Dr. Daniel Crosby, Orion Advisor Solutions – You Want The Best Anxiety Adjusted Returns | #301

Episode Summary

Executive Summary: In this episode of the MedFavor Show, host Meb Faber interviews Dr. Daniel Crosby, Chief Behavioral Officer at Orion Advisor Solutions, about the intersection of psychology and investing. They discuss the mental health toll of the pandemic on advisors, the surge in speculative trading (GameStop, SPACs, NFTs) as a response to social isolation and loneliness, and the critical importance of behavioral coaching. Crosby emphasizes that advisors need their own advisors and therapists to manage stress, advocates for simple, boring portfolios over chasing fads, and explores how fintech platforms like Robinhood can incentivize harmful trading behaviors. The conversation also touches on the concept of 'enough' in wealth, the value of paying off debt for peace of mind, and making financial goals vivid and visceral.

Main Topics: Mental Health of Financial Advisors (Priority: 5/5): Crosby highlights that 93% of financial professionals showed clinical levels of PTSD, anxiety, or depression during the 2008 crisis, and argues that advisors today face similar stress from the pandemic. He advises advisors to seek their own therapists and advisors to manage the emotional toll of client work and avoid secondary trauma. Behavioral Coaching as Primary Value Add (Priority: 5/5): Crosby cites a Natixis study showing 83% of financial professionals believe behavioral coaching is their top value. He stresses that advisors must practice what they preach, including hiring their own advisors to prevent self-destructive financial behaviors. Pandemic, Loneliness, and Speculative Trading (Priority: 4/5): Crosby links the rise of speculative fads (GameStop, SPACs, NFTs, crypto) to pandemic-induced social isolation and de-risked lives. He notes that loneliness has health impacts equivalent to smoking 15 cigarettes a day, and that people seek tribe and risk through online trading communities. The Three E's: Education, Environment, Encouragement (Priority: 4/5): Crosby presents his personal framework for disciplined investing: education (knowing what to do), environment (right portfolio and context), and encouragement (an advisor as a 'personal trainer' to prevent mistakes). He argues that environment and context often override willpower. Critique of Robinhood and Fintech Nudges (Priority: 4/5): Crosby criticizes Robinhood for using gamification (confetti, free trading) to encourage overtrading, which research shows leads to worse outcomes. He notes that while the company profits from bad behavior, it gives people what they want rather than what is good for them, and calls for more ethical design that makes goals vivid and decision-making optimal. The Concept of 'Enough' and Hedonic Treadmill (Priority: 3/5): Crosby reflects on humans being wired for risk management in an age of abundance, leading to overconsumption and dissatisfaction. He uses the Vonnegut/Heller story to illustrate the importance of recognizing when you have 'enough' and avoiding the constant pursuit of more. Practical Investing Advice and Personal Anecdotes (Priority: 3/5): Crosby shares his own boring investment approach (internationally tilted, value-tilted, regular buying) and mentions paying off his house for peace of mind despite low mortgage rates. He also keeps a small play-money account for speculative fun, like long Dogecoin.

Key Arguments: Financial advisors face significant mental health risks from client stress and secondary trauma, making therapist and advisor use essential. Behavioral coaching is the primary value of advisors, but many advisors fail to apply it to themselves. Pandemic isolation drives speculative trading as people seek community and risk-taking, which can lead to harmful financial behavior. Gamification and free trading in fintech apps like Robinhood encourage overtrading, which research shows reduces investor returns. Simple, boring portfolios and paying off debt for peace of mind often outperform complex strategies because they support better behavior. Overconfidence, including the belief in personal luck, fuels bad financial decisions, even among knowledgeable professionals. Humans are wired for scarcity and risk management, but living in abundance leads to overconsumption and a failure to recognize 'enough'.

Data Points: Financial professionals with clinical-level PTSD/anxiety/depression (2008): 93% - Crosby cites this stat to highlight the mental health toll on advisors during the 2008 crisis, used as a parallel to pandemic stress. Increase in calls to Atlanta suicide hotline: 450% year-over-year - Crosby uses this to illustrate the severe loneliness and mental health impact of the pandemic. Health impact of social isolation compared to smoking: Equivalent to smoking 15 cigarettes a day - Crosby cites this research to underscore the danger of loneliness and its role in driving speculative trading. Health impact of social isolation compared to obesity: Twice as damaging - Part of the same point about loneliness and health. Financial professionals who say behavioral coaching is number one value: 83% - Natixis study cited by Crosby to argue that advisors should have their own advisors. Increase in beer and champagne purchases based on music: 50% increase for beer, 75% increase for champagne - Crosby uses this research to illustrate how environment and subtle cues override willpower. Expected returns by US investors: 15% - From Schroeder survey, cited to show extrapolation bias in overvalued markets.

Pivotal Quotes: "Every financial advisor needs their own advisor and a therapist." — Dr. Daniel Crosby: Crosby argues that advisors must practice what they preach to avoid making the same behavioral mistakes as clients, and to manage the mental health toll of the job. "I got something he could never have. The knowledge that I've got enough." — Joseph Heller (quoted by Crosby): Crosby uses this famous exchange with Kurt Vonnegut to emphasize the importance of recognizing sufficiency in wealth, contrasting with constant striving. "We as an industry have really embraced and led with this message that behavioral coaching is the primary value add of a financial advisor, and the data backs it up. But then you look at advisors' behavior, and anecdotally, I'm going to say less than a quarter of advisors that I've talked to have advisors themselves." — Dr. Daniel Crosby: Highlights the hypocrisy and practical gap between what advisors preach and do regarding their own finances.

Implications: Advisors must prioritize their own mental health and financial planning to effectively serve clients. The rise of speculative trading and gamified fintech platforms underscores the need for ethical design and behavioral guardrails. Investors should focus on simple, boring portfolios and recognize 'enough' to avoid the hedonic treadmill. Technology can be a force for good by making goals vivid and decision-making optimal, but only if aligned with long-term investor welfare.