The Future of Financial Advice Looks a Lot Like Life Coaching: Daniel Crosby

Behavioral finance uncovered investors’ weaknesses. That’s helpful, as long as their vulnerabilities aren’t subjected to exploitation. Regrettably, that isn’t always the case.

“There’s a dark way to use behavioral finance that emphasizes the foibles of the individual investor en route to selling them expensive products and telling them that that’s the only way forward,” Daniel Crosby, psychologist and chief behavioral officer at Orion Advisor Solutions, argues in an interview with ThinkAdvisor.

The latest book from Crosby, the bestselling author and ThinkAdvisor 2024 Luminaries finalist who focuses on the intersection of mind and markets, is “The Soul of Wealth: 50 Reflections on Money and Meaning.” While its theme is how love and money coexist, the tome also offers practical financial solutions.

Only 33% of Americans have a written plan, the psychologist writes. That’s because “people take a, sort of, ostrich mentality” with their money, he maintains in the interview.

With automation’s increasing capabilities to create financial plans and design portfolios, together with clients’ need for their financial advisors to understand them, “the role of an advisor will look a lot more like a life coach,” forecasts Crosby, rather “than someone who deals strictly with people’s money.”

Here are excerpts from our conversation:

THINKADVISOR: “Wall Street needs you to think that you’re incompetent so they can sell you junk. Wall Street depends on your believing you’re bad with money so they can offer you expensive products and services to address your perceived weaknesses,” you write. Please explain.

DANIEL CROSBY: Certainly, one of the many sales tactics of finance has been to erode people’s confidence in their own ability.

There’s a dark way to use behavioral finance that emphasizes the foibles of the individual investor en route to selling them expensive products and telling them that that’s the only way forward.

[In contrast], an empowering message helps investors become aware of their weaknesses, which do exist, but simultaneously arms them with practical solutions and products for moving forward.

When an advisor uses financial jargon, the average investor thinks they know everything possible about investing; and they, the client, feel stupid. Why do advisors speak in jargon without explaining it?

I think one of the points of jargon is to create distance between the professional and the client. That’s true of other businesses and the medical field too. 

The best advisors educate and empower their clients.

You write that many financial advisors tell you they wish they had earned a psychology degree instead of a financial one. Surprising since many don’t want to pay attention to “soft skills,” insisting that their job is about the numbers. Your thoughts?

That’s changing rather rapidly. Accenture did a study a few years ago asking what people wanted from their advisors, and the No. 1 answer was “someone who understands me.”

And McKinsey did a white paper, “On the Cusp of Change: North American Wealth Management in 2030.”

It said that in the future, financial advisors are going to be counselors because the process of creating a financial plan and designing a portfolio are increasingly easy to automate. 

So the role of an advisor will look a lot more like a life coach or life quarterback than someone who deals strictly with people’s money.

That’s already big, and I think it’s going to get a lot bigger in years to come.

You must be “bold” when you invest. “Being risk-averse with your portfolio today could be the biggest real risk over the decades,” you write. So even if someone has reason to invest conservatively, they should be bold? 

People are prone to take less risk than is prudent. That’s the boldness I’m speaking of. We’re prone to a natural risk aversion [to keep the] status quo.

I’m not suggesting to be foolishly bold. But the average person should be bolder than is probably comfortable for them because our natural tendency is to be conservative.

Given all the uncertainty about the election, the economy and geopolitical strife, why aren’t folks moving more to cash instead of investing in the market at record levels, as they are?