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Daniel Crosby, Ph.D., Orion Advisor Solutions

Financial Planning > Behavioral Finance

Follow These 5 Steps to Minimize Client Anxiety: Orion’s Daniel Crosby

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Clients focusing on what’s transpiring in the U.S. economy instead of their personal economy leads to “learned helplessness, [which] can induce burnout and a lack of desire to keep on investing,” psychologist Daniel Crosby, chief behavioral officer at Orion Advisor Solutions, argues in an interview with ThinkAdvisor.

Rather than worrying over “externalities that are out of [their] control,” clients should concentrate on their own “personal benchmark” to “make decisions that are both within their power and germane to their specific situation,” says Crosby, a 2022 ThinkAdvisor LUMINARIES award finalist for Thought Leadership & Education.

Crosby, who was chief behavioral officer at the turnkey asset management platform Brinker Capital before its 2020 merger with Orion, spent time as a registered investment advisor earlier in his career.

At the closing of the Orion-Brinker merger in September 2020, Orion supported more than 2,100 advisory firms with $1.3 trillion in assets under administration plus $44 billion of combined assets of Orion Portfolio Solutions and Brinker Capital.

A popular industry speaker, Crosby, 42, hosts the podcast “Standard Deviations,” which boasts more than 1 million downloads in 142 countries.

In the interview, the psychologist discusses five things advisors can do to reduce client anxiety in today’s difficult, volatile stock market. Only after the first three foundational steps have been put in place should financial advisors proceed to talk about specific investments, he says.

Any earlier than that risks “the backfire effect,” he maintains, which causes the client to “double down on an irrational belief.”

In our conversation, Crosby also explores the well-researched “5 Big Personality Traits” that, when put to use by advisors, can deepen client relationships.

He also explains why, broadly, “buying what you don’t know” is good investing versus “buying what you know.” The latter often “tends to double- and triple-load risks,” he says.

ThinkAdvisor recently held a phone interview with Crosby, who was speaking from his base in Atlanta. Here are highlights of our interview:

THINKADVISOR: Many advisors write off behavioral finance as “a soft skill” they don’t need to pay attention to. But why is it important?

DANIEL CROSBY: Behavioral finance and soft skills add “hard” value to clients. Relational and behavioral considerations are the only enduring competitive advantages in our space.

Technology can serve as a point of differentiation for a time, but today’s cutting-edge tech becomes tomorrow’s table stakes.

So it’s not an enduring place for an advisor to plant her flag. People will be making investment mistakes and sabotaging their success a thousand years from now regardless of what technological innovations may come.

Thus, behavioral finance is and will remain a place where advisors can add incredible value and cultivate long-lasting client relationships in the process.

How can advisors reduce clients’ anxiety in today’s down market?

I’ve created a five-step model for having difficult conversations with clients when markets are volatile or down:

1. Empathize. Listen deeply and connect to something within yourself that “gets” what your client is going through. Ask more questions, notice body language and listen to every cue a client might be giving about their state of mind and wellbeing.

2. Normalize. Normalize the client’s behavior and show that you understand where it fits within their larger financial worldview. You must [evaluate] the client’s sentiments and worries, and make them appear normal because they are.

This doesn’t mean you’re approving of what they’re doing.

I had a friend with an incredibly concentrated stock position in his employer [firm] and was refusing to diversify away because of his emotional attachment to the company that has provided him with a rich life.

That’s suboptimal behavior. However, it was only when I recognized that this impulse was understandable that he was able to make a change and diversify.

Normalization means saying, “I get it” even when “it” isn’t optimal. My lecturing on the perils of concentration wouldn’t do it. You have to say, “I understand. I get why you’re doing this.”

3. Purpose. Work with the client to examine their behavior relative to their stated goals and values to see if they’re being served by their current actions.

In the case of my friend [who wouldn’t diversify], his behavior was in conflict with his stated goals of creating a safe and reliable financial environment with which to provide a carefree retirement for his family.

Purpose allows the advisor to position the necessary behavioral change in terms that are meaningful to the client rather than mandating from on high that things must change.

4. Proof. Once the relational foundation has been laid with the first three steps, now — and only now — can the advisor begin to get into the math, facts, figures [and] science behind the potential next steps.

Doing so earlier risks a well-known psychological tendency known as “the backfire effect.” That’s when a client doubles down on an irrational belief because [the advisor] has threatened that cherished belief without a sufficient relational buffer in place.

5. Process. The client can experiment with the new behavior in a measured way. This might be homework, listening to a podcast or reading a book or article.

It might also be tiptoeing with the new behavior into increased saving or a slightly riskier asset allocation.

But whatever is being asked should be subdivided into a series of smaller asks that can be experienced and shaped over time.

In a book you co-wrote with Charles Widger, founder of Brinker Capital, “Personal Benchmark” (2014), you advise investors to worry less about “the economy” and instead focus on “your economy.” Please explain.

Most people focus on externalities when considering their financial lives — the economy, the president, the Fed, the course of a virus — and ignore more powerful, present and controllable realities that exist within them.

Focusing on things that are out of our control leads to a psychological phenomenon known as “learned helplessness.” That can induce burnout and lack of desire to keep on investing.

But by focusing on their “personal benchmark” or “personal economy,” clients can make decisions that are both within their power and germane to their specific financial situation.

What is “behavioralize”? This describes how you serve Orion clients.

It’s making sure that every part of our process has been considered and engineered in a way that maximizes positive outcomes for the clients. Everything from the placement of a widget to the color of a graph to the order in which a series of questions is presented materially impacts client behavior.

So we’re working to ensure that our tech is as human-friendly as possible. This includes creating a risk questionnaire that accounts for emotionality — in addition to the more typical tolerance and capacity measures.

It also has a goals-based investing platform that uses mental accounting and a couples money assessment designed to show partners how their attitudes about money intersect and diverge.

All the tools empower our advisors to deeply understand and have better conversations with clients.

With regard to investing itself, you advocate “buy what you don’t know.” Why is that good advice?

When people buy what they know, they tend to double- and triple-load risks in ways that aren’t immediately apparent to them.

Familiarity bias says we tend to confuse the things that we know with things that are safe. An extension of this is home-country bias.

People tend to already gravitate and overweight the things they know. This lays risk upon risk.

For instance, if you live in a [place] whose economy is dependent on the strength of, let’s say, agriculture, then your home value is also dependent on the strength of agriculture; and your employment too. You’re [likely] overinvesting in agriculture stocks as well.

Personality science says that most people have, to differing degrees, what’s known as the “Big 5 Personality Traits.” Knowing what they are can be used to strengthen and deepen client-advisor relationships, you’ve said. What are the five?

They were discovered simultaneously through multiple streams of research into lexical analysis. The five common pillars are:

1. Openness to experience: someone’s willingness to be experimental and try new things. It’s also correlated with intelligence.

2. Conscientiousness: a person’s preference for organization and careful planning or for disorganization and being careless. This is the trait most tightly correlates with professional success.

3. Extroversion: the degree to which someone is outgoing and gregarious in social settings. It’s not to be confused with social skill, since introverts can be highly socially skilled, though less energized by social interactions and demonstrating a preference for smaller groups.

4. Agreeableness: the extent to which someone is willing to “rock the boat” in social situations. If someone asks for feedback, for example, a person with low agreeableness will be brutally honest, whereas someone with high agreeableness will [consider] the impact on that person’s feelings first more than the literal veracity of the feedback.

5. Neuroticism: Proneness to stress and anxiety. Obvious implications for risk-taking and the degree to which the client will be demanding of an advisor’s time, especially in a market like the present one.

Clients with high neuroticism show lower risk composure scores, which indicate the capacity to make risk-reward tradeoffs and the likeliness for emotional override that short-circuits their risk tolerance.


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