Befi is Dead; Long Live Befi! with Shaping Wealth’s Brian Portnoy

with Brian Portnoy - December: 2024

[00:00:00] Brian Portnoy: This is the stuff that is in the room. It's sort of the DNA of financial planning, because we're trying to figure out how to afford a meaningful life. How do you underwrite the things that are most purposeful or meaningful for you? This idea that true wealth is the ability to underwrite a meaningful life, it's really what most people in the financial planning context want to talk about, if they're working with a true financial planner, and so the question isn't if, but when, and how do you have these conversations, so that you, the advisor, can show up with your own authentic voice to lean into these things and make it land in an impactful way for the end client, so that they walk away saying, huh, he or she really helped me lead a life.

[: 00:01:00

[00:01:40] Brian Portnoy: Happy to be here. Happy to be back.

[: 00:01:44

And I know that you've been really, one of those both riding the crest of sort of behavioral economics 2.0, and I think helping to reinvent it. So, maybe just walk us through your understanding of the history of this domain and why it may have gone out of favor, and what's new about how it's been revitalized.

[: 00:03:08

And so, incredibly long but fascinating story short, they infused psychology into economic decision making, and that became known as behavioral economics, and it's not worth the nuances of behavioral economics versus behavioral finance and so forth. It's basically infusing psychological models of judgment and decision making into the economic realm, and then that broadened out much further where Thaler came in, which is pretty interesting, is that he Americanized it. He was this sort of young gun, super, super smart, who read, I forget the exact paper that he read. I think it was the one on loss aversion, published in ‘79 or ‘84.

And he was like, holy moly, like one of those mind-blowing moments, and basically built the bridge from Kahneman and Tversky into the American economics profession. And fast forward, you know, 25, 30 years, Kahneman won the first Nobel Prize, economic prize for his work in behavioral finance. Then Thayler won it a few years later. So, it's pretty cool. So a couple things happened to, you know, because I could go on about this. One is, that it was the psychological models of judgment and decision-making were bridged into the American economics profession, and became very controversial in the best possible sense because it wasn't, I don't think it was an accident by the Nobel Prize Committee the other year, when they jointly, they handed out two Nobel Prizes in one year, one to Thaler and one to Gene Fama. And these are like the twin pillars of, you know, sort of,…

[: 00:05:47

[00:05:49] Brian Portnoy: I didn't mean Thaler, I meant, I, I, I, yes.

[: 00:05:52

[00:05:52] Brian Portnoy: I meant Schiller, but nonetheless, also, kind of a main guy in that field. So, it was controversial. It became very popular. You had books like Thinking, Fast and Slow. You had books like Nudge, like Annie Duke, show up and write really interesting books, of Thinking in Bets, and how I decide, guys like Dan Ariely made a name for themselves, writing a variety of books in the space. And all of this seeped into our world of investment decision-making, and really in financial planning, over the last 15, say 15, 15 to 20 years or so. And what happened was really kind of this weird, and this is my assessment, this is my take.

I don't know how widely shared it is, but my sense is that partly through intellectual laziness, partly because of the focus of wealth management and financial planning, the industry here in the U.S. became so singularly focused on what's known as biases and heuristics. Basically, the brain is hardwired to form a bunch of shortcuts, because we've taken more information than we can process. And so the brain literally builds like, physical bridges over those massive pools of information, so we can get from A to B a lot more quickly, and that's, in the Thinking, Fast and Slow world, that's the fast thinking that the brain does, at the subconscious level.

As this landed in the world of financial advice, and how do I understand client behavior, and why do my clients seem to be nervous when the market is volatile, why do they want to sell their portfolio when the market goes down 20%?

The industry leans so heavily into this enormously long list of biases, and heuristic biases and shortcuts, and it's really hard to use the word bias without having a negative connotation to it.., so what the financial planning, the wealth, the multi-trillion dollar wealth management industry did, and adjacent to the investment management industry did, was basically say our clients are flawed. You know, they are irrational, and irrational is an economist's fancy word for stupid. Basically, our clients don't know what they're doing, and I, the smart one, am going to observe, diagnose, and maybe even fix. and one of my co-founders at Shaping Wealth, Dr. Joy Leary, who's a Ph.D. in psychology, and practicing therapist, and all around you know, brilliant person, she said the other year, we need to stop pathologizing normal human behavior.

And part of what's happening in the industry now, because of firms like Shaping Wealth, because of a number of other folks working in the space to bring forth so-called human first financial planning, behavioral advice, there's a whole number of ways to tag or label it. But basically, let's back out of the cul-de-sac that we've driven into, where we're spending a lot of our time talking about availability bias, or recency bias, or the endowment effect, or loss aversion.

Not because these aren't real things. There are empirical manifestations of those quote/unquote biases, but they aren't evidence of our flaws. They are actually evidence of our humanity. And if you're actually going to be a great financial planner, and I know many, we know many who care deeply about their clients, which is most of the advisors I've met over the 15 years I've been doing this part of my career, then let's just take seriously what makes us who we are, what makes us normal. And so, we're kind of into this, what I call, behavioral finance 2.0, where the first version was about how flawed our clients are, and how do we understand all of these mistakes that they are making, and instead pivoting to a completely different mindset, which is there's this beautiful mosaic of what makes us sort of messy and flawed, but still very normal. And let's understand that so that when we help people with investing or saving or spending or any other dimension of our money life, we can show up really understanding where they're coming from.

[: 00:10:21

And here are some ways that, either as an investor, you can be more self-reflective, Think in Bets, that sort of thing. Or advisors, here's how you can try to educate clients out of their human nature, right? And so there's this, that whole element. There's been tons and tons of books on that by many of our favorite thinkers and writers, et cetera.

And then there's another whole canon on what the implications of these departures from rational choice imply from a policy standpoint, and the foundations of our economy, et cetera, right? So, I mean, I know because you and I have talked quite a bit, and your background is in political economy, that you're interested in all of these things, but Shaping Wealth is really recognizing an impossibility, and probably just misguided objective of trying to correct for human nature.

[: 00:12:27

[00:12:52] Adam Butler: On wealth. Yes.

[: 00:12:54

And, to date myself, you get these Calgon take-me-away moments where it's like, I just can't handle how much is coming at me. It's why stores like Costco and Trader Joe's are so brilliant, because those are sort of A+ demonstrations of smart choice architecture, the way you were brought into that experience and moved around. Anthropologists, psychologists have designed every footstep that you take in there. Nothing in those experiences is an accident and there's a reason why we feel more calm there, than going to Big Lots or The Dollar Store or maybe even Walmart. These are designed as very, that's very different experiences.

So, one path is to kind of grapple with preferences being exogenous or endogenous, and how much of what we want is a function of the experience we're having? Okay, so that can get deep. We can go there if you want. The other way to go is to buy into a completely different and relatively new field of psychology, which is positive psychology. So you've got, so positive psychology was invented in the late 20th century by a guy named Marty Seligman, who was a professor of psychology at University of Pennsylvania. and he was deeply influenced by some of the post-war humanist thinkers in psychology. Maslow, is it Abraham Maslow, Albert? Yeah, we all know Maslow's Triangle, and you know, people in that field who focused on happiness and self-actualization. And your preference for more isn't really that you would take from the rational choice world, isn't really what it, what's at issue.

What's at issue is sort of the quality of the life that you're living and in the Maslow context, hey, you take care of your basic physical needs and then you take care of your psychological needs and it goes up to the pinnacle of some form of true sort of present self-interest actualization. Seligman, number one, acknowledged that tradition, and number two, wrote some pretty powerful papers, recognizing that the history of psychology mostly focused on our flaws. And a lot of modern psychology came out of World War II, where you had not only societies, but individuals and families that were just devastated and broken.

So you read something like Viktor Frankl's Man's Search for Meaning. He survived Auschwitz, right, and so he wrote from that vantage point. So a lot of modern psychology is analogous to the disease model of medicine, which is all we're doing is making sure people are less sick. And Marty Seligman comes in and says, you know what, most people are okay most of the time. How do we go from good to great?

He didn't say good to great, but that's basically what he was focused on. What's happening now, and we've leaned so heavily into this at Shaping Wealth, is to basically say that positive psychology 1.0 is behavioral finance 2.0. That if we can model and embrace a particular framework for understanding our humanity, and we can always lean on George Box who years ago said all models are wrong, but some are useful. So we can draw useful models from positive psychology as to what it really means to flourish.

And Seligman was the, his big idea was flourishing. His main book is called Flourish. If we could start with, what does it mean for a human being to live a good life, to flourish? And then secondly, include money among other factors or domains into that conversation. It kind of flips everything on its head.

So we're not starting with making good or bad decisions about investments, or navigating the stock market. We're starting from a very different place. And that puts the financial planner in a really interesting spot and she can lean in, or just walk away, if it's not of interest to say, yeah, I'm actually interested in my clients, often my friends, people I treat as well as I treat my family, to a life of flourishing, and I'm going to help solve the financial piece of that broader question, of that broader matrix. Behavioral finance 2.0 just really fulsomely absorbs all of these lessons from positive psychology. And I really think it's, I mean, I'm speaking my own book, literally. I think it's the most interesting thing going on in wealth management.

[: 00:18:30

And to me that, what you're speaking of is really kind of throwing the table over a little bit and saying, hey, what do you want the picture on the front of the box to look like, from the standpoint of an actualization perspective, a Maslow's hierarchy of needs. And you actually have the ability to actually think about that picture before you even start piecing the puzzle together. And that kind of dropped for me there, as you were walking through the positive psychology, and actually thinking of the picture on the front of the box.

[: 00:19:33

[00:19:49] Mike Philbrick: That's huge. How do you shake that? Like, how do you shake that? Like, you…

[: 00:19:54

[00:19:57] Mike Philbrick: I have a house, and that's been man, like, how did I decide to do those things? I mean, I don't even know.

[: 00:20:02

[00:20:09] Adam Butler: Mike might have a few thoughts on that as well.

[: 00:20:11

[00:20:12] Brian Portnoy: I know you both have thoughts on this. Okay, let's anchor on the idea that for the last half to full generation, financial advice, financial planning has focused on what is called goals-based wealth management, okay? Part of this is a function of true financial planning, going back to the seventies and eighties, and part of it is marketing spin from the wire houses, who over time are just looking for different ways to keep people in their seats, to sell them sort of different investment and insurance products. So there's kind of virtuous and less virtuous framings of goals-based wealth management, but the practice itself is pretty straightforward.

And you know, at least on its face, it makes a ton of sense, which is, hey, what is your goal, and what is the typical problem that we're trying to solve for, at least in American wealth management? It is retirement. Hey, I want to retire at age 65 with $4 million so that at a 4 percent withdrawal rate, I can have the following cash flows and that can cover the cost of the lifestyle that I'm imagining. Like, what is wrong with that? Well, I don't mean to say there's anything wrong with that, but I could say that it's terribly incomplete and it doesn't actually reflect the way the human mind processes goals, enjoys or not the goals, that when we actually achieve them. So, again, nothing wrong with that exercise.

But it kind of leaves wide open the fact that we haven't even asked or answered the question of why 65? Why $4 million? Forget the withdrawal rate of 4%. That's a toggle. But, we're not really getting to the crux of the issue. So there's a whole series of problems with goals. One of them, the big one is what psychologists call hedonic adaptation. The idea that you achieve something that you want, and the emotion that you feel isn't what you expect it to be. And to the extent that it might be something resembling quote/unquote happiness, the intensity of that emotion is less than you wanted it to be. And the duration of that emotion is shorter than you expected it to be. And that we just are on this hedonic adaptation, sometimes called hedonic treadmill. We're on that treadmill.

So in Mad Men, Don Draper says that happiness is that feeling right before you want more happiness. Like there's no, you know, at a neurological level, there's no entirely getting off of that treadmill, and so how do we solve this problem, if it even is, it is a problem? Well, we act, we ask why, and we get into deeper issues of, so instead of starting with what, which is the goal, moving then to the how, which is the plan, we take a step back and we said, we start with why, well, what is the purpose behind the money that you've earned? How is it going to be fulfilling in deeper ways, in what I called in the geometry of wealth, reflective happiness, what Danny Kahneman calls life satisfaction as distinct from experienced happiness, or what Danny Kahneman would call emotional well-being, which is that fleeting pleasure versus pain that we feel every day.

You wake up in a good mood or a bad mood, but that's what we're really, most of us aren't optimizing for. Many of us hopefully are optimizing toward sort of that, those deeper sources of contentment. So we go from, start with what, the goal to start with why, which is the purpose behind the goal. And that's where really interesting, powerful conversations can be had in your mind, with your partner, between client and advisor. Like, there's so much good stuff to dive into there. And if you want to press it even further, and I'm going to push the industry in this direction, when I have time to write more, but actually, there's something that precedes purpose, which is identity. And so start with what, go backwards to start with why.

Actually, the end of the line is start with who. So the only thing I'll plant now, we can go into if you want, is that we have multiple identities. I'm a dad. I'm a friend. I'm a business owner. I'm a dog owner. I'm a Steelers fan. I'm lots of things. All of us have dozens of identities, some tiny, some very big and meaningful, and are back to this preferences, exogenous, endogenous, often are preference.

We have preferences that are associated with each of those identities. And so sometimes it's not about changing your mind in terms of what you want. It's who do I want to be in this particular moment? And in some sense, our most valuable asset is our sense of who we are, because we actually live through story, not through numbers.

And so the financial advisor probably doesn't fully appreciate that someone is showing up with a whole stack of identities, and in a really messy, slippity sloppity way, are trying to optimize on different identities that money has a strong influence over.

[: 00:25:30

[00:26:01] Brian Portnoy: I think that's a personal choice and you know, there are different personality types that are going to be more or less reflective, curious about this. I doubt there's anybody on the planet who hasn't thought about the life that they want to live. And forget financial advice for a second. You know, I think we're all on some sort of path, trying to figure out what all of this means. And so whether you call it religion, or spirituality, or just narrative, all of us to some extent have bought into some story that makes sense of the world, and we're figuring that out.

I mean, during the day where I'm walking my dog, I'm sending emails, I'm not thinking about this all the time. I would go more insane than I already am. But like, this is the stuff of life. We're trying to figure it out. There's no doubt that like, we're being just battered, Mike, to your point with information and choice. And that's where decision fatigue and choice overload comes in.

eneral of the U.S. earlier in: 2024

And so just quickly, and again, go wherever you guys want, but if we bring it back to a financial planning context, this is the stuff that is in the room. It's sort of the DNA of financial planning, because we're trying to figure out how to afford a meaningful life. How do you underwrite the things that are most purposeful or meaningful for you?

It's my, this term, like, coined, funded contentment. This idea that true wealth is the ability to underwrite a meaningful life. It's really what most people in the financial planning context want to talk about, if they're working with a true financial planner. And so the question isn't if, but when, and how do you have these conversations so that you, the advisor, can show up with your own authentic voice, to lean into these things and make it land in an impactful way for the end client, so that they walk away saying, huh, he or she really helped me lead a life.

[: 00:28:46

I mean, a lot of the elements that are teased out in conversations about meaning, purpose, fulfillment, like, these are, there are, first of all many different schools of thought within the profession of clinical psychology about how to navigate this. How do you train people to be responsible in engaging on these topics, which can be very personal, very emotional, potentially very traumatic? It just seems like it's an unusual skillset and knowledge base, in the context of the financial profession at large, right, and even, you know, deep into the advisory side of that space.

[: 00:30:27

So, you know, you've got people there who are compensated for selling product more. They're not fiduciaries, but the fact is, that according to the American Psychological Association, money's the most stressful topic in our lives every year. It's the topic that people want to talk about the least, compared to mortality or marriage or religion or politics. Like, money is the third rail that triggers all the things, fear, greed, envy, joy, hope, anger, regret. So we're going to take that as a given, that it's this third rail, it's this lightning rod.

And so here, people show up in your office to talk about whether or not they should up the allocation on their mid cap value fund, or whether crypto should go into the asset allocation mix, or something like that, but it's my pretty strong belief that the only question most people are asking in most of these conversations is, am I going to be okay? Or the loved ones that in my life, are they going to be okay? It's rarely spoken, but it's often, it's sort of what fills the room. So Adam, I'm going to accept the premise of your question by saying, yeah, this is heavy duty stuff, and you can get into a lot of trouble by beginning to have conversations about people's identity and meaning and purpose. There are, there is a field known as financial therapy, and there are pretty bright lines when you cross, measurable bright lines when you cross into certain topics.

But even before you get to that line, it's just a very sensitive space. So part of the way I think about it, part of what we've tried to build at Shaping Wealth, in terms of a training suite and content to support those conversations, is like, well, you're talking about this anyway, you're talking about values, you're talking about, it wouldn't be in any way awkward to say, well, what's important to you? And it could be, you know what, I love my time up at the cabin. I drive up two hours, I got this cabin on the lake, like, that's my happy place, and I want to be able to afford that in the first place, or I want to be able to extend on it, so that the kids and grandkids can visit. Like, that's pretty kind of normal middle of the fairway stuff for a financial planning conversation.

So in some ways, we're not over extending ourselves. It's just that when we return to what we mentioned a few minutes ago, that it's sometimes hard to say what it is that we really want, do you really want that cabin? Are you socking away? Are you making a lot of near term sacrifices in your life or something that actually you might not want?

And it's something that you feel like you should do, but don't want to do. And there's other things that are pulling you. You know, those people can be better or worse equipped for those conversations by having at least a little bit of a sense of what makes us tick, what are those underlying sort of frameworks for thinking about what drives our happiness, and how did those inform the types of questions that I want to ask? And underneath all of that, which is a different topic, is a whole series of skills that we can derive from emotional intelligence, where we are better listeners, we can demonstrate more empathy, we can show leadership. There's a whole set of skills that come out of EQ or EI.

So, yeah, it's heavy duty. If you analyze it from a standing start, if you analyze it from the point of view of where most advisors are most days, which is in a closed room, or on a Zoom call where people are talking about their most intimate emotional issues, which do come up with, you know, related to money, then it's like, okay, we got to backfill the ability to do this the right way.

End miniriff here

[: 00:35:33

So we actually manage private and public funds as well as bespoke, separately managed accounts for investors that seek the potential to smooth out portfolio returns in the long run. So if you do want to see that theory that we've been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.

[: 00:36:15

[00:36:32] Brian Portnoy: Yeah. So, I mean, I'll add another example, because it seems to have landed really well in our community over the last year, which is that thinking about change and how humans navigate change. It's a funny thing when you think about the 1859 Darwin quote, if it's even a quote, that, you know, we survive not because we're the strongest or the smartest, but because we can adapt. So as a species, adaptation is the key to survival and thriving. But at the individual level, being reductionist at the individual level, we resist change all the time. We get stuck in our ways. We engage in something called confirmation bias. We find information that reinforces the stories that we want to believe, and so on and so forth.

And so, there are some very well-articulated, powerful, well-evidenced theories of change. The most prominent is called the trans theoretical model of change. It's a six part, depending on which slight version, there's a five part, six part, a six stage model of change in terms of, hey, I'm not even thinking about it, the pre-contemplation phase.

Like, I'm thinking about it, but there's no chance I'm doing about this any time. Then I'm going to prepare, and then I'm going to lean in, and then I'm going to reinforce whatever that behavior is, and it goes around.

Whether you're an advisor or a coach or any sort of guide. You are helping other humans navigate uncertainty and change. Uncertainty and change just defines our daily, sort of our daily soup. And so, what we seem to have done over the last 12 to 18 months is turn a light on to the fact that advisors, that financial planning has effectively changed management, at multiple levels and in some profound ways. And when you can articulate that for a financial advisor and say, hey, you know what, here are some really straightforward frameworks. It's four parts or it's six parts, but it's not that complicated. And that there are things to listen for. There are questions to offer at this stage, but not that stage. And you can begin to think, God, why does it seem like the client's really into wanting to do this, but then they get good advice, and they don't take it. There's all these different use cases. All of a sudden, like, we begin not to get into deep questions about your identity and the, defining the purpose in life, but recognizing that part of the human condition is both the resistance to, and need for change, and there's ways to have better coaching skills along that line.

[: 00:39:21

[00:39:24] Mike Philbrick: There an example you can sort of provide there to bring it home?

[: 00:39:30

And we kind of have two stages of our financial lives, right? There's the accumulation phase and the decumulation phase. And many people do not make that switch very well. So, hey, you've spent all of this time saving and investing, and you've got a multi-million dollar portfolio, and, you know, you could do anything you want. But it ends up that a lot of people end up passing away with way more money than the day they retired at age 62 or 65, because their portfolios grew well in excess of their spend rate.

And financial advisors sometimes find this really frustrating because they're like, don't you see? You can spend $200,000 a year and you won't even nick the principal, and the clients won't spend. So there's some change issue here and it might be the case that their values are such that that frugality, that lack of spending is very meaningful to them, and that's who it is, they want to be. But others want to change, but can't. And so you can walk through this 5 stage process of pre-contemplation, contemplation, preparation, action, and maintenance, because at each stage, there are psychological markers, there are conversation topics, there are metrics. Today's not the day to put up a PowerPoint slide or seven, but like there's literally a wheel that people go around, and you could be trained on how to have those conversations in a more effective way.

[: 00:41:52

[00:42:15] Brian Portnoy: …

[: 00:42:15

[00:42:24] Adam Butler: Well, historically, it has been true that it's the frugal, prudent savers that have all or have a huge proportion of the wealth, right, and there's a, I, to your point, I think there is a, there's a genetic orientation component to that. There's a reinforcement component. It's worked well to provide the security and safety that they have craved or what have you, right? And o it seems, I don't know, strange to think that they would become somebody completely different in retirement than they were during their saving years, right?

[: 00:43:20

[00:43:43] Adam Butler: Someone to give them permission, almost.

[: 00:43:46

[00:44:01] Adam Butler: Yeah.

[: 00:44:01

But some of the other things that we build and teach and share and grow, kind of professional communities around whether it's sort of how to be more empathetic generally in a social relationship, or how to think about change, or building mental models for how to talk to a client during very stressful times, such that you're not just saying, hey, calm down. There's a certain, you're like, hey,…

[: 00:45:07

[00:45:15] Brian Portnoy: Yeah. Calm down,

[: 00:45:17

[00:45:18] Adam Butler: Yeah, that's right. You're being irrational right now. Please.

[: 00:45:23

[00:45:26] Mike Philbrick: I suppose some of the sharing, I mean, as someone who's been an advisor in that role for quite some time in another life, one of the things I found that was, that came to me naturally is just, when you're an experienced advisor, you're speaking with a client and you know that they have too much and they won't spend it. Providing them the ideas and experiences that other investors and clients have had, where okay, you're not someone who spends it. That means there's going to be all of this money to give away at the end or to leave to people. And why not provide them some of those funds now, where you can observe them, taking advantage of them and getting a leg up, versus spending it.

If you don't want to spend it, it was a legacy you're going to provide upon your death. What about doing something before you die, and being able to share those experiences and those ideas, because they're not, you know, the individual client is going to have their blinders on a bit. If the average financial planner has a hundred clients, and through time, those clients do roll over for various reasons, you've got all of that experience that you can share.

And if you're, if you've got the coaching around how to share it, how to help them through the change management, how to help them feel good about it in whatever way it is. Maybe it's, no, I don't really want to leave this to the kids and holy shit, I'm going to leave them the money to spend. No, no, no, no, no, no. I'm not doing that at all. I never thought of that. I'm just going to give this money and they're going to go Visa. No, I'm going to Visa. So it really is, you know, having the opportunity to share that, those experiences with others who are going through that with different clients and different situations, and then having the tools to convey that in a productive and positive way. I mean, that that's…

[: 00:47:23

[00:47:28] Mike Philbrick: Right.

[: 00:47:29

And by the way, maybe that isn't for them. Hey, let's think about this. Oh, not for you? Okay. Let's stay on the path that we were on, and that's fine. To some extent, you've done your, the job of a guide, and sort of the opening salvo for almost everything we do in Shaping Wealth is that the modern advisor wears two hats, as a mechanic and as a guide. And as a mechanic, you're a technical expert in insurance and investments, and estates and taxes, and selling a business, and retirement, planning and all those sorts of things. Absolutely non-negotiable in their importance.

But at the same time, you're also a guide. You are helping other humans navigate uncertainty and change, and that lends itself to a completely distinct, deep, and broad set of skills that our industry is only coming to terms with. Okay, so that's kind of the opportunity that Shaping Wealth is sort of going toward. Our mission statement is four words. We Train the Guides. That's what we do. Like you're a well-trained expert in building portfolios, in packaging insurance, any of those things. And so, I bring all of that up to say that it's not the job of a guide to tell someone where they want to go. It's to bring them along a path that they want to pursue.

It's just hard for a guide to do that effectively if they themselves have not walked the path, so we lean pretty heavily into the self-awareness component, to emotional intelligence, you know, self-awareness, self-regulation, empathy and social skills. The true source of empathy isn't trying harder, it's actually working on yourself and knowing where you're coming from to serve as a contrast, a foil or companion to what somebody else is going through. We work with advisors on their money stories.

And it's remarkable, Josh Brown and I wrote a book on this, an edited volume called How I Invest My Money. And now at Shaping Wealth, we've worked with at least a couple or 300 advisors on their money story, meaning like, what are your earliest memories? What values do you associate with money? How did you learn about these things? What was your first job? What did that mean to you? How do you think about your legacy? It ends up that I guesstimate that like between 80 and 90 percent of financial advisors I've met over the years have never once written down what money means to them. Never once. And we do these exercises, and we got a lot of kind of offline comments like, holy shit, I can't believe I've never done that before.

That was scary. I kind of didn't want to do it, but I'm really glad that I did. And now I'm actually listening different to my clients, because I have a different baseline than I did before that exercise in self-awareness. And so if we're training the guides, then those guides have to understand kind of what their role is, which is to not say, hey, you should spend it all because you know, it's to help people explore the terrain that they probably don't have a clear map toward. And to me, that's a really virtuous thing to do. It's how humans can help other humans flourish or thrive.

[: 00:51:17

[00:51:34] Brian Portnoy: You know, here we just sort of pivot into, I think, a relatively straightforward learning and development platform. You know, I think of a lot of what we do, as an investment in human capital. And here, where we are in the industry in terms of many factors, the nature of markets, the availability of investment product, many different things, AI, generative AI, which we'll probably talk about. The terrain is such that I think many, many advisory firms are saying, geez, our competitive advantage is our people.

How do we identify the right talent? How do we train them? How do we motivate them over the course of their career, because number one, it's in their best interest. Number two, they're going to be engaging with clients, and that's the lifeblood in terms of the good work you do, and the revenues you generate. So, you know, to increase the value of your human capital, you need learning, you need training. And we operationalize it, I think, in pretty straightforward ways. You know, everyone's supposed to call everything an experience now.

I'll back off of the marketing spin. Like, we have courses, we call them experiences, but we'll call them courses. And some boil down to a 45 minute or a one hour workshop. Some of them are multi-month, quite immersive, you know, 20, 25 hours of CE you will earn in those experiences over a 2, 3 month span where there's a lot of work to do, and we treat it as sort of a boot camp style experience where, hey, it's going to be intense, we're going to tell you that ahead of time. If you're not entering with a growth mindset, you're not going to enjoy this. And the eight or nine weeks that you spend with us are, that's not the thing. The thing is, you are now prepped to be in the army, so to speak. The boot camp proceeds being in the military, in this case, being a behavioral advisor.

So we've got those sort of, sometimes live, sometimes asynchronous courses. Pretty straightforward. We've got a content and coaching platform called Compass. You are the guide. We are your compass. And it's, in the last two years, I think we've created something like 950 original pieces of content, bite-size usable on three levels for your own development, for building your team and to engaging your clients.

A lot of times this gets back to behavioral finance 1.0. Hey, tell me something about behavioral finance that I can use in my practice. And what they're usually talking about is give me a technique to manipulate my client in a conversation so that I can keep them in their portfolio. To this day, we, I just heard that last week from a potential client. I'm like, I know I've seen this movie. I know how this is going to go. It's just not a healthy pattern. And so, when we think about content and practicality, it's, hey, you might learn something. You might develop your team in a particular way. And third, not first or second, but third, you can engage your clients.

So that Compass platform, I mean, there's podcasts of different types on it, but there's shareable client content. We do a lot of work in the field of advisor well-being, and, you know, as a side note, there's kind of a global low key mental health crisis in the advisory community, for the simple but profound reason that advisors are being asked to do more and more and more, under the banner of comprehensive or holistic financial planning. It is less transactional. It is more relational. It is less analytic. It is more emotional. And there's no Kevlar vest that protects the advisor from five or eight or however many conversations a week, which for that individual, like when you go to the doctor and you're literally and figuratively naked, it's like, okay, this is my one day at the doctor this year.

There's a lot going on for the advisor, for the physician, he or she is seeing 12 people that day, right? So everyone's showing up ready to, in some ways spill the beans, spill their guts. And you're just listening to story after story. And some of it's good. And some of it's not. And so what we're seeing, across hundreds of our, we've thousands of clients, but we see in hundreds of instances, people just dealing with stress, anxiety, burnout, imposter syndrome, things like that. You know, in the classic metaphor of put on your, you know, when the air pressure goes away and drops, and, you know, put your own mask on first. You know, sort of the dark edge of being a servant leader is that you tend not to take care of yourself first. And so we see a lot of advisors and advisory firms who don't take care of themselves.

So coming back to Compass and the resources that we provide, we have content, we have live private coaching group consultations that address advisor well-being. So we've sort of built, Adam, like this whole ecosystem of resources that advisors and advisory firms overall can use in one way or another. And the last thing I'll say is that, yes, we have substantive expertise in applied neuroscience and behavioral finance and positive psychology, emotional intelligence, but we also know something about how busy adults learn, and that's a completely different domain. And so the Venn diagram of Shaping Wealth, where I think the good things are really happening, is at the intersection of the substance of it all and learning design. Basically appreciating that there is a practice of Experiential Learning Design, capital E, capital L, capital D, it's a thing.

And that, it's a better way for people to take on bite sized ideas, be taught those ideas, give a chance to play around, to analyze those ideas, being given pathways and opportunities and spaces to test them out in the world, to practice using them, to come back to the group, to talk about that, and to repeat over and over and over again. So sort of many small things, rather than big things. You know, Seth Godin talks a lot about old school education versus new school learning. We love Seth Godin. We love new school learning. Education is didactic. It's me saying things to you. Hey, here's a list of biases. Memorize them and use them. Learning is no, okay, we're going to go process. We're going to go bit by bit through a process. We're going to tell you what that process is ahead of time, so you have a sense of progress and milestones transcribed, and that you're going to actually learn this stuff by practicing it. Lo and behold, a lot of people don't like the practice because it's work, but for those who want to do the practice, it ends up that this stuff is very, very useful in their day to day.

[: 00:58:59

[00:59:35] Brian Portnoy: Yeah. Yeah, we've given it some thought. It's hard though. It's hard because people are busy, and that's the whole point, so, you know, to lean in and do these things and then to come back for more.

[: 00:59:46

[01:00:00] Brian Portnoy: Yeah.

[: 01:00:01

[01:00:42] Brian Portnoy: So Lydia is an always on highly empathic companion with perfect memory and a lot of computing power, who is there to help you as an advisor, or I can imagine any employee in a wealth management context, kind of navigate the day to day of improving the lives of others. So in a sense, Lydia is the guide to the guides, and the vision, we're partnered with a really fantastic firm called ALAI Studios, A, L, A, I, Studios. And, you know, my friend and partner there, Andrew Smith Lewis, who's got a 25-year background in cognitive science and artificial intelligence, and basically, he's got 25 full time AI developers and then a whole team of others.

So his tech and our content have come together to form a series of conversation agents called Lydia. The reason that it's called Lydia is that the first coin ever discovered was in modern day Turkey, what was then 2,700 years ago, the empire of Lydia. So the first coin ever discovered was the Lydian coin.

st software update, money, is: 3000

And so, you know, at Shaping Wealth, we've built many models, at the crossroads of human behavior and financial planning. So those mental models are sort of embedded in a series of codices that inform the conversation agents, and all the routes that connect them. And so you show up in a very simple sense, and it could be typing, within a very short period of time, you know, weeks. I think it'll be voice activated.

Hey, I'm off to this meeting. I want to talk about this, what do you think? And she'll say, sounds great. Have you thought about this, or do you remember that they sent you an email 19 months ago that said the opposite? Do you want to accommodate that in your conversation? Depending on how you toggle kind of a hive mind thing, it could say, oh, this conversation with the Butler’s is about this, but remember that lesson from the Philbrick’s, that we learned there could be that trans-theoretical model of change we used on Mike, who's so stubborn and won't change? We can use that over here. It can have all of these conversations.

You can wake up on a Monday morning and say, I've got eight client meetings this week. Me and my paraplanner have prepared the agendas. Can I run all of them through you just to give me a second or a third set of eyes? Absolutely. In other cases, you can role play, and we've really done a lot of work on that, just in literally the last like, week to 10 days. But, you know, hey, I'm going to meet with the Butler’s to talk about their legacy. There's some things in this conversation that I kind of want to say out loud and basically I don't want to talk to my colleagues about it because, you know, be awkward. Can I run through my lines with you? And she'll say, sure. I'll be them, you'll be you, or hey, we could flip the table at any point and you'd be them and I'll be you, and you could see the conversation from both sides. There's an opportunity through other technologies inside Lydia to basically look at all of the conversations you're having as an individual advisor, or if you are someone running an advisory platform, you've got 34 advisors, each with a hundred relationships. So you've got 3,400 families you're meeting twice a year formally with each of them, so you've got 6,800 client transcripts and then some.

Lydia can take an unlimited amount of unstructured data and basically answer the question, what are we talking about? What are the top five conversations across the entire platform? Would you like a blog on each of these every week, in order to drive conversation? Would you like analytics on the quality of that conversation so that we can drive new training solutions? I mean, you guys, I mean, Adam in particular, I, you're a hundred X beyond where I am on the technical elements of this, but you begin to let your mind go as to what's possible here. It's basically another member of the team.

Now what's really cool, the reason why Andrew and I get along so well, I mean, our vision is funded contentment for everyone, that wealth is a mindset that can be learned and coached. Andrew's vision is to amplify human brilliance, that technology can and should be used to bring out our brilliance and our creativity, and to make life richer, not to replace us, but to enhance us. So, you know, you begin to think of it through that lens. Lydia is not here to necessarily save you time as a first order problem. It's easy to imagine how she will, but in some sense, to go slower and to be more intentional and considerate and deliberate in the way that you are developing your career and in turn, helping your clients.

[: 01:07:04

In days, you can allow it to get to know you as much as you want it to get to know you, share with the system, and I really like that it does a lot of Socratic teaching. There's, in a way that you don't see with most of the public facing commercial chatbots, Lydia starts with trying to learn more about the question that you're asking. So starts with, three or four questions to get clarity on exactly what you want to achieve, and then is able to go in whatever direction makes the most sense to meet your objectives, only after learning more about what those objectives are. So it's a really neat tool. It is not by any means off the shelf, has access to knowledge that you can't get from a general chatbot. And it's also clear that it's not meant to be a replacement financial advisor in any way. It is exclusively meant to be a potential guide, conversational partner, practice partner, mentor, et cetera, to the guides themselves. So it's a very well-conceived and well executed product, delivered well above my expectations. It was a really neat surprise.

[: 01:09:13

[01:09:24] Adam Butler: Yeah. Well, it'll be really neat when you're able to integrate the voice directly, so it can be more conversational. That will, I think, be a huge enhancement for a lot of advisors who probably are not, don't love typing, and I'm much more proficient with talking.

[: 01:09:44

So it's pretty cool. And I'm glad you picked up on the Socratic piece because we've had a lot of internal discussion around that because it's just a little moment of discovery where she says to you, oh, interesting that you're meeting with the Butler’s about legacy. Let me ask you one or two clarifying questions? That accomplishes at least two things. One is, it's more information. Two, you, the advisor, are feeling seen and heard and more fully engaged.

And there's a memory function to this. So my partner Andrew's got more than a dozen patents in memory retrieval and neuroinformatics. So over time, you, the advisor, Mike, who's done this forever, the more you use Lydia, the more she will just know you and your pattern. She'll look at your speech patterns. She'll see what you're talking about, and she will have memory so that she can retrieve something that you said or thought or the way that you expressed yourself. Now, this is kind of all aspirational. This isn't three months from now or six months from now, but the power of the memory function in Andrew's stack and in Lydia in particular, has just enormous potential where like, she's just going to be like, she works for you. She's just your coach, your guide, your mentor, your buddy.

[: 01:12:44

[01:13:41] Brian Portnoy: Well, you…

[: 01:13:42

[01:13:43] Brian Portnoy: … know, and what's that?

[: 01:13:44

[01:13:47] Brian Portnoy: Well, it's funny. I mean, you got, you know, we hang out offline and have lots of goofy conversations. But as dear friends, we also know that that moment when you feel seen or heard by somebody else, just by the question they ask, or the moment of silence they offer for you to keep talking, for you to repeat back what someone has said, to acknowledge that you've heard them. And it's very validating. It's kind of tinny to call them conversational techniques, but like, this is kind of being a better person to others. And like, why not fine-tune this copilot experience, to walk alongside you in that way.

You know, the normal ChatGPT 4.o or Claude 3.5 Sonnet experience is great. Like, you say something, gives you probably a good answer, and then probably with a few more prompts, you can really refine it into something that's super powerful. But it is entirely driven by you. You hold all of the agency. And in some ways, Lydia is designed to be an experience where you can relax and exhale a little bit, because she's part of, she's your conversation partner. She's coming at you with questions. She's acknowledging what you have said. So yeah, it's cool. And I mean, Adam, you're one of the first people to look under the hood and we have a lot to do, but it's pretty exciting.

[: 01:15:13

[01:15:52] Brian Portnoy: Hard, pushing hard to disrupt things, and it's just kind of cool to be in this sort of conversation with guys like you.

[: 01:15:59

[01:16:20] Brian Portnoy: Yeah, yeah…

[: 01:16:21

[01:16:23] Brian Portnoy: So, meetlydia.ai. You can meet Lydia at meetlydia.ia. and you know, it's a microsite. There's some good information as to the way it's supposed to function. There's some video, demos on there to give you a look and feel, the look and feel of the interface. As a proper product rollout, that will happen. And we're sitting here in late ‘24, that'll happen next year in 2025. So meetlydia.ai is that spot, and more broadly, shapingwealth.com. That that's the one spot. I don't, should I give out my Bluesky?

[: 01:17:02

[01:17:03] Mike Philbrick: Of course.

[: 01:17:04

[01:17:05] Brian Portnoy: I've never, I've never given it out and I don't understand like, the way they do it, but yeah, it's @BPortnoy.bsky.social. I don't know why I just can't be…

[: 01:17:17

[01:17:20] Brian Portnoy: Yeah. Yeah, just BPortnoy. So yeah, there we go. First time I've told anyone where I'm at a blue sky.

[: 01:17:28

[01:17:41] Mike Philbrick: Thanks, B.

[: 01:17:42