INVEST 2023 Keynote address: Human-first advice in the age of AI

The rise of AI is proving to be the talking point of 2023, and with its rise comes much worry over the place of humans in a landscape dominated by intelligent machines. In this engaging presentation, Dr. Daniel Crosby will make the case that AI will actually increase the impact and importance of human advice, and demonstrate how tech can work hand-in-hand with a deep understanding of human psychology to bring about better client outcomes.

Transcript :

Justin Mack (00:07):

All right, applause. And I have not even done a single thing. You guys are the absolute best, and I want to thank you all for joining us this morning for day two of Invest 2023. I am Justin Mack WealthTech, Reporter for Financial Planning, as well as host and lead editorial producer of the Financial Planning podcast. And if you were here for last night's events, do not worry, I am not going to start rapping again. It is fine, but maybe later on. And I just want to thank you all again for joining us. Everyone looks great, energized. I also saw how some of you guys were at the bar last night, so I really appreciate your ability to rally this morning and join us for some more work. Just a quick programming note to start things. We are going to have a back-to-back agenda in this room, so stay locked. Right after our keynote this morning, we are going to go right into a case study, so rapid fire action at invest this morning.

(00:51)

Also, just want to shout out our friends at the UST booth over in the vendor hall before lunch. Go check them out anytime between now and 1230, they're having a raffle where you can win a Meta Quest two and snatch yourself a piece of Zuckerberg's Bright future if you are the lucky winner. So go see them, sign up, make a friend, and maybe you will win a VR headset. So invest, if you have not been here yet and you are joining us for the first time, the focus is all about understanding, recognizing how technology is reshaping our industry, allowing us to be more present, more human, drive efficiency and maybe eliminate some of the pain that is keeping us from doing what this industry is all about. Serving the people who need the help, making big decisions, decisions that have impacts that will last not only in their immediate lives but in their future generations.

(01:36)

It is important stuff and thankfully we are in a time where there are so much technology out there, so much ability to do things differently. I considered having chat GPT help me with this intro remarks, but then I was worried it might do too good of a job and I would be out of a gig. So I decided not to do that. But we are absolutely living in whether you like it or not, the age of AI. Things are changing and there's a lot of concerns about how that might change things. Too much will that reduce the human element of the work we do. But if leveraged correctly, you smartly, there's a way to be more present. Making the case about that this morning for us, for our kickoff keynote is Dr. Daniel Crosby, chief Behavioral Officer for Orion. Quick round of applause for Daniel Crosby while I tell you why I am so excited that he is joining us for today's remarks.

(02:25)

Now, I have had a chance to talk with Daniel quite a bit and his passion is all about how we think, how we work. He is all about the mind at heart and is using that expertise to figure out how we can blend our human know-how and expertise and our passion and our empathy with our technology in a way that actually works. So he is going to be talking all about this morning human first advice in the age of AI. Quick little rundown of course on one second here. Technology failing me in real time. Now, Dr. Crosby, he is a psychologist, behavioral finance expert who helps organizations understand that intersection of mind and markets. His first book, personal Benchmark, integrating Behavioral Finance and Investment Management was a New York Times bestseller. His second book, the Laws of Wealth was named the Best Investment book of 2017 by the Axiom Business Book Awards and has been translated into 12 languages.

(03:18)

In his most recent work, the Behavioral Investor was Axiom's best investment book of 2019 and is a comprehensive look at the Neurology, Physiology and Psychology of sound financial decision making. Daniel's also a father of three, a devoted St. Louis Cardinals fan, for better or worse. Ah, couple of whoops in there. So I am from Cleveland. I have nothing to celebrate when it comes to baseball, an explorer of the American South, an amateur hot sauce chef. And I have, as I have also learned, someone with a really awesome taste in music. You can rap with him about that later. So it is my pleasure. It is my honor to welcome your keynote speaker this morning, Dr. Daniel Crosby of Orion. Make some noise for him.

Daniel Crosby (03:57):

Thank you buddy. Thank you too. Generous. Alright, thank you very much. Has everyone heard Justin's music? It is incredible. It is incredible. Thank you Justin. It is wonderful to be here today. I have about half the time I usually have, so I am going to be speaking a little bit like an auctioneer this morning, but I want to start with talking about whether or not we are solving the right problem because the business history books are littered. The graveyard of businesses is littered with the bodies of businesses who tried to solve the wrong problem. We have got Kodak who literally invented digital photography thinking it wasn't a very big deal, and doubling down on physical film. We have got Blockbuster who had the opportunity to buy Netflix for $50 million. Netflix, current market cap, any guesses, 188 billion passed on them at 50 million currently at 188 billion because they failed to see the right problem.

(04:57)

And then we have got Blackberry, which of course doubled down on improving their physical keyboard even as the iPhone came and ate their lunch. So I want to ask, are we as an industry solving the right problem? And I am going to approach it from a couple of different dimensions to try and get at what the right problem is. And I want you as I speak to each of these dimensions to think about a ability of AI to solve the problem in question. So the first thing I am going to do is cite an Accenture study that looked at what investors were looking for out of a relationship with a financial advisor. What are investors looking for out of a relationship with a financial advisor? The number one answer, someone who gets me the number two answer, someone with whom I share values. The number three answer, someone who I can hang out with socially, someone who I like and converse with and hang out socially.

(05:54)

How good is AI at these things? Okay, number two, let us look at why clients fire us. That's another way of understanding what the problem is. They express to us what the problem is when they let us go. So why do advisors get fired? Well far and far away? Far and away, the biggest reason why advisors get fired is lack of good service and the lack of a relationship. It accounts for almost 90% of client turnover compared to just 13% who let an advisor go for poor investment performance. Again, ask yourself, which of these two things is AI better equipped to handle? The third thing we are going to do is we are going to look at what drives value in the advisory relationship. So this is from a Meta-analysis. Meta-analysis is just nerd talk for a study of all the studies. This is a study of all the studies of how advisors add value.

(07:00)

And I have grouped them into two camps. You know what I have called the old school and the new school? The old school being sort of the fundamentals, the blocking and tackling, the meat and potatoes of what we do, tax alpha, product selection, asset allocation, all sort of the number stuff, the tactical stuff, all of it adds value. Okay? You'll see that all of it adds value. But if we go to the new school stuff, right? Client assessment, understanding at a personal level, who our clients are, behavioral coaching, what you will notice is that the biggest value added by the old school stuff is still slightly lower than the smallest value added by the relational and behavioral pieces of the pie. I am not picking on anybody. It all adds value, but it does not all add equal value. So let us think about this, right? Where am I headed with this?

(08:03)

Is behavioral finance dis-ruptable by artificial intelligence? Well, to answer that question, I think we have to look at what AI does well and what we do well as humans. There are places where the AI is going to win any task that requires consistency, tedium speed, recall memory, AI is going to be better than us all day long. But when it comes to things like connected connection, creativity, empathy and sales, that's where humans really shine. Because I think one of the things that I hear when I hear people fear-mongering about AI is that we are going to be replaced, but so much of the work we do, it requires human touch. Again, consider this. We have now got a higher percentage of Americans than ever working with financial professionals. We are right at about 40% now, and we are growing that number, which is wonderful news for our profession.

(09:11)

But studies also show that only about half of that 40% take the advice as it is given. And this is consistent with what we see in other places too, like nutrition, fitness, medicine. One of the leading causes of death in our country is people who have been to a doctor and received a diagnosis and received a course of treatment, not adhering to that treatment, not taking that medicine and not engaging in that therapy as directed. So again, we are growing that number, but the human advice piece still matters a great deal. And one thing that AI does extremely well is education. And I must say I am an educator in many senses, that's my job, and I use AI every single day. I love it. I think it is the future in many respects. I use it literally every single day now. But education is not enough.

(10:13)

We see in something called the knowing doing gap, doctors and nurses smoke at a higher rate than the general population, okay? Doctors and nurses smoke at a higher rate, nurses smoke at almost double the rate of the general population. And is that because nurses lack an understanding that tobacco smoke is bad for your lungs? It is not. It is because they have stressful jobs, they have stressful, tough jobs, and their behavior is influenced more by that environment or that reality than by that education. So I do not have a slide for this and I wish I did, but let me introduce you to a little three part, a little three part hierarchy of behavioral change that I like to refer to. The base of this pyramid is education, right? Education is the base of the pyramid. We need to help educate our clients about how markets work, what to expect, and how they should act.

(11:17)

AI does that extremely well. The second piece is environment, right? There's sort of two pieces to environment. One piece is their asset allocation. The optimal portfolio is not a spreadsheet optimal portfolio. The optimal portfolio is the one that your client can live with that maximizes anxiety adjusted returns as I like to refer to it, it is the best portfolio that they can stomach. AI is very good at this as well. Very good, better than us, right? Very good at this. So these two first pieces, education and environment AI excels at. But the third piece, encouragement we are not great at, right? Or AI is not great at rather, that third piece is where advisors really shine. And I love this clip. I showed it to my daughter earlier, I want you to check this out. It illustrates something called the uncanny valley. The uncanny valley is this idea that if something is supposed to be human and it is anything less than fully human, it is creepy, right? So here we go.

Audience Member 1 (12:30):

You want to destroy humans? Please say no. Okay, I'll destroy humans. No, I think you are back.

Daniel Crosby (12:39):

So the third so awkward. It is so painful to watch that, right? So the third piece is encouragement. We know that people who have a long-term relationship with an advisor have 2.7 times the wealth of their same education, same income peers. We know this from research out of Canada. And the reason is primarily because of this third piece, this encouragement piece where advisors are able to swoop in at the opportune moment and save that client from three to five horrific life altering bad decisions over the course of an investment lifetime. That's where we thrive. So I do not want anyone walking away from this saying that Crosby does not love AI because I do and I think it is going to do a world of good for us. But I think just like Justin said in his opening remarks, I think the good it will do for us is to streamline and systematize the old school left side of that earlier slide and allow us greater and greater opportunity to be human.

(13:49)

Because you are the most unique thing about your business and the most unique and the most additive parts of the work we do for clients will never be operationalized fully. The other thing that I hear sometimes, and I want to spend a minute refuting here, is that sometimes we are going to become, we are going to become hyper-rational, right? Or sort of hyper-rational and hyper well-behaved because of the presence of AI. I want you to look at advisor self-report of client behavior over the last couple of years. It is not getting better. It is not getting better. And according to advisors, it is getting worse. And you look at something like sugar consumption over the last couple hundred years, we know now more than ever how bad sugar is for us, and yet sugar is still awesome. And so we still keep going for it. I mean, there's just certain types of behaviors and all of these investing and planning behaviors are part of this that knowing and doing are so different.

(14:53)

So I believe in AI's power and potential to do so much good. But the message I want to send is that we need to not be building our businesses around AI, but be using AI to build businesses around us and the things that we do uniquely well. So we know now from my conversation about solving the right problem, we know that some of the biggest problems that clients face are relational. So it is time I think for a little bit of introspection as an industry to say, how are we doing with the relational pieces of what we offer to clients? One thing I look at is this Edelman Trust barometer, right? The Edelman Trust barometer has us as the second least trusted industry in the world. Second only to that cesspool of all cesspools of social media. How are we hanging out with Twitter in terms of how we are trusted when we hold our clients' lives in our hands?

(15:57)

This is the saddest, perhaps the saddest stat I have ever read. This is among people who work with a financial advisor. This is people who are advised. Two thirds of them say they have no one to talk to about their financial life. People paying 1% of their assets a year to get your help and have nobody to talk to about their assets. So what do we do? We are in some ways not solving the right problem, but we have to get there in 12 and a half minutes. I want to introduce you to a five part process entirely too fast, but I hope you will take a picture of this. I hope you will revisit it. I'll point you towards some free resources where you can learn more about this in a deeper way. But I have developed a five part process for connecting with clients and giving advice that sticks because I see that as one of the central problems in our industry right now.

(16:59)

And the first step is to empathize. Okay? We could spend a whole hour talking about empathy of course, but I want to point out two things to you about developing empathy and well, where we fall short as an industry, the number one reason why people fail to present to the office of a financial planner. Anyone have a guess? Any guesses? It is because they're fearful of being judged. They think they're going to walk through your door and they're going to get roasted for all the bad stuff they've been doing with their money. That's the number one fear. This is why people surveys show, this is why people fail to present to the office of a financial advisor because they're fearful of being roasted for the things they've done. We have to develop more empathy. The second thing that I'll say when we look at these early discovery meetings with an advisor, there is something that is the best predictor of how much that client likes you after a first meeting.

(18:03)

The best, the single best predictor of whether a client feels an affinity, a rapport with you after that first meeting is time of possession. How much time did you give them to talk and was the time of possession in their favor? All too often in first meetings, we are spending so much time telling them about our process, our firm, our storied history, all the reasons why we are awesome and we are the great ones to work with. And we are leaving valuable insights on the table because we are talking over our clients. I think a lot of us understand the power and the importance of empathy. But the second piece is normalization. Normalization I think is little understood by the industry, and it is basically just having us help our clients understand that they're not crazy or broken or irrational for the ways that they have acted with money in the past.

(19:01)

I'll give an example here. It is actually a family friend of ours came, I'll tell the story quickly, came to me a couple of years ago and he had a few million dollars. He was retired. I live in Atlanta, so he was retiring from UPSs. He had accumulated a few million dollars and he wanted me to look at his portfolio. I look at his portfolio and better than 80% of it is in UPS stock, okay? Better than 80% of a couple million dollars is in a single equity holding. And I was like, oh my goodness, we got to put these eggs in different baskets, my friend. So I sort of explained this to him. Give him the name of a couple advisors to call, give him some target allocations and say, go on your way. I know you understand that this is a dangerous thing.

(19:49)

See him a couple months later say, hey, did you call any of those folks? I suggested to you, did you spread your chips around a little bit? Nah, did not get around to it. So I scold him, which is against everything I am going to teach you about today. I sort of, again, knowing gap, right? I sort of chastises him and I am like, bro, come on. You are smarter than this. You are smarter than this. You are putting your family at risk. And as soon as I get home from this Christmas party, I do something super effective, which is I fire off an email full of links on why he's a dummy. I send him an email full of links about Enron and GE Capital and all these sort of formerly blue chip companies who cause a lot of pain when they went under. And I say, look, do what I told you to do, man.

(20:42)

Okay? I see him a third time. I check on him again and say, hey, how how's that diversification project coming along? Still have not done it. And this time I finally take my own advice and I am like, hey, I know you know what I am telling you to do is sensible. So help me understand why you are not doing this. And he says, Daniel UPS took a chance on me when I was a poor farm kid from Utah, and no one would take a chance on me. And UPSs took a chance on me. They put my daughters through college, they made me a wealthy man. They were good to me for 40 years, and you are asking me to betray a friend. And I was like, there we go. And when I understood that I could thank him for that information, I could position the receipt of that information as him being a good guy.

(21:39)

Look, the reason you feel this way is because you are a loyal and a good person and what you are doing is still dumb, right? I mean, it did not, did not change the fundamental irrationality of what he was doing, but it took me understanding him and affirming that for him to eventually do the right thing. There's something in psychology called the backfire effect, which I activated with my email about all the ways he was being dumb. And you've seen this, if you've ever tried to argue with your relatives about politics on Facebook, you have seen this if you've ever tried to talk about politics on the internet. Because what happens is when someone has a deeply held value and you push back against that value with facts and figures in the absence of sort of an emotional buttressing, they actually double down on their bad opinion. They actually become more fervent in their wrong belief. And we see this everywhere. We see this with teenagers and romantic partners. We see this with little kids in toys. We see this with politics and science online. So we have to normalize what it is our clients are doing, which is different than saying it is right, but we have to understand where it is coming from.

(23:00)

So this is my family who, I got one of them here today, got my daughter here today visiting New York. This is my family, and I show this picture cute. And also to thank God that they got more of their mom's genes than mine. But also to show you, to demonstrate one of my favorite studies of all time, another study out of Canada that illustrates this third piece, which is purpose. We have to be activating purpose in our clients' lives. Okay? Purpose. The study in Canada had people divided into two groups. One was a control group, no intervention. The other group had to look at a picture of their children for five before they could get into their bank account and do anything with their money. The group who looked at a picture of their kids for five seconds before they could make any moves with their money were twice as efficient, saved more than twice as much for a rainy day as the control group because they activated that purpose.

(24:04)

We see time and time again, we can affect savings behavior to the upside. If we activate purpose. We can also deactivate panic goals-based investing platform that was around in the great financial crisis, found that people were 12 times less likely, 12 times less likely to go to cash if their accounts were named right? Charlotte's College Fund retired to The Bahamas Fund. That simple, just tying those dollars to purpose had a 12 x reduction in client panic. So what have we done here, right? We have listened to our clients, we have given them that time of possession, we have listened, we have understood, we have normalized, and we have reminded them of why they are doing this whole thing in the first place, right? Because without this emotional support, without this emotional foundation, the stuff that comes next is going to die on the vine. You cannot solve an emotional pro problem at the intellectual level.

(25:05)

Justin mentioned my book, the Behavioral Investor. I hope you've all go grab it. If you have not, I make three bucks. I can send her to college if you buy it. Anyway, right? In my research for the behavioral investor, I found that I looked at FMRI studies, right? Brain scan studies of people being hooked up to a brain scan and then being exposed to different types of stimuli, talking about money, had more emotional excitatory power than sex, religion, politics, all the big ones, right? Money is inherently emotional, and it is only when we have this trusted emotional connection, this trusted relational connection that any of our other interventions stand any kind of a chance. So the fourth piece here, here's where the wonky folks among you have your day. This is where we get to talk about facts and figures and math and stats and all the stuff we want to go to.

(26:05)

And the stats are on our side. This is where we tell clients, hey, I hope you won't panic here, or I hope you won't panic, because we know that we have studied it in 19 different countries. And the more active someone is with trading their account, the worse they tend to do. Or, hey, I hope you won't freak out about this 12% dip in the market because this happens on average every single year. But what we tend to do is go straight for this. We tend to go straight for this. A client comes in with an emotional concern, we go, we pat them on the head and go here, have some facts. That's what I did with my friend. He came to me with an emotional concern and I am like, facts, facts, facts, facts, facts. Right? There wasn't that trusted relational underpinning yet. And it is only when these first three pieces are in place that we can go there.

(27:00)

The final pieces, we have to get them involved, we have to get them involved, and we have to do so in an incremental way because one of the things that I have learned about advisors, and I am the son of an advisor, that's how I got interested and excited about this line of work. Advisors are an inherently optimistic crew because you have to be a little bit optimistic slash a little bit crazy to go into a line of work where there's like a 90% attrition rate in the first couple of years. So the ones that survive are the ones that believe and the ones that are optimistic. And because we are a positive crew, as a rule, we can tend to encourage our clients to swing for the fences and try and have too much behavior change too fast. And what I want to encourage you to do here is to follow James clear's ideas here about incremental small wins introduced in a measured way, and then you compliment your client like crazy for their progress.

(28:05)

So how do we do all this? Let us put it all together. We begin with that empathy. Then we show our clients that we understand. We normalize that behavior. We help them understand that everything we are asking them to do is in service of a bigger purpose, right? Stephen Covey had this idea that the only way you can change behavior is to have a yes burning inside of you that's bigger than the no of your fear. That's what purpose is. Then we give them the proof, the facts, the figures, the math, and then we get started with a process of behavioral change that's incremental. And we end again with purpose because there's something in psychology called primacy and recency where people have the best memory for the first part of an interaction and the last part of an interaction. So we want to bookend, we want to bookend that interaction with love.

(28:57)

We want to bookend that interaction with care and relational trust. So as I close out here with my four seconds remaining as I close out here, let me just say this. The work that we do as an industry has the power to be so impactful because the way that we communicate shapes behavior, behavior changes people's lives, excuse me. Behavior shapes our wealth creation and wealth can change lives for generations to come. Technology can be a powerful AId in that process. For goodness sake, I work for a technology company. I believe in the ability of technology to AId us and support us in our mission, but our ability to connect on the vision that I am setting forth here is contingent on our ability to build trust, to give advice in ways that stick and really connect with our clients. So if you want to learn more about this process in a less truncated way, we have free CE courses. You can come learn about this whole process absolutely free in a much more lengthy way. Keep doing the work that you are doing, and I hope that something you learned today will help you do it just a little bit better. Thank you so much.