FINTECH CORNER: What the Wealth Industry Can Learn From Formula One Racing, Part 1

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They seem different as night and day—but what do wealth management firms share in common with Formula One racing teams?

Wealth management firms are most accustomed to comparing themselves with other wealth management firms—particularly similar firms. RIAs look to other RIAs to gauge their own businesses. Family offices are likely to look to other family offices. Custodians also look more at their competition within the industry than without.

But it’s important that financial firms be willing to look outside their realm for fresh perspectives and new ideas, said Adrian Johnstone, president and co-founder of Practifi, a performance optimization platform for the wealth management industry.

“At Practifi, we view the world differently. We believe that inspiration can and should be drawn from diverse sources,” Jonstone said in a presentation at this year’s Wealthstack conference in Hollywood, Florida. “We hunt for excellence wherever it exists and bring those learnings into the industry through our product and our team.”

Johnstone, who in addition to working with wealth management firms is also a self-professed motorsports fan, has found several connections between Formula One and financial advisors.

Regulations

“For one thing, Formula One is a tightly regulated space,” said Johnstone, “with a governing body (the FIA) dictating everything from the design of vehicles to the amount of practice each team is allowed during the pre-season, down to the quantities of parts and tires used at events and the clothing—even the underwear—worn by crews and drivers.”

“Back in 2008 the FIA introduced data standards,” he said. “A piece of equipment called the SECU or Standard Electronic Control Unit which is about the size of a cell phone was added to cars for monitoring of a standardized set of metrics. The SECU transmits data in near to real time from the cars to the team and then on to the FIA.”

Practifi’s Formula One VR Experience at WealthStack 2022

The impact of the new standards was to end an ongoing arms race over data collection and management within Formula One and to simplify reporting and compliance work since the information was transmitted directly to the sport’s governing body. As a result, racing teams could place more of their focus on the competition occurring on the track.

“Of course, there’s no single piece of equipment that could do the same for the wealth management industry,” said Johnstone, “but imagine if regulators like the SEC and Finra enforced consistent standards on custodians for data capture, format and transfer.”

“There’d be so much less financial burden on firms and technology providers to address this problem individually,” he said. “And, if all that data were also directly available to regulators, imagine the time, effort and cost savings that would be achieved at audit time.”

Team Building

Motor racing of any type requires precision, not just from the drivers on the track, but especially from the pit crews during a mid-race stop. In a matter of seconds, 20 people have to service a car and get it back into the race on the track. Notably, in 2019, Team Redbull Racing set a world record in which all four wheels on a car were changed and the vehicle returned to racing in just 1.82 seconds.

“Given the high-stakes environment, each person is trained in their specific role in this process with expertise and precision,” said Johnstone. “They understand their equipment in immense detail and know the roles of those around them. A difference of a tiny fraction of a second could change track position and cost the team a win.”

The wealth management industry isn’t looking to shave seconds off of the time it takes to serve a car but hours off of the time it takes to serve their clients. Doing so requires improving the coordination and precision of each team member: defining their roles, training and re-training them to perform.

Defining Processes

“High-performing organizations have built out processes with powerful automation tools like Practifi, tools where the guesswork of what to do is taken out of the equation and where the information required is contained within each step, so staff remains focused on the task at hand,” explained Johnstone.

Firms can’t take a “set and forget” approach to defining processes but instead need to aim for continuous improvement and optimization towards higher performance.

Pit crews have to be so precise that their work can be completed accurately in a matter of seconds. While time is more forgiving to wealth managers, the stakes are still incredibly high—clients’ futures are depending on advisors’ ability to be precise.

Consequences and Focus

A failure to continuously learn and adapt leads to inefficiency, negative impacts on the client experience that can lead to revenue outflows and poor staff experiences which lead to churn.

“The devil is often in the details,” said Johnstone. “Take McLaren’s Formula One team as an example. In 2011, they were taking close to twice the average pit stop duration as other leading teams—their season was literally being lost in the pits. In response, McLaren brought in a leading human performance coach from the U.K. sports authority. Their analysis found that time was being lost by the “gunners,” pit crew workers who release wheel nuts.”

The gunners were distracted by the approaching car, surrounding noise and the intensity of their activity. The problem wasn’t in McLAren’s process but in the minute details of execution. The time it took the gunners to refocus their vision became the difference between being the slowest pit lane in 2011 and setting a pit stop record in 2012.

“So the lesson here is to invest in training and systems that drive the focus of what your team is spending time on,” explained Johnstone. “You need to remove the ‘noise’ and distraction.”

So how do you do this?

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