Episode Summary
Executive Summary: Michael Batnick and Ben Carlson interview Daniel Crosby of Brinker Capital about behavioral finance, arguing that education alone doesn’t fix poor investing habits. Crosby says advisors add value mainly through behavioral coaching, automation, and portfolio design that clients can live with. The conversation also covers ESG as a commitment device, the limits of behavioral-finance knowledge, and Brinker’s Tulip software, which aims to detect investor behavior and alert advisors before clients make costly mistakes.
Main Topics: Why financial knowledge doesn’t translate into good behavior (Priority: 5/5): Crosby explains the large gap between knowing what to do and actually doing it, using nutrition-labeling and fitness examples to show that information alone rarely changes outcomes. Behavioral finance as a client service model (Priority: 5/5): The discussion frames advisors’ main value as behavioral alpha: helping clients stay disciplined, avoid panicked decisions, and remain invested through volatility. Education, environment, and encouragement (Priority: 4/5): Crosby argues investors need three E’s—education, the right environment/portfolio, and encouragement from an advisor or coach—to overcome their own biases. How advisors should present behavioral coaching (Priority: 4/5): The speakers discuss why clients don’t always recognize behavioral coaching as a service and why advisors must avoid jargon, arrogance, and performance-only marketing. What it means to be a well-behaved investor (Priority: 4/5): Crosby defines good behavior as diversification, automation, and systematization, while acknowledging some investors benefit from a small “release valve” or fun-money allocation. Tulip: behavioral finance software for advisors (Priority: 5/5): Crosby describes Tulip as a platform that combines self-reporting, simulated market behavior, and historical trading data to identify behavioral risk and alert advisors in real time. Behavioral finance’s limits and the risk of overconfidence (Priority: 4/5): The interview closes with skepticism about whether behavior truly changes over time and a warning that a little behavioral-finance knowledge can make people more judgmental rather than more self-aware.
Key Arguments: Knowing what to do and doing it are almost unrelated; education by itself is a weak predictor of financial success. Investing is counterintuitive compared with everyday life: in markets, doing less often leads to better results. Advisor value is mostly behavioral, not just performance; clients who work with professionals tend to do better largely because of better decision-making. A good advisor should also seek behavioral support for themselves, because professionals make the same mistakes in their own portfolios. Most advisor-client conversations should be behavioral but delivered in an approachable, non-pompous way. Automation beats self-control; no amount of awareness fully substitutes for rules, checklists, and automatic systems. A small “fun” allocation can serve as a release valve for investors prone to acting impulsively, preventing bigger mistakes elsewhere. Behavioral finance is often diagnostic rather than prescriptive, which is why tools like Tulip aim to operationalize the insights into action. A little knowledge of behavioral finance can be harmful if it is used to judge others rather than reflect on oneself.
Data Points: U.S. obesity since nutrition labeling began: Twice as fat and three times as morbidly obese - Used to illustrate that more information does not necessarily change behavior Advisor vs. client perception of behavioral coaching: 83% vs. 6% - Natixis study showing advisors see behavioral coaching as a major value-add while clients largely do not Advisors who work with financial professionals outperform: Dramatically outperform those who don't - Crosby cites research that the benefit is largely behavioral alpha Typical investor segments: 10% degenerate gamblers / 10% highly disciplined / 80% in the middle - Morgan Housel stat Crosby says matches his experience Retail investor behavior during the recent market panic: By and large very well behaved - Crosby says investors panicked less than expected during the downturn Behavioral release valve allocation: 2% to 3% - Crosby’s own “be stupid fund” allocation for discretionary risk-taking Behavioral release valve alternative: 5% - Referenced as a small speculative allocation some investors use (e.g., Bitcoin or trading)
Pivotal Quotes: "Knowing and doing have almost nothing in common." — Daniel Crosby: Explaining why financial education alone rarely changes investing behavior "No amount of education, no amount of self-awareness can take the place of automation." — Daniel Crosby: Summarizing his view on the most effective behavioral-finance interventions "The point of behavioral finance is a mirror into our own behavior and not sort of a window through which we peer down at the unwashed masses of humanity making dumb decisions." — Daniel Crosby: Warning against using behavioral-finance concepts to judge other people
Implications: For investors, the message is to build systems that make good behavior easier, not just smarter. For advisors, the future of value lies in coaching, automation, and tools that predict and prevent mistakes rather than simply explaining them.
About Animal Spirits Podcast
Animal Spirits is a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, listening to and watching. Look for new episodes every Wednesday morning. See our disclosures here - https://ritholtzwealth.com/podcast-youtube-disclosures/