s big, it’s a change, and we haven’t heard their story. We haven’t allowed them to have the opportunity to really be heard. And consequently, they don’t take the advice, right? People don’t take advice until they really feel understood and heard.
Reese Harper:
And I feel like so many advisors, they’re close to being able to have this big impact with clients, they’re really close, but that developing that last kind of skill of empathetic listening, reflective listening, sharing back with people what you hear, making sure you’re on the same page, man, it’s a skill that we just don’t have a lot of training in but I think it’s what makes the difference in converting them to making those tough behavioral choices a lot of the time.
Dr. Daniel Crosby:
Yeah. You nailed it. And I mean, look at me. I mean, I do have a lot of training in this and I know what works and what doesn’t, and I still, my first impulse was to lecture and scold and sort of berate my friend. And there’s actually something called the backfire effect. When someone has an emotional position, they actually, originally, this is timely, they actually, originally tested this on people with strong anti-vaccine sentiments, so people who are really anti-vax, and they would say, okay, here’s all the facts about why vaccines make sense. And then they would test their sentiment afterwards, and these people had become more entrenched in their beliefs against vaccination.
Dr. Daniel Crosby:
And so what we know is it’s not the soundness of an argument that matters, right? It’s understanding where they’re coming from and not attempting to make the logical argument until you’ve sort of resolved the emotional concern.
Reese Harper:
Yeah, totally is. It’s such a skill. I feel like financial advisors, as the world moves more towards automation and as technology continues to be able to do a lot of the functional jobs that humans had to do before, set up an account, pick an asset allocation, select a security, pick life insurance, there’s a lot of functional jobs that technology’s just going to eat.
Reese Harper:
Isn’t the opportunity so huge for advisors to pick up some practical skills in reflective listening and coaching and therapeutic conversations, not making choices for people but helping them discover where their values lead them and guide them? I mean, there’s so much value there and it feels like the growth market for me inside of financial services, when technology’s eating away the functional parts of your job, right, really, truly are better automated in a lot of ways through better technology, there’s still going to be the lion’s share, probably the part of the job that pays even more than what advisors are currently charging today, it’s open for business if you’re willing to be that behavioral therapeutic psychological counselor that can really help people make decisions and listen to them, get to know them and understand them.
Reese Harper:
We just don’t have a lot of training in that yet. I would assume you’re the perfect guy to sort of help guide people in that direction, so I’m glad we have you on the podcast.
Dr. Daniel Crosby:
Yeah. Well, I’m working on it, working on it.
Reese Harper:
Well, let’s point people to your podcast so that they can hear about it. Where are you podcasting right now?
Dr. Daniel Crosby:
Yeah. The name of my podcast is Standard Deviations. Don’t mean to brag but I found out yesterday, we are the 161st most popular podcast in Finland. So I think with that endorsement, you’re going to want to get in there.
Reese Harper:
Yeah. Well, and I just wanted everyone to know that my podcast in the Maldives right now is actually the number one finance podcast being consumed in the Maldives. So…
Dr. Daniel Crosby:
Oh, Maldives is gorgeous. You got to go visit your fans.
Reese Harper:
It might be a bot in the iTunes reporting mechanism. I don’t know, but I’m going to own it because it seems to be relevant, seems to be correlated. Well, Daniel, it’s a pleasure. What would you like to leave as your parting thoughts and words with everybody?
Dr. Daniel Crosby:
Yeah. My parting thought is that you just sit in a place of immense power, I think especially coming out of the crisis we’re coming out of, I think that times of great emotion lead to great memory. We know from the research that people really hang on to what happens. They really remember what happens in periods of great emotion. And so the moves that you’re making today will never be forgotten by your clients. So if you’re serving your clients well, if you’re taking care of them and their fears at this time, you’ll have a friend and a client for life. And if you’re not doing those things, they may start looking. So this is a unique opportunity, and we as an industry just sit in a place to bless and help so many lives. So it’s a great privilege to work where we do, so go get it.
Reese Harper:
Thanks, Daniel. It’s always awesome to connect with you. I feel like we relate on a lot of different levels. So I appreciate your time and look forward to having you back on again soon.
Dr. Daniel Crosby:
Yeah, my pleasure.
Reese Harper:
Next week on Elementality. The asynchronous stuff that’s happening behind the scenes, it has to be consistent so that the client can trust that you didn’t just go away, that you’re not done, that you’re continuing to work for them and look at their situation, monitor their situation. What they really want you to do after the initial stage is monitor. They want to know you’re monitoring. You’re not just quitting on me.
Abby Morton:
You can learn more about The Elements Financial Planning System at getelements.com/meet, and schedule a time to speak with one of our friendly financial planning experts. Elementality’s Executive Creators are Reese Harper and Chad Jardine. Elementality is produced by Abby Morton and directed by Jordan Hanes. Have a good one.