The Tao of Chao Podcast
The Tao of Chao Podcast
Fiduciary Leadership and Behavioral Governance with Don Trone
What does it take to lead responsibly in today’s complex world? In Episode 32 of the Tao of Chao Podcast, Philip Chao sits down with Don Trone, founder of the Behavioral Governance Institute, to discuss the principles of fiduciary leadership and the importance of behavioral governance.
Key insights include:
- Why fiduciary duty is best understood as a standard of character, not just compliance
- How behavioral governance helps leaders align decisions with values
- The importance of ethics, accountability, and trust in financial services
- Lessons from Don’s career advancing fiduciary responsibility and governance frameworks
- Why stewardship and leadership are inseparable in finance, business, and beyond
This wide-ranging conversation is essential listening for investors, advisors, and anyone who wants to understand the deeper meaning of responsible leadership.
👓 Learn more about our HOST
Philip Chao
Website: https://philipchao.us
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DISCLOSURE: Views expressed in the Tao of Chao podcasts are individual opinions and they do not represent the employers of each guest or the firm with which each guest is associated. Our podcasts are for educational and informational purposes only and should not be deemed or viewed as investment advice or recommendations. Please consult your personal financial advisor, investment expert, or investment fiduciary before taking any actions about your plan and investments.
so the question of the ages has always been, our great leaders born or made. the answer is yes. So the people who drafted RSA were brilliant. They said it is not the place for the government to identify what assets or what asset strategies are prudent or imprudent, It was that language that brought me from being a Coast Guard helicopter pilot into the fiduciary movement, Welcome to the Tao of Chao podcast, where we will try to find balance and provide a clearer path forward in this uncertain world. Don was the founding CEO of the center for Board Certified Fiduciaries. Founding CEO of free 360, founder and president of the Foundation for Fiduciary Studies, and the first person to direct the Institute for leadership at the US Coast Guard Academy. Don is a graduate of the US Coast Guard Academy, being the class president as well, and served for ten years on active duty, most notably as a long range search and rescue helicopter pilot. He is a four time recipient of the Sikorsky Helicopter Rescue Award. He has a masters from the American College and has completed postgraduate studies in theology from the Pittsburgh Theological Seminary and the Trinity Episcopal Seminary. And here is Don. Don, thank you. Thank you so much for, for for coming in and joining us on this podcast. I've been looking forward to this very much, and I've been thinking about it for some time. And, the reason it took me so long, is because I'm a little nervous about the subject matter, and I've thought, well, maybe I should learn about the subject matter, which is really a leadership discussion. But then I said, well, why am I waiting? You are the expert. I should be having this sooner rather than later. To learn to learn from you and to to have the audience listen as well. So again, thank you. Thank you for joining. And, we would I look forward to a, a conversation that's probably far too short because it's a very important, and I know a tremendous amount of work you've done in it, so thank you. Yeah, yeah, I will thank you for and and so the audience knows, the two of us go back 25 years and, so there will probably be some sidebar conversations where we're chuckling and no one else is going to know what we're talking about. But it is out. Yeah. Thank you. It's an honor to be here. Thank you. You're very kind. I know you have a very interesting career, but, one thing, as I mentioned before, is the leadership. You have always, that is one string that went through your entire career. You may not have used that word throughout, but is this clear? That's where we we are and where we should end up. And so I think of I think of this is almost your your career is democratizing leadership. Maybe that's not the right term to use, but letting everybody know about the importance, letting everybody take on some component, if not all aspects of leadership from both. I think we're going to talking about behavioral science as well as introspective ness and so on and so forth. So we love to I love to hear about that. As you have mentioned over the last 25 years, I certainly have been your student, remain to be a student. In, in, in all aspects of, of of doing the right thing, and building trust, and doing doing things that, is good for the people who look to us to make decisions for them or to help them or or to hold, hold, us responsible for their lives in some way or another. And so let's talk a little bit about the organization that you are CEO. Behavioral Governance Institute. Many big words. I think I can interpret what behavior means. I can understand governance, and I understand institute, but string them all together. Perhaps you can help in explaining what that is and what kind of good work you and your colleagues are doing for our thank you. There's a lot into that question. First of all, where did we come up with the term behavioral covenants or the name behavioral governance? That was intentional. You know, behavioral finance is well established, as you know, one of the co-founders or founders of the behavioral finance movement, Richard Thaler, got the Nobel Prize in 2017. And so we chose the name Behavioral Governance to be it was deliberate to be the follow on to behavioral finance. The difference behavioral finance is looking at the behavior of the individual investor. Or in the case of A41K plan, the forward K for personal behavioral governance shifts the focus to the key decision makers the trustees, the investment committee members, the asset managers, the investment consultants to retirement advisors. How does the behavior of those key decision makers impact investment outcomes? And we've never studied that as an industry before. Is it not fair to say humans are human and they are in leadership role, or they are in individual, investor role? Those key behavioral biases, cues and so on are fairly consistent. Or is it somewhat different when you sit in a leadership role? Vis-a-vis in the investor role and that's quite significant. What's interesting is to see the change in behavior of individuals when when somebody new joins a board of directors and somebody new joins an investment committee, and how the behavior of that individual then impacts that committee or that group as a whole. Unfortunately, time and time again, from observation and firsthand experience, I have seen a group of people that look homogeneous, that look like they have shared values, shared understanding, put them into a group setting. And unfortunately, many times, ineffective behaviors begin to serve us. And you end up with outcomes, decision making outcomes that are wholly inconsistent with the individual members that make up the group. But that's what happens. Interesting. So there's group dynamics going on in there. That is, behavioral based. You think? Oh, absolutely. Right. Right. Yeah. And and so politics I don't mean Republican, Democrat, but political aspect of human behavior plays a big role. You think? Oh, absolutely. Yeah, absolutely. The co-founder of behavioral governance, doctor Sean Hanna. Who's a tenured, professor at Wake Forest University. Yes. When we first met, it was Colonel Sean Hanna. He was the head of leadership development at the United States Military Academy. And I had just finished an 18 month sabbatical as the, head of the Institute for leadership at the United States Coast Guard Academy. And, we were introduced to one another. We found that our interests and passion, particularly around the subject of leadership, were very well aligned. But what Sean is with Sean is now world famous for is that he led the academic team that proved that there is such a thing as a natural born leader. You know, so the question of the ages has always been, our great leaders born or made. Yeah. And science now says the answer is yes. But so what they proved is that a natural born leader will have a different neurological makeup than the rest of us. And they identified six specific neurological markers, parts of the brain that are better developed in a natural born leader than the average person. And, when I saw that research. It was very technical. As a PhD, a published paper that very quickly I found that if I took out the word leadership out of his research and replaced it with the word fiduciary. That gave great illumination as to why there is such a thing as natural born fiduciary. But more importantly, why there are certain individuals that should never serve in a fiduciary capacity because they're just wired differently. So you think you see, well, since I never read that paper, and even if I read that paper, I probably wouldn't understand 90% of it. Because it seems like, a highly educational and sophisticated. So is it the decision making process, neural pathway that makes somebody comes to certain conclusion or decisions more naturally because of certain pathways in, within the genetic makeup of that individual who was born, or there's an ease of those pathway going to a certain direction. Vis-a-vis somebody who or not, is that a I'm just making it up as I'm thinking, what you are saying is that a fair even discussion points absolutely not qualified to answer that question. Sean would be able to do that. That would be way over my skis to do that. But the other thing I would add is, this is where, by the way, before I forget, that research paper and in fact, all of Sean's research papers. Yes. Sean, right now is ranked in the top 1% of academic researchers in the world. Wow. All of his all of his research is in a special purpose avatar that we have built. And so, the beautiful thing about AI is it can take what PhD level content and reduce it to a reading level of whatever you want to set in the avatar. In this case, we set it at the same reading level as the Wall Street Journal. And so it's an incredible tool to take research, the strongest world famous for and reduce it down. So that way individuals can have conversations about this critical work. But the other thing I wanted to add was, this is why it's also important to understand behavioral and cognitive biases, because those are also impacting, this decision making framework. And again, the beautiful thing about AI is it has the capacity to do that integration. So intellectually we can sit here and say, well, there's, there's neurological pathway, there's neurological, markers and, and, connectivity of these markers in the brain. And yes, there's going to be certain behaviors, cognitive behavioral biases that impact that connectivity. I can make that integration and make it understandable intellectually make sense. But how do we actually create a narrative that combines the two? That's the beautiful work of AI. Interesting. Let's talk a little bit about, the, the, the fiduciary, aspect and then behavioral governance. I think those are not synonymous, but there are a lot of similarities. Can you help us to understand, because I, I live in the fiduciary world, as you know. Well, but this seems like behavioral governance, is a much bigger overlay on top of, of fiduciary duties or procedures. You know, the more, more, more policy driven thing, whereas governance sounds like something much bigger and greater. If you can sort of help us understand that, how how is that interact with each other. And. Yeah, and I'm going to give you some history about that, please. Development as well. First of all, the easiest concept is think of think of Venn diagrams. Fiduciary is a subset of behavioral governance and completely sits inside it. So it's not like here's fiduciary and here's behavioral governance. And there's some overlap. Fiduciary squirrely sits inside the bigger behavioral governance piece. Now one of the reasons why I began to develop the research around behavioral governance is because of the deterioration of the fiduciary movement. We mentioned the fact we go back 25 years ago. So I remember you in one of the first classes, we had a pet University of Pittsburgh when we started teaching about fiduciary responsibility, institutional best practices. It was a two and a half day program. Right at the end of the two and a half days, nobody was finished. We could have spent the whole week. We wouldn't have been finished. It was just an insatiable appetite that was growing. And in turn, we of the fiduciary movement were blessed by the fact, you know, that the financial was for one sector and the financial press loved what we were doing. It was a great alternative to traditional products. And so we got we as a movement got terrific press coverage. It accelerated, the movement. The other thing that accelerated the movement was Enron. Because of Enron, the word fiduciary was now appearing on the front page of newspapers. The average person was beginning to be introduced to the concept of fiduciary. Shortly after that we had the mutual fund scandals where the 16 fund families got implicated for inappropriate use of soft dollars. And again, that came back to the gusher. We have the 2008 meltdown, financial meltdown, again, a failure of fiduciary. So the fiduciary was there at the right place at the right time. But in the category of be careful what you wish for. As it became more prominent and the press was giving more accolades to people that were following the fiduciary movement, bad people began to adopt fiduciary as a way to enhance their business. And pretty quickly, yeah, sort of. Yeah. So the fiduciary movement. Yeah. Go ahead. Fell prey, fell prey to the very same ethical movements over history. Politics, power ego and greed always destroy great, initiatives. And here now I'm going to blame the press. So just as they thank you for making this movement, what it was, they refused to do any coverage on the deterioration of the fiduciary. And even to this day, I still on news, you know, how do I hire the best financial advisor? Ask them if they're a fiduciary. There could be no worse advice to the people in the public that I tell them. Ask whether your, advisor is a fiduciary, because if you're a bad advisor and the client is saying, well, you take a fiduciary oath. Yeah, I'm a fiduciary. Will you sign a paper? Sure. Sign here. So as I saw this, the client, I said, let's take the essence of what it means to be a fiduciary. Let's look at the religion. That's what it really is for the term. It's a religion. It is. Let's let's look at this religion and recast it in terms that are outside the purview of the regulators. Let's recast this in terms that the average person will understand. They will never understand fiduciary. They have a pretty good grasp of the concept of leadership, good grasp for what it means to be a prudent decision maker. And so I began to reassemble the fiduciary movement in the terms of leadership, stewardship and governance. And that's the three elements. Those are the three legs to what we define as behavioral governance today. So what I, if I may summarize by saying that we have went from a an important, concept practice, to become just a title fiduciary is hollowed out much of what it meant to be. And one can no longer differentiate. Is this a fiduciary or is it just by name only, which actually confuses the marketplace or fooled the marketplace by using that title until it's totally meaningless, so to speak? Because it doesn't define anything just because, say you are one. And so what you are trying to do is the conduct aspect. And rather than title aspect of leadership and, and to some extent, you know, behavior is really conduct, I think, right. One way to look at it. But please go ahead. Don. Yeah. You used a very powerful word. All of the concept of fiduciary has been hollowed out. Yes. We have not done a formal survey, but I believe if we did a survey of people that use the word fiduciary, serving as a fiduciary advisor, and then look at their actual work product, what is the work? What is the process? What's the decision making behind it? It's not there. And so I would estimate 85% if not more of people calling themselves fiduciary actually cannot demonstrate a workflow, a work product that would substantiate a fiduciary standard of care. So let's let's take that strand a little bit further, and then come back to really understanding more about behavioral governance, because at the end that that's sort of the beginning. And the end, and everything in between is part and parcel to it. So let's sort of spend a little time because I think fiduciary, standard is back in the news again. I won't bore you or anybody else on this matter. It's been going on for 20 plus years or what have you. Every administration comes in and makes, like, tweaks, and then kind of. It's not helpful. But in any event, when we think about fiduciary, I think about individual, goes through. I think you wrote a book on process of prudence. And it's a process. And it's not just, you know, one moment in time is ongoing. We don't use the word duty much, but it's really the duty of of, of a person who is held at a certain standard, to fulfill that standard. So let's take a moment and think about something very contemporary. I'm sure you are quite aware of it, because you send me, an article, on this new shiny object, called private private market Investment. As you know, the current administration issued an executive order, two dol Department of Labor, to write rules, or soften the edges to promote the availability of private market assets. Some people call it alternative. I think that's a wrong use of the word alternative. That's just me. But it's really private market assets, which is typically your private equity. Private, private debt, private real estate and private infrastructure. That's typically what we're talking about. And, and and just for nomenclature purposes, private meaning there isn't a public market readily tradable. But the security they're under is no different. Owning a business, owning a piece of real estate. No, it's just transactions between private parties rather than through some kind of public, liquid market. And so there is this whole debate about, on the one hand and then I won't go into cryptocurrency because that's be the other one that, that that gets people really riled up. But let's stay with private market for a moment. On the one hand, I, I'm suggesting that the government should have no role in a, in a 50 year plus aggressive framework where we are holding individuals, which will go back to leadership in a moment, in charge to be ethical, to watch out. And I will never forget, you said that the first time I heard it was solely in the interest of solely not best, not sometimes, not from time to time, but all the time, solely in the interest of the participants in the case of retirement plans. And so should the government. Do we have a system where government will tell you what should or should not be within that, asset group that, that, that we should include or exclude. So we don't want to get into a situation. Well, make sure that you don't have Intel in there, but Nvidia is. Okay. Should we give that power back to, to to an other body, which in this case the government? Or should we really rely on the fiduciary, the person or the group on the investment committee, whatever that may be in charge of determining what is in the so interest of the participants? Are these shiny objects good? Based on my understanding of my constituent or my participants or no good, but I take on that full responsibility to make that decision. And I my understanding was, as I learned it before, that that is the framework, among other things, off. And there is a plan is holding somebody responsible for setting up a set of rules, trying to guide them and allowing them to make that decision. And if that decision is not made correctly, doesn't mean the outcome. But if the decision is not made correctly or it's deemed to be imprudent or did not follow through with the process, and so on and so forth, then that person is held responsible and liable. And it is this carrot and stick type of approach that maintain some semblance of, you know, prudence throughout this journey. So maybe I'll stop there to, to hear your response about should government be involved in allowing or disallowing, real asset classes. When I say real, I mean, these are asset classes. These are not a figment of imagination here. These have been around for a long time. Is there something that is right or wrong is the wrong question I will ask. I will say that it says something that we want to pursue as a country under a reserve for retirement plans. I think that's the question. Two ways I can answer that question. Okay. The first way is to say, absolutely not. The government should not be involved. This is political. It's self-serving. Unfortunately, there are going to be a lot of farm participants that invest in these shiny new objects. And when these shiny new objects fail to deliver on the promise, those politicians that put this in place will be long gone. So who's going to pick up the pieces now? It'll be. It'll be the American taxpayer. Second comment I will make, have advised, regulators in Washington over the years, Department of Labor and the SEC, there's a lot of, responsible individuals in those organizations, but they do not understand our industry. I remember the first time I was invited to be an advisor to the secretary of labor on her advisory council. Yes. And, I remember going to my first meetings at the Department of Labor, and I was so looking forward to the lunchroom, you know, going to the cafeteria, sitting down across from somebody and said, hey, have you ever thought about this, that, you know, and and testing these best practices, thinking, truly, these have to be the experts. And it was just the reverse. They were looking at me like, what does this mean? You know, and I always said that if one day someone said, Don, you're now in charge of investments at the SEC or the Dol, first thing I would do is I would gather around the staff, I would give them a government credit card, and I would say over the next 30 days, in the morning, you spent time with an advisor, in the afternoon, you spent time with an investment committee every day for 30 days. At the end of those 30 days, you come back and give me a report on what you saw, what works, what doesn't work, what do they understand? What that they don't understand. And if the people that made the rules and regulations did that, we'd have much better rules and regulations. They wouldn't do this crazy stuff that's going on all right. That's one answer. Here's the other answer. RSA was put in place to prevent exactly what's going on. So prior to the passage of Marissa, the courts were playing that game of, well, you invested in stocks. You would have been more prudent if you invested in bonds. So now everybody invests in bonds and now the railroad bonds goes up. So the people who drafted RSA and it took ten years to draft it were brilliant. They said it is not the place for the government to identify what assets or what asset strategies are prudent or imprudent, because we know over time the strategies are going to become more sophisticated. Do asset classes will be introduced. We're not going to get into that game. Instead, what we're going to simply say is you have a duty of procedural prudence. That's a legal term, procedural prudence. You are best because you're right there with the participants. You are best qualified to determine what is appropriate, what is prudent, and what is not. But furthermore, with the duty of procedural prudence, you have to show the details of your decision making process. It was that language that brought me from being a Coast Guard helicopter pilot into the fiduciary movement, because, you know, as a Coast Guard helicopter pilot, our training, our our procedures, our best practice is second to none. And looked at the impact of that quality to what I saw in the financial services industry. And I just did not see the same level of professionalism particularly. Show me the details of your decision making process. And that's when I decided to focus the rest of my career on defining and advancing a prudent decision making process. It was later 2007 2008, when I was at the Institute for leadership at the Coast Guard Academy, and I began to realize the additional need to overlay leadership into the prudent decision making process, that the determination of the quality of the decision making is directly correlated to the quality of the leadership behaviors of those key decision makers. So if trustees and investment committees would follow the book prudent investment practices, follow the decision making framework that the two of us had been advocating for 25 years, they will come to the conclusion these shiny new objects have no place in a retirement plan. If you want to invest in shiny new objects, do it with your own money. I call it your entertainment money, but don't do it with retirement assets. Somebody that's put trust in you. So follow the rules, follow the procedures. You won't do it. But if you're following the financial press again, the following all the news and the hoopla. The double digit returns, half the risk, all that baloney. It's going to be disastrous. Understood. I think your point about procedural prudence, you you may know or you probably do know that, I have two practices. One is on the asset management side or discretionary portfolio management side for institutions and families. And then, of course, the other side, you know, very well, on the on the defined contribution, primarily retirement space, where I give you advice, the private market investments, it's not that it's complicated, but because it's private market, it's not transparent. And and to the due diligence process is a very different due diligence process I would say not only different, it's a it's less obvious, I think of the private market and due diligence is a, trust me, due diligence and other word. Trust me that my past record will be repeated going forward. But you have no idea really what's going on underneath. On many levels, yes, there's some transparency of course. But you have, you know, they can do anything. Go anywhere per se, right? It's almost like an unconstrained stock portfolio. Unconstrained bond portfolio, unconstrained everything. But it is that unconstrained. Thus, if there's such a word that allow opportunities to to rise to the top and take advantage of it for the for for people who really know what they're doing, but sometimes very difficult. Like you said, we have boom bust cycle in every asset class within even some asset classes that it may not have done well in the last five years, but it will end up doing very well. And we end up going to this behavioral bias of buying high and selling low. So there's a lot of that goes on and certainly goes on in the public market. And private market is not immune from it either, except in the private market. The due diligence process is that much more difficult. And I question that my my peers who are not in the investment management side, but more in the consulting retirement advisor side, really have the tools and the knowledge and the experience to do the due diligence, which is part of your prudence process. To demonstrate to their plan sponsor that these are or these are not recommended solutions for retirement plan and lower even if they want to do it, do they have the bandwidth, do they have the wherewithal? And not only do it once, but ongoing monitoring is a real challenge in my mind. That's not to dissuade anybody from deciding what they think is right for the plan. This is saying finding the right people with the depth of knowledge, to assist in that prudent process, that a hopefully at the end of the prudent process is a prudent decision, if that makes sense. And so, totally agree. There's one other factor. We should mention, money wrapped around all these shiny new objects are revenue sharing. Yes. Commissions. Yes. Whatever word you want to use, that's probably ten times yes. What the consultant or the advisor would make with traditional investment products like mutual funds, ETFs. So it's like an investment trust. Yes. And that unfortunately is going to have a, you know, that's that's putting a thumb on the scale, that utility scale, you know, when you pay somebody ten times more to recommend this, the thumb goes on the scale. It's more than a thumb, I think. A foot. Yeah. Yeah. And you know, an index mutual fund is not going to be taking a trustee out to Hawaii to play golf for four days. But you can better believe private private equity will have the money to do that. That's right, that's right. And, if if you're a trustee that has not been properly trained, doesn't have the experience, they just won't know that you just won't know better. Well, your point earlier is that I'm not even sure. The regulators know it well enough. Not that they don't know, but how well do they know. It's your point about in the cafeteria having that conversation right. Yeah. They just don't know. They don't know. So I don't want to come through this conversation saying private market is good or bad. I just think that the standard has to be equal, if not even higher, because it is not transparent, because there's a lot of money involved, because of a lot of other reasons. The other thing I wanted to ask you, and I know I really want to get to this governance, your, your, your behavioral part of the governance, conversation. The other part of this conversation is I have witness, at least, I think is true, that the advisor or the fiduciary, the hired gun, who are hired to be the professional, to advise the named fiduciary, who is the plan sponsor or the plan administrator, whatever the that the person or the group that that ultimately have to make decisions. They both are fiduciaries. But there seems to be a risk avoidance almost at all cost, and that most people hear the word risk. They run away from it because they think of liability, they think of personal damage, reputation, you know, all that type of things. How do you deal with the risk from that framework when you are a fiduciary or a leader? Because sometimes I if I may say so for a moment, if I happen to done the absolute best research, I've done all the things. And I really believe, that this particular investment is the right slot. Let's not call it private or public, doesn't matter for retirement plan. But I'm worried that my client will say, well, but that would potentially increase fiduciary risk and that will make you look bad and make me look bad. So let's not offer it. Let's just do what everybody else is doing because there is confidence in the masses. In the I say confidence, I don't really mean confidence. You can hide within the umbrella of the masses. Well, everybody else is doing it well. You're going to sue everybody or what. Right. So how do you, advice both sides of the of the fence, the advisor side who is less willing to take risks because of consequences to themselves and the retirement committee also thinking taking on less risk and not be adventurous. Adventurous is even the wrong word. Taking the right level of risk, to to either increase diversification, whatever the outcome. Well, seeking without overemphasizing their own personal or company risk. You say that risk should not enter the investment committee. That risk is a settler for us almost. That's a risk that is a company risk rather than a risk for the participants. So, let me stop there. I hope that I made my question clear. How do you how do you and hence the willingness to take on maybe risk is the wrong word, but that's how I think about it. You always have these, really loaded questions. I'm sorry if it morphs into. So I remember when we, we again, collectively, we published the handbook Prudent Investment Practices in 2003. Yes. And, there was an element of the financial services industry that was giving us the finger, not the thumb. It's the finger I got, the finger. And what I explained is the value of having defined practices, a defined framework. It is both a sword and a shield. If if you say you're a fiduciary and you're not following fiduciary best practices, the defined practices and the handbook we published will be used as a sword. The plaintiff's attorney is going to sit there with those practices. Did you do this? Nope. Okay. Did you do this? Nope. Okay. And you just laid out the plaintiff attorneys charge sheet. On the other hand, if you are following the practices it becomes a shield. So when the plaintiff attorney is attacking saying checklist you can go, well did you do it. Yes I did. Here's the paperwork. Well did you do this. Yes I did. There's the paperwork. So it can be to the sword any shield. The second topic that kind of evolved from your question is the fact that, in my opinion, the way we have trained the settlers, the plan sponsors, the key decision makers has been all wrong. We have taken a legalistic approach. You're a plan for sponsor. You have personal liability. Here's people that are getting sued. You got risk. So I'm going to teach you what you need to know as a plan fiduciary. And what do you do? You whip out the law and you say paragraph, blah, blah, blah section of that says law, blah, blah. All legalese don't understand it. We know from neuroscience that 90 days after the typical adult has gone through a training program, they will have forgotten 90% of what they were taught. 90. That's the 90, 90 rule. 90 days. You're going to forget 90%. Well, how frequent our investment committee meetings, 90 days, 90 days apart. So from one meeting to the next. But what do they remember? Liability. Responsibility, risk. And if you're running a company with all the other worries you have, it's keeping you up at night. This is just one more. So I said, let's change the way we work with our plan fiduciary. Our plan sponsors teach them a decision making framework they can use every day. I'm going to teach you a framework you can use to run the company to lead a team, a division, a department to lead your C-suite board of directors. Same framework, by the way. By the time we get together with the investment committee, it will be the same process. So you have exercised that process, theoretically exercised that process every day so that when you go into the meeting, you have trust and confidence in your procedural prudence. And so the question of risk is diminished. There's risk in every business. Key decision makers understand that the way you manage risk is through prudent process. The way you manage risk is through good leadership. Just as important, good stewardship, which we define as the passion and discipline to protect the long term interests of others. So I would say that we've got to change the way that we work with our plan sponsors if we're going to really improve retirement outcomes. And then the third element, then I'm going to turn the microphone back over to you. The other issue we're dealing with and have been for nearly two decades, the typical American worker is not inspired or engaged in the company they work for. And the statistics have remained pretty steady. It's like 75% of American workers don't trust the company that they work for. If they don't trust the company, they're not going to trust the company's benefits. And if we're going to get the full advantage of 401 K plans and 403 B, and so forth. The participants, those who are contributing to the retirement plan, have got to have full trust and confidence in the organization they're working for by their side note on that 75%, the one year that that the sociologist saw an improvement in improvement, meaning that the typical worker put more trust in the company they work for was the first year of Covid? You know, the reason why? No, no, it was the first time the employee heard from the CEO that said, I don't know what's next. Stay with us. Hang together. We'll bounce back. It was the first time the American worker saw vulnerability in their key decision makers, and that enabled them to put more trust in these people. But not if I could say the word bullshit. We're not bullshitting us. They're telling us the truth. They don't know. And they're actually asking us. Do you have any ideas? Fascinating. Fascinating, yeah. So, I may I may suggest and you tell me if I'm right or wrong, that when we hire actually under, I think, a Supreme Court, decision that when you hire a fiduciary, on, on, on and be a fiduciary, it's not just a fiduciary, but really a almost like a professional individual who really understands what you're talking about. The sort of standard is fairly high, and I don't think people really appreciate how important it is to serve and and what duties they really, really should be, you know, the standard by which they should that they should achieve or maintain. So as a result, I think you're right. I don't think all fiduciaries, have to have that knowledge. But if I am, if I hold myself out to be an advisor or a consultant, and in that space, I should be held to the very highest of all standards, and that I should be the one who's training them, then being whoever my clients are in all these issues, because we should not expect them to know that naturally, even if they are born leaders. It doesn't mean they, cognizant, of of of all the, all the factors necessary. So as a result of that, I think let's turn to what you are doing, which I think is fascinating, both in terms of what you have developed from a I standpoint. As well as really a training and educating, making people more have access to at least, you know, somebody from West Virginia. A good friend of mine, I say this all the time now he's one time he's he said to me, he said, now nobody can be taught anything. The only thing they can do is they learn everything. And at first I didn't really appreciate as much as I do now, because you cannot shove fiduciary standards in somebody's brain and make them the best fiduciary they have to. It's like a religion, like you said, they have to absorb it. They have to understand it. They have to live it, and it's not living it. Only during the time they call themselves fiduciary is is part of their lives. So I'd love to hear what you are doing. Especially, especially the, the audience should, should learn about the advancement you are making, in this whole area and this whole behavior aspect, I think is fascinating. Kovit. And the follow on work from home coupled with, digital technology has forever changed professional development, how we trained professionals. The analogy I like to use is the 2008 Nexus. When you had Blockbuster Video and this little upstart Netflix trying to disrupt this, this video market and digital streaming came out. Netflix adopted digital streaming. Blockbuster video said, no brick and mortar. And within five years, Blockbuster Video is gone. That's what's happening to professional development today. So the day of of, a professional, whether they're on the advisor side, whether in the plan sponsor side of being willing to go to a location, be assigned to see, you've got to be here from here to here, you've got to be in business dress. You got to pay for travel to that over. Done. So the term that the sociologists are doing in today's environment, it's called personal agency. The adult wants control. When why how how deep how often I want control over that. I'm not going to let some other person tell me that in order to be taught I have to be here. And part of that I mentioned the 9090 rule. Even if you put together a great training program 90 days later, yeah, you're going to forget 90%. So how do you support that professional on day 91 when that professional? Because, you know, I heard Phil talk about this. Let's see here he was talking about glide slope but I can't remember what that is applied. So figure so how do we go back and recapture that information. Well you could say with a professional would go back to their bookcase. They'd pull down the slide decks, they'd start going through this. They're not going to do that. So we said, let's develop new technology specifically for the professional development world. So two years ago, we started looking for AI tools that we could take off the shelf and apply to professional development. We found nothing kind of surprising. There's AI tools that will do everything. Nothing was focused on professional development. All right. We'll build around. And, I can tell you the last two years has been very reminiscent to the 53, 60 days when I was building the fiduciary tools that we had a vision of what we needed to accomplish that. I'm not a programmer. I'm not a, an engineer. So I had to sit down with the engineers or programmers and say, I think key decision makers would understand this better if they saw this. Yeah. Can you create this picture? And they come back four hours later and they'd show, yeah, we can do this. In fact, we can do this plus one other thing. Yes. And then when they showed me that I'd come back and go, well, if you could do this, can you? And it was leapfrogging and we're doing that now in the AI world. Yes. The other thing we have done is we have followed the success of Google Maps. Meaning if you're in Washington DC, I'm in Charlotte. If we said, let's get together in Nashville. Let's finish Gay in the astral. We'll do a whiteboard, talk about all the great stuff we want to do. So let's plan our trip. You're planning your trip? I'm planning my trip. Could I go to ChatGPT and say give me a route from Charlotte to Nashville? Yeah. ChatGPT will come back, but what is it going to look like? Turn left, turn right, Grant, blah blah blah blah blah. But when I go to Google Maps and I say plan a trip, it will show me. Here's the preferred route. But you could also go over here and if I'm familiar with the roads, I go, you know, you're right. I don't want to be on a highway from here to Nashville content with a secondary four lane road. Okay, now the problem with ChatGPT is now you got your route to Nashville. What's the next thing you want to do? I need a place to stay. You have to go back into ChatGPT. Tell me a place to stay, and I'll give you a couple places. But maybe there's a particular chain that you're loyal to that's three miles off the radius. The GPT. You don't have that. You don't have that knowledge. You don't have the picture. You don't have the graphic. So we said for professional development neuroscience again we know that the brain is lazy. When it's tasked with making a decision it will look for shortcuts. There's shortcuts to improve. The shortcuts are called heuristics maps, graphics are heuristics that improve and accelerate decision making. So the tools we have built are all tied to mind maps. That's our turn graphics to accelerate learning, to improve retention and the like. So there's a lot of features that we have built. They're not in the traditional AI world. We have built to help accelerate the development of these key decision makers that we're talking about. The other thing that's key to this is now the key decision maker determines how much time they want to spend with the tool. We fully expect 95% of the time they'll come in, they'll click a button and ask a question. They'll get their answer, shut it down, move on to the next exercise. That's fine. That will be there when an investment committee goes, you know what? We will. We need to spend some time on this before we vote on adding private equity. Let's take these cautionary tales to heart. Let's spend maybe 15, 30 minutes with this tool, having a two way conversation with it to help guide us through what our decision making process should look like, but they have complete control over that. And as I mentioned previous in the conversation, the level of sophistication that we have brought it at, it's understandable. It's not a legal lace presentation with paragraph this, that or the other thing. It's plain English and interlaced in the plain English is your leadership responsibility, your stewardship responsibility, which builds more positive emotion around that decision making process. Sounds really, helpful and important. Because I suggest that, whatever you've built is probably at least 80% more than most people who are giving advice, knows or live live through, and that, we all know that we need to hire people who knows more than we do. That's called an expert run. It used to be anybody can carry a briefcase. It's an expert. But but I think we move on from there. And that having an unbiased knowledge base, source of information that is available 24 seven and can anticipate the three mile away hotel chain give you a map rather than give you one route, give you choices, allow you to make that decision, but give you all the elements about decision making. I think Mike just makes a lot of sense. I also know, that Don, you have created a I'm going to call it a bot type machine. That, that not only offers the interactivity, between the questioner and the answer, which is filled with the intellectual capital that from beginning your organization. But also you have a biometrics component, which was fascinating, if you don't mind, just share a little bit about that. How how far we have come in this world. So the biometrics is coming, where the biometrics will come into play is, when you activate our special purpose avatar. So I'm going to digress for a second, because a lot of people don't understand the difference between a bot and agent. And now the higher evolution of that, which is the special purpose avatar in a bot, you have a single library of content, and you use AI to go in and retrieve content from that library. With an agent, you have more than one library, and you're teaching the AI tool adaptive learning, to be able to go in and pull content from two different libraries, two or more different libraries. And it's the integration of that information that makes it an agent. So the bot doesn't think the agent begins to think. That's where the adaptive learning comes in. To combine content, we created a new term called the special purpose avatar. Meaning multiple libraries focused on a specific need or issue. In this case, the need or issue is the integration of leadership and stewardship and how it impacts the quality of decision making outcomes. So with a small special purpose avatar, it has that capacity to look across multiple libraries, to come back and give you a prudent process, prudent decision making process. And you're absolutely correct. Again, we still have a cave person brain. It's lazy. And so even when we're taught incredible information, the brain doesn't want to store all of it. And so it's looking for reasons to throw stuff out of the brain. I don't want let's not I'm not going to use that again. Let's do that blah blah blah spotters and do that. It retains everything. And so the special purpose avatar will always, in terms of competency, be better than the advisor. By the way, just as a side note, how do we build trust? Neuroscience tells us it's compassion, character and confidence in that order. A spa or agent can handle the confidence. It can't replicate the advisor's compassion and character. Right, right. And so advisors who do not know empathy, who cannot convey a leadership role to their clients, they will be replaced by avatars. There is no question about that. Yes, yes, yes. If you're in the business and you're worried about job security, you'd better be focused on leadership. Yes, yes, because your leadership, the quality of your leadership is what's going to differentiate you. Moving forward into the future is the soft skills, not the hard skills. Yeah, absolutely. That makes us human. Yeah. Yeah. Don, I know our time is, already pass. And I don't want the lazy brains, out there listening to start turning off, even though I think, I mean, I would love to spend another hour just to go through this avatar with you. Maybe we can do that second episode. But, But this has been fantastic. Yeah, this is what we should do. So, you know, interview the avatar. Happy to have. Yeah, that would be fun. Yeah. The avatar is your guest. This week's guest is the special purpose avatar. You know what is interesting? Also, you mentioned and I'm going to exit after this question you interviewed. You said that when when you use the avatar you are building this, that if we have a camera, you can see if the audience, the person will ask the question what the facial expression is to understand if that person really understood. I mean, it's mind blowing, it's mind blowing, it's wonderful. So I think you are putting a lot of thought and really, industry changing thoughts, that maximize the potential of technology in how to supplement and to add to our daily lives as professionals at this moment, you can certainly add other ways, so that we can be better at whatever it is that we are doing. And, and that is a wonderful, wonderful, thing. That thing. I don't even know what you call it. That that you are doing this, this entire body of work. And again, I used to work democratizing, your your democratizing so more people can understand it, more people can see it, more people appreciate it. And we can be a better society because fiduciary to me just we don't have enough. When I say fiduciary, I mean the, the the definition of that fiduciary, not somebody named fiduciary, but, living the fiduciary, which we are not having enough. And that goes back to your trust in society. Trust in institution, trust in government, trust in what we read, trust in what we hear that is being eroded globally. And, and, and and it adds to our, stress mentally and our daily lives because without trust, what do we have? What that means we don't have community. We don't have people we don't have, you know, we don't have any anchors left. And the restoration of that, part of it is through having more and I call fiduciary in the true sense. And the root of it is leadership and behavior and so on. So I, so I thank you for, for, for what you are doing is, is much greater than a profit making institution regardless it is or not. It is really for a better society in my, in my opinion. So I would I would again thank you. And I would say that the reason you're so good and, procedural prudence being a pilot, is that because your life depends on it, and that's very private. It's very primal. And the. And the people we serve. Exactly, exactly. Yeah. So, Don, I look forward to, interviewing the avatar and, with you, maybe we'll have an avatar of you and and you next to it. And, you know, let's see who gets the knowledge out faster. That's the answer, right? Well, remember, I have programed the avatar. So the avatar has been trained. Never too embarrassed. Well, but I want the compassion. The empathy from dogs. That's what I'm looking for. So thank you, John. Thank you for the time. And really, enjoy the conversation. And, and we look forward to visiting again. Thank you again. Well thank you. You can always find more episodes by visiting Philip Childs on U.S. Army Podcast. Or find us on your favorite podcast app. You can always leave us feedback, ask, question, or request a topic for us to discuss by sending an email to p c at Philip chao.us. Views expressed in the Tao Chao podcast are individual opinions, and they do not represent the employees of each guest or the firm. Each guest is associated. Our podcasts are for educational and informational purposes only, and should not be deemed or viewed as investment advice or recommendations. Please consult your personal financial advisor, investment expert or investment fiduciary before taking any actions about your plan and investments.
