New year, new solutions

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

There are few traditions as optimistic in spirit as resolution setting. While losing weight, enjoying life more, and living a healthier lifestyle typically top the resolutions charts, many Americans seek to create better financial outcomes in the upcoming year. The 2017 Financial Resolutions Survey listed ‘save more, spend less,’ at the top of the list of financial resolutions, followed by paying down debt and increase income.


If you aim to create better financial outcomes in the upcoming year, and beyond, here are five steps to bring you closer to your goal:

  1. Look within. The more you know about investment principles and the long-term historical record of the market, the better outcomes you can expect to achieve. Making your investment education a priority is proven to make a significant difference in outcomes. The American Association of Individual Investors (AAII) found that investing knowledge enhances risk-adjusted returns by at least 1.3% annually. Over 30 years, the improved portfolio performance can lead to up to 25% greater wealth.
  2. Control what matters most. What matters even more than picking the right stock, is controlling the impulses and biases that prove self-destructive, like trying to time the market or trusting your gut. For better investment outcomes, you must know your emotional triggers and come up with strategies to defuse them from sabotaging your success.
  3. Think purchasing power. Purchasing power is the most common objective and destination of a long-term investment strategy. It is the experience most investors want. Investors know they like the lifestyle they now enjoy and want to do what is needed to keep that lifestyle in the long-term. To do so, you must appreciate multi-asset class diversification and accept market volatility to increase future purchasing power.
  4. Benchmark against your goals, not market indices. Instead of looking to the Dow Industrial Average to gauge the adequacy of your performance, look to your goals. Personal benchmarking motivates positive savings behavior and helps you tune out the noise of the markets. Don’t allow yourself to get bogged down, nor hyped up, by the current buzz. Instead, let personal goals and the long-term historical market record guide your decisions.
  5. Stack the deck. By working with a trusted advisor who provides behavioral coaching, you stack the deck in your favor. Research has found that when an advisor applies behavioral coaching, performance increases from 2-3% per year. In times of uncertainty and market volatility, which you are bound to encounter, your advisor will help you stick to your financial resolutions.

For 30 years, Brinker Capital has provided investment solutions based on ideas generated from listening to the needs of advisors and investors. From being a pioneer of multi-asset class investments to using behavioral finance to manage the emotions of investing, our disciplined investment approach is the key to helping investors achieve better outcomes.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.


Start the New Year off right: Resolve to read more

Solomon-(2)Brad Solomon, Junior Investment Analyst

Many New Year’s resolutions focus on developing healthy habits. An important one to keep is intellectual curiosity. In no particular order, below is a reading list for 2017. Some deal more directly with finance than others, but they each explore economic, sociopolitical, cultural and behavioral issues that are ultimately relevant to global markets.

  1. Nation on the Take: How Big Money Corrupts Our Democracy and What We Can Do About It. Wendell Potter & Nick Penniman, Bloomsbury Press, 2016.

Nation on the Take explores the evolution of lobbying in the United States and the increased role of money in politics following the Citizens United case of 2010. What is most satisfying about the book is the extent to which its authors manage to remain nonpartisan, calling out Republicans and Democrats alike. If your New Year’s resolution involves lowering your blood pressure, I advise against skipping over this suggestion.

  1. Hillbilly Elegy: A Memoir of a Family and Culture in Crisis. D. Vance, Harper Collins Publishing, 2016.

J.D. Vance’s Hillbilly Elegy details the disenchantment of Appalachia in a view that manages to be impartially critical but also remain in solidarity with the region. This book seems to be making its way onto every “essential reading” list, and deservedly so given its relevancy to the foundations of the new wave of populism that is still working its way across the globe.

  1. Nothing is True and Everything is Possible: The Surreal Heart of the New Russia. Peter Pomerantsev, Public Affairs Publishing, 2015.

While Charles Clover’s more recent Black Wind, White Snow overtly concerns itself with the Kremlin as its sole subject, Nothing is True is a wide-ranging, colorful firsthand account of the backwards elements of Russia’s culture. A poll of a certain political party recently showed that 37 percent of respondents view Vladimir Putin favorably, versus just 10 percent in July 2014. As America’s attitude towards Russia evolves, this book is a warning to think twice before offering such a seal of approval—a stark illustration of just how diametrically opposed many Russian norms are relative to those of the U.S.

  1. The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal. Ludwig Chincarini, John Wiley & Sons, 2012.

Chincarini’s The Crisis of Crowding could best be described as a mathematically detailed, focused version of Scott Patterson’s The Quants. The book analytically decomposes the 1998 collapse of Long-Term Capital Management and the 2008-09 Financial Crisis, exploring the common thread between them in that both resulted partly from incomplete pictures of risk in behaviorally erratic systems.

  1. Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat Casinos and Wall Street. William Poundstone, Hill and Wang, 2006.

Like the preceding choice on this list, Fortune’s Formula is a technical treatise of a subject that often gets “glossed over” despite its critical importance to markets. The author manages to explore the mathematically weighty Kelly criterion in a boiled-down, coherent, and practically applicable framework.

  1. Personal Benchmark: Integrating Behavioral Finance and Investment Management. Chuck Widger and Daniel Crosby, John Wiley & Sons, 2014.

Financial advisors do their clients a great service by educating them about investing best practices, but at times of volatility, logic is often thrown out the window. As the authors wrote in the book, “While investor awareness and education can be powerful, the very nature of stressful events is such that rational thinking and self-reliance are at their nadir when fear is at its peak.” The authors provide a framework for embedding good behavior into the investment process.

  1. The Laws of Wealth: Psychology and the Secret to Investing Success. Daniel Crosby, Harriman House, 2016.

And if you are looking for a list of rules to follow in the year to exercise good investing behavior, The Laws of Wealth helps keep you on the straight and narrow. The book provides clear, concise direction on what investors should think, ask and do.

Once you finish these books, more books can be found from the recommended lists by The Economist, Financial Times, and Bloomberg

Enjoy, and happy New Year!

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.



Investment Odyssey

Dan WilliamsDan Williams, CFA, CFP, Investment Analyst

In Homer’s Odyssey there is a memorable section where Odysseus and his crew must shutterstock_369235274sail past the island of the lovely Sirens. He has been warned to plug his crew’s ears with wax so that they will not be susceptible to the Sirens’ call. However, wishing to hear the Sirens’ calls for himself, he orders his men to tie him to the mast of the ship and ignore his future orders until they are clear of the island.

The need to stay the course and to ignore distractions are relevant to many facets of life, but I find special meaning related to long-term investing. When people think of investment risk they normally focus on the volatility seen in recent investment returns. However, the returns of a random month, quarter or even a year has an overrated impact on an account’s growth over a 10+ year horizon.

Tolerance for this volatility/risk typically has more to do with investor psychological make-up than the mathematical impact of these short-term returns on much longer term account performance. For me, this volatility and other market noise represent the Sirens that threaten to take investors off course. Two investors who are the same in every other way and invest in the same portfolio, will have a different investment experience based on how often they look at their account and how they feel about what they see.

In other words, similar to Odysseus’ crew, the journey can be made less stressful and easier by turning off the noise. While feelings and emotions are important considerations, as lost sleep and stress meaningfully impact a person’s well-being, a better course is set by focusing on more objective investment risks. Among the most relevant objective risks for investors is shortfall risk.

Shortfall risk

Most investors invest to fulfill a future goal/need years in the future. Shortfall risk is simply the risk that the money allocated and invested to this future goal/need proves to be inadequate to pay for it when the time comes. This risk is very real and goes well beyond how an investor feels about it. If an investor needs $100,000 a year in retirement but finds that due to insufficient account growth he or she can only sustainably take out $80,000 a year from his or her portfolio at retirement, the math will simply not work. No solace is offered by the smooth but inadequate investment journey of an overly conservative allocation when the investment goal is not achieved.

Addressing volatility

The challenge is often to achieve the long-term returns that can meet account balance requirements, volatility must be taken on. While Odysseus could have taken a long detour around the island of the lovey Sirens, his goal of getting home in a timely fashion would not have been met (and for those who know the story, he had a deadline). Similarly, an investor could ensure a very smooth investment journey by investing in a portfolio dominated by short-term bonds, but could find investment account growth inadequate to meet the goal of the investment. The good news is that if investors can find a way to plug their ears to the noise, they can get the longer-term returns they need and minimize the stress of the volatility along the way.

Multi-asset class goals-based investing is one way to have the investor take a longer view on his or her investing to see past the present sirens of volatility and recent returns to the goal at the end of the investing horizon. Without the ability to take the long-run prospective, we are like Odysseus hearing the Sirens call. Without an advisor to keep the ship on course, the journey is potentially doomed. Investing is only successful if the investor can stay the course and stay invested. The importance of keeping the investor from letting the heart rule the head is one of the most important roles of the investment advisor.

Brinker Capital understands that investing for the long-term can be daunting. That’s why we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Give thought to how you give this holiday season

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

The holidays represent a time when many Americans express love and affection with gifts. Gift giving serves many purposes in our society. It helps define relationships, express feelings, show appreciation, smooth a disagreement, share good fortune, and strengthen bonds. While the joy of giving is undeniable, excessive spending could put your financial goals in jeopardy and ultimately stand in the way of happiness.

The American Research Group projects that the average person will spend $929 on gifts this holiday season. To put this amount in perspective, consider the following:

  • Last year, the average consumer spent $882, so this year consumers believe they will spend on average $47 more than last.
  • The last time consumers spending exceeded $900 was in 2006.
  • We’ve had a somewhat steady climb in spending since 2009 when the average person spent $417.
  • Gift spending peaked in 2001 when the average person spent $1,052 on holiday gifts.

live-simplyAs with any benchmark, the amount of money “the average person” spends on holiday gifts should bear little relevance on your spending. Whether you spend more or less than this projection is a personal choice that is best made with intention and with your own financial situation and goals in mind. These common holiday spending triggers, however, could get in the way of mindfulness and prompt you to spend more than intended.

Keeping up with others. If you try to match the amounts spent by colleagues, friends, family or peers, you could find yourself spending beyond your means and putting your financial goals in jeopardy.

Trying to be fair. A common cause of spend creep happens to create a sense of balance or fairness. When you overspend on one relative, you may be inclined to create equalization by matching the dollar value of gifts for others.

Just getting it done.  For some, holiday shopping is just another task in an already long list of things to accomplish by the end of the calendar year. It’s easy to overspend if you haven’t committed to a spending budget, decided who to buy for and what to get, and taken the time to seek out the best deals.

Autopilot. Sometimes we gift without considering whether the expenditure aligns with current realities. As families evolve, a discussion about how each member would like to celebrate the holidays may be worthwhile. For example, as your extended family grows, it may make sense to discuss a kids-only gift policy, put monetary limits on spending, or do a gift swap.

Self-purchases. Nearly sixty percent of holiday shoppers (58%) will buy for themselves and will spend on average of $139.61 doing so. This year’s projected self-spending is up 4% from 2015 and is at the second-highest level in National Retail Federation survey’s 13-year history.

The holidays only come once a year. Many people enter the holiday season as they would a free zone. They buy until they get to the end of their ever-growing list of recipients. They decorate until every square inch reflects the feeling of festivity in their heart. Unfortunately, many people do so without regard to the implications on short and mid-range financial goals and thus experience feelings of regret.

The act of gift giving has tremendous intrinsic and extrinsic value. A growing body of research suggests that the most important way in which money makes us happy is when we give it away. Gift giving at the expense of long-term financial goals, however, will bring anything but happiness.

Temptations beset all sides of the path to your financial dreams. During the holidays, temptations may take an altruistic form but still involve spending for today’s pleasures and forgetting about the Future You. This holiday season, give thought to how you give because the Future You is depending on your ability to be mindful, spot (over)spending triggers, and positively influence your ability to endure.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor

Addressing post-election anxiety

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Global events, such as the intensely divided presidential election that we just lived through, are certain to generate some periods of market volatility of varying lengths in addition to a significant amount of stress. However, we urge financial advisors and investors to retain a few dos and don’ts to help manage post-election anxiety:

Don’t equate risk with volatility. Volatility does not equal risk. Risk is the likelihood that you will not have the money to live the life you want to live. Paper losses are not “risk” and neither are the gyrations of a volatile market. Long term investors have been rewarded by equity markets, but those rewards come at the price of bravery during periods of short-term uncertainty.

Do know your history. Despite what political pundits and TV commentators would have you believe, this is not an unusually scary time to be alive. The economy continues to grow (slowly) and most quality of life statistics (crime, drug use, teen pregnancy) have been declining for years. Markets have always climbed a wall of worry, rewarding those who stay the course and punishing those who succumb to fear.

Don’t give in to action bias. At most times and in most situations, increased effort leads to improved outcomes. Investing is that rare world where doing less actually gets you more.

Do take responsibility. Most investors are likely to tell you that timing and returns are the biggest drivers of financial performance, but research tells another story. Research suggests that you are the best friend and the worst enemy of your own portfolio. Over the last 20 years, the market has returned roughly 8.25% per annum, but the average retail investor has kept just over 4% of those gains because of poor investment behavior.1 At times when market moves can feel haphazard, it helps to remember who is really in charge.

Don’t focus on the minute to minute. If you are investing in the stock market you have to think long-term. As mentioned above, you can avoid action bias by not checking your portfolio status all day every day, especially during times of higher volatility. Limited looking leads to increased feelings of security and improved decision-making.

Do work with a professional. Odds are that when you chose your financial advisor, you selected him or her because of their academic pedigree, years of experience or a sound investment philosophy. Ironically, what you may have overlooked is the largest value he or she adds—managing your behavior. Studies put the value added from working with an advisor at 2 to 3% per year. Compound that effect over a lifetime, and the power of financial advice quickly becomes evident.

Source: (1) Dalbar, Inc. Quantitative Analysis of Investor Behavior. Boston: Dalbar, 2015.

Views expressed are those of Brinker Capital, Inc. and are for informational/educational purposes.  Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. Information contained within may be subject to change. Diversification does not assure a profit not guarantee against a loss.

Veterans Day: A time to say thank you

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

Today we recognize those who have sacrificed careers, precious time with loved ones, and even their lives to answer our country’s call to service.

Please take a moment out of your busy day today to attend a Veterans Day event in your area or simply say thank you to those who are currently serving or have served in the military.

On this Veteran’s Day, we say thank you to our veterans at Brinker Capital—Chuck Widger, Tom Daley, Jimmy Dever, Lee Dolan, Jay O’Brien, Jim O’Hara, Jeff Raupp and Bill Talbot—and to everyone who has served and protected our country.

To be born free is an accident.
To live free is a privilege.
To die free is a responsibility.
–Brig. Gen. James Sehorn

If you’re looking for additional ways to get involved, click here for ideas.

Brinker Capital, Inc., a Registered Investment Advisor

Being right for the wrong reasons

Andy RosenbergerAndrew Rosenberger, CFA, Senior Investment Manager

Investors betting on a Hillary win should be grinning ear-to-ear with the outcome of the election. Picture this for one moment. Imagine if I had told you last week who would win the election – but nothing else. Odds are, particularly after listening to the “experts” that you would have sold everything. Maybe if you’re the type who likes to speculate, you would have also used those cash proceeds to short the market, buy some VIX, or perhaps buy long-term Treasuries. After all, the standard meme was Trump = Bad for Markets, Clinton = Good for Markets. Good thing that crystal balls don’t exist. It’s a classic case of being right for the wrong reason. Or, taking the other side of the coin, being wrong for the right reason. As we all digest the outcome of events and try to comprehend what this all means, here are a few ruminations that come to mind:

  • Event-driven investing is REALLY hard. Event-driven investing is the idea of speculating on the outcome of a specific event. It sounds easy. But think about all the factors that go into it. You have to be right on calling the outcome. You have to be right on how the market reacts to that outcome. You have to know how much is already discounted into the market already. You have to have better information than everyone else. You have to structure the trade in such a way that it’s profitable. Like many things in life and investing, it sounds easier than it is.
  • Income relative to duration matters. In one single day, over a year and a half worth of income was wiped out for anyone investing in long term Treasuries. Prior to the election, the 30 year bond was yielding approximately 2.6%. The Wednesday after the election, the Barclays Long Term Treasury Index was down -4.14%. So now investors will have to wait over a year for the income generated on their bonds to make up their losses. Or, maybe they could try out some event-driven investing tactics mentioned above.
  • Volatility is dynamic. When regimes change, low volatility may suddenly be high volatility. It seems like a no-brainer. You can outperform the market with less risk by simply investing in stocks with lower volatility. Forget that it’s the topic du jour. Forget that there are immense amounts of money flowing into this group of stocks. Forget that valuations for these types of stocks have never been higher. It’s worked in the past. Well, until it doesn’t. I acknowledge it’s only one day. But yesterday’s dramatic underperformance of low volatility reemphasizes the point that there’s more to investing than simply investing in what worked historically.
  • Consensus is usually right…until it isn’t. Unlike low volatility stocks, just a few months ago everyone hated financial and healthcare stocks. After all, the yield curve was going to stay flat forever hampering banks and insurance company’s ability to generate returns. Separately, politicians were going to destroy the profitability of pharmaceutical companies by reversing sky-high drug prices. Bad fundamentals. Check. Bad technicals. Check. Market experts agree with you. Check. Unfortunately, when these views reverse, as we’ve seen as of late, they do so extraordinarily fast.
  • In statistics, sample sizes do not represent the overall population. How is it that in an era of big data and interconnectivity that our methods for predicting elections have gotten worse, not better? Certainly the migration away from landline phones and the shy Trump voter effect were both major factors. But anytime we talk about polling, we have to remember that we’re taking small samples of a very large population. I, for one, have NEVER been asked by a polling authority who I’m voting for. With over 119 million voters this election, I would imagine there are quite a few others who weren’t part of the sample size either. Statistics matter but so too does the means with which they are applied.
  • Politics can be very emotional for individuals. Particularly within investing, emotion and outperformance rarely coincide with one another. Investing is hard enough as it is. Billions of dollars of research has been dedicated to the art and science of getting a competitive advantage over other investors. And most haven’t been very successful.

The bottom line is that investors should focus on the long-term outcome knowing that over time, Democrat or Republican, 2% growth or 4% growth, Fed rate hike or no rate hike, that their investments will work for them in the long-term.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this but we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. Past Performance is no guarantee of future results. 

Where will you be when the dust settles?

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

Since Donald Trump has been elected as the 45th President of the United States, the question we hear repeated most often is “what happens now?” While the immediate focus will be outlining transition of power plans, political appointments and the first 100 days of the Trump presidency, we’d be hard-pressed to find any expert who believes the uncertainty will end then.

Trump campaigned on a platform calling for sweeping change and dramatic deviations from the Obama administration. He wants to overhaul immigration policies, health coverage, taxation, and trade policies, all of which will have significant economic implications. His policies have yet to be clearly defined and we’ll have to wait to see if those policies will meet Congress and the Courts’ approval. There is also much speculation on who will be named to head the Treasury and whether he will follow through on his intention to replace Janet Yellen as Federal Reserve Chair. While these and many other economic dust particles swirl in the air, one thing we know for sure: the post-election uncertainties will create market volatility.

Even the savviest investor or most skilled asset manager cannot predict or control where the markets will land when the dust settles. So, instead of trying to glean actionable insights from uncertainty, we urge investors to focus on matters within control, such as:

  • An understanding that volatility is part of investing. In a recent blog, Dr. Daniel Crosby explained the impact elections have had on previous markets. It is worth re-reading and repeating that election cycles are like any other market cycles. Trends and patterns exist which may allow some securities and asset classes to outperform others. In light of the number and weight of the unknowns associated with a Trump presidency, the patterns of previous election cycles may bear little (if any) relevance to our experiences and decisions today. To put the volatility in perspective, try to repeat the lyrics of the famous Shirelle’s song, “Mama said there’d be days like this.” Volatility is part of investing and should not cause you to question your overall investment strategy. However, investors must seek to reduce volatility in their portfolio while maintaining the opportunity for appreciation.
  • Diversification can bring peace of mind. In addition to the economic benefits of investing broadly in a variety of asset classes, there are emotional gains to be made as well. When your portfolio spans asset classes, geographic regions, business sectors and investment styles, you know that while some conditions may be negative for one sector, they could be positive for others. You become less concerned about the performance of a particular asset class and focus more on how your total-return performance impacts your personal goals and benchmarks.
  • Your reliance on a competent advisor. Studies have shown that the greatest value provided by a financial advisor is behavioral coaching. It is in times of volatility and uncertainty that advisors earn their keep, so don’t be afraid to seek assurances and direction from your advisor.
  • A long-term perspective. Investing for the long-term can be daunting, so it may be helpful to remind yourself that it pays to wait. The worst return of any 25-year period was 5.9% annualized1. Time is on your side. As Crosby cautions, “Markets always have and always will climb a wall of worry, rewarding those who stay the course and punishing those who succumb to fear.”
  • Your goals are your benchmark. You have the power to control your actions, follow a plan, and make investment decisions on merit and not emotions. As John Coyne’s blog mentioned earlier in the week, it is important that you avoid emotions that could wreak havoc on a lifetime of careful planning. The degree with which you can maintain composure and stick with the plan put in place by your advisor is the single biggest predictor of where you will stand relative to your long-term financial goals when the dust settles.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this but we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. Past Performance is no guarantee of future results. 

Synthesizing happiness

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

On Wednesday, November 9, approximately half of Americans will wake up disappointed. Regardless of which candidate prevails on Election Day, roughly fifty percent of the people that she or he will eventually lead will have voted against them. Those whose preferences were not realized will likely begin a new offensive; painting a dystopian picture of the world to come with President X at the helm. Similar to what John Coyne mentioned on Monday. Markets will crash. Businesses will fail. Wars will rage. The historical precedent is that all of this and more will be the new rallying cry of the vanquished party and it’s easy to imagine that it will only be exacerbated by the ugliness and division that have characterized this contest.

But there is another, more powerful precedent that will have a far greater impact on financial markets than who wins or loses: it is our tendency toward resiliency that exceeds our own expectations.

Imagine I asked you to consider your ability to function in the face of the unthinkable – the passing of a child or partner, a debilitating illness, the loss of a job. Odds are, you would describe yourself as helpless, heartbroken and unable to go on. And while all of the scenarios I’ve just put forth are truly tragic, research suggests that our ability to cope with disappointment and loss are greater than we realize until we are thrust into a moment of trial.

To demonstrate this, I’d like for you to consider two groups that seemingly have little in common – paraplegics and lottery winners. If I asked you whether you would be happier one year out from winning the lottery as Option A and becoming disabled as Option B, you would likely suggest that I was in need of a psychologist rather than being trained as a psychologist. Obviously, we would all hypothesize that one year after the life changing event, lottery winners would be much happier and paraplegics would be much sadder, right? But this is simply not the case.

One year after their respective events, it makes little difference whether you are riding in a Bentley or a wheelchair – happiness levels remain relatively static. So, why is this? We tend to overpredict the impact of external events on our happiness. One year later, paraplegics have found out their accidents were not as catastrophic as they may have feared and have coped accordingly. Similarly, lottery winners have found out that having money brings with it a variety of complications. No amount of spending can take away some of the tough things life throws at each and every one of us. As the saying goes, “wherever you go, there you are.” In much the same way, we tend to project forward to a hypothesized happier time, when we have more money in the bank or are making a bigger salary. The fact of the matter is, when that day arrives, we are unlikely to recognize it and will simply project forward once again, hoping in vain that something outside of ourselves will come and make it all better. Our dreams and our nightmares are never quite as likely as we might assume in the moment and our ability to cope with difficulty as it arrives is far greater than we realize before being tested.

I’m not suggesting that the coming years will be easy, far from it. Humanity’s default setting seems to include plenty of divisiveness and struggle right alongside the moments of altruism. I’m simply suggesting that whatever comes, we, and the institutions that support us, are more capable of coping than we may now realize. Always pithy in his perspective, Warren Buffett said, “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression, a dozen or so recessions and financial panics, oil shocks, a flu epidemic, and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

The future may be in doubt but our resolve is not. It has never paid to bet against America and I wouldn’t start now, no matter who is at the helm.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Another Day, Another Panic. Time To Get To Work

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Earlier this year it was trouble in China, today brings unrest in the United Kingdom, and you can bet that we won’t make it through the rest of this (or any other) year without volatility, uncertainty and worry. At times like this, advisors can become frustrated that the messages of patience and discipline that they teach their clients can be so roundly forgotten. But although it may be natural to despair, financial advisors would do well to remember that it is times like these for which clients enlist their services. Times of fear. Times of uncertainty. Times when they are very likely to do irreparable harm to their portfolios.

The sad fact about human nature is that knowledge counts for very little when we need it most. Dan Ariely has shown that while almost any adult can expound the basics of safe sex, knowledge tends to be overridden by emotion in a moment of passion. Likewise, dieters fail not because they cannot discern which foods are healthy and which are not, but because a doughnut is more soothing than a celery stick on a tough day. And so it goes with the clients of financial advisors who have worked hard to educate their clients about the fundaments of diversification, consistency and perseverance. Your clients likely know exactly what they should be doing, but in a moment like this, they need you to be at your persuasive best to convince them to follow rules they already know to be true.

The Knowing-Doing Gap

My route home from work typically takes me over a winding, hilly pass that is the perfect way to decompress after a long day in the office. Like most of us, I usually drive home more or less unconsciously, but I was recently broken from my trance by a tanker spill that obscured all four lanes of traffic. Searching for a new route, I found myself by the nearest hospital, the largest in the area and an institution with a fine track record.

Passing now between the two main buildings and the monorail that connects them, I saw something most unexpected. There, on a nearby lot, were 13 medical professionals in scrubs – smoking. Doctors and nurses! People who would, upon extinguishing their cigarettes, return to the building and plead with their sick patients to stop smoking. I can say with near-certainty that every one of those 13 professionals knew better and yet they couldn’t help themselves. The official name for this phenomenon is the “knowing-doing gap”, and its effects are powerful and pervasive.

James Choi of Yale found that only 4% of people who wanted to save more actually ended up increasing their savings rates. This sad number was made only slightly less pitiful when would-be-savers made a written plan; 14% were then able to stick with the program. Similarly disheartening is that 30% of medical prescriptions go entirely unfilled and of those that are filled, just over half are taken according to their dosage. In other words, among people who proactively seek out a doctor’s medical advice, most of them do not take it. How then can we as advisors ensure that clients are not only receiving good advice but that they are doing so in a manner that will persuade them to follow the received wisdom?

The Four Ps of Influential Communication

At The Center for Outcomes, we believe in the power of financial advice. We have frequently cited the work of organizations as diverse as Aon Hewitt, Morningstar, Envestnet and Vanguard—all of whom have found that clients that work with a financial advisor handily outperform those who do not. But if good financial advice is capable of adding great value, the persuasive powers of an advisor serve as the ceiling for that value. It is with this in mind that we have created our Persuasive Communication Model. Advisors who attend our two-day seminar receive extensive training in the theory and application of the model, so what follows here is a very brief introduction that lacks the appropriate background. Nevertheless, it is our hope that the skeleton of this model will provide a useful template for you as you have tough conversations with your clients. The four Ps are:

  • Purpose
  • Proof
  • People
  • Process

Purpose – Leading with “why?”

It is human nature to look for and create meaning, and we are far more compelled to act (or not act, in this case) when we understand the reasons behind the behavior. Practically speaking, this means reminding clients of their values and the goals they are trying to meet, both of which would be disrupted by acting in haste.

  • Research says: Karlan, et al. (2010) found that simply reminding people of their previous commitment to act in a certain way increased compliance by 16%.
  • Sample dialogue: “Mr. Smith, you engaged me to help you send your two daughters to college and to retire comfortably with your partner, so I’d like to frame my comments today in terms of how impulsive action might negatively impact your stated goals.”

Proof – Showing expertise

It is understandable that in times of unrest, people want to know that they are being shepherded by a knowledgeable guide. Having now framed the conversation in terms of the client’s values, it is time to show that you are a subject matter expert.

  • Research says: In his excellent book, “Your Money and Your Brain”, Jason Zweig points out that the part of the brain associated with critical thinking actually goes to sleep when someone is listening to someone they perceive to be a financial expert. You quite literally give your clients peace of mind.
  • Sample dialogue: “Your desire to get conservative is understandable from an emotional perspective in light of the recent upheaval. Unfortunately, it’s not consistent with best practices around building wealth. In a study aptly titled, ‘Trading is Hazardous to Your Wealth’, Drs. Terrance Odean and Brad Barber found that the more active someone was in entering and exiting the market, the worse their outcomes tended to be.”

People – Peer pressure for good

As financial professionals, we have a deep understanding of the negative impact of “herding” or the tendency to let the crowd influence our investment decisions. What is less appreciate is that social proof (or peer pressure if you like) is actually a powerful tool in our efforts to influence behavior.

  • Research says: Online shoppers are 63% more likely to make a purchase if it has received positive reviews from their peers.
  • Sample dialogue: Social proof can be demonstrated at the institutional, individual expert, peer and personal level. Dialogue here might draw on research from a vaunted college or other institution, followed by the research of a well-known Nobel Prize winner and concluded with a personal testimonial of why you think the proposed action is best.

Process – Guide, don’t overwhelm

Having now explained the why, what and who of your approach, it is time to talk about how to proceed. Remember, your client is overwhelmed and fearful and the last thing they need is to have their life further complicated.

  • Research says: Fewer choices equal greater action in everything from grocery store samples to 401(k) options. Present two, equally positive options, thereby giving your client a stake in the process but without overwhelming them.
  • Sample dialogue: “As I hope you now see, taking drastic action is inconsistent with your financial goals and the research on best investment practices. That said, I want you to sleep well tonight. As I see it, there are two possible moves we could make. The first would be to do nothing at all, leaving your existing allocations intact and checking in with me as needed to remain calm. A second option would be to move a small percentage of your assets to a “Safety” bucket that would provide for you and your family for 2 years in the event of further volatility. This would allow you to have immediate peace of mind without unduly disrupting our well-thought-out process. What are your thoughts on these two options?”

The work that you do as a financial advisor has a meaningful impact on the lives of the people you serve, but you face an uphill battle. No matter how well-educated and knowledgeable your clients may be, instinctual behavioral urges push them to make poor decisions at precisely the time when they are the most damaging. By utilizing The Center for Outcomes Persuasive Communication Model, it is our hope that you will become even better at the part of your job that research suggests adds the most value – managing clients’ behavior. For a much deeper understanding of how this model can revolutionize your practice, please be in touch.


The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.