Lesson 1: Standardise the data flowing from custodians
Back in 2008, the governing body of Formula One, the Fédération Internationale de l’Automobile (FIA) introduced data standards. A piece of equipment was added to cars for monitoring a standardised set of metrics, transmitting data in near to real time from the cars to the team, and then on to the FIA.
Introducing this standard stopped teams trying to outspend each other on data, reducing technology and compliance costs. What it didn’t do was reduce competition on the track.
What does this mean in the context of financial advice?
Imagine the benefits of standards for data capture, format, and transfer. There’d be so much less financial burden on firms and technology providers to address this problem individually. And, if all that data were also directly available to regulators, there would be enormous time, effort, and cost savings at audit time. The technology exists, we just need the industry to embrace it.
Clearly defined standards consistently enforced by regulators can not only reduce poor behaviour, but they can also actually help increase performance.
Lesson 2: Team members need absolute clarity about their roles and responsibilities
In 2019, Team Redbull Racing set the world record for a pit stop during which all four wheels were changed and the car returned to racing in just 1.82 secs. In a small, risk-filled space were 20 people who each performed a dedicated role in choreographed unison.
In our industry the same principles apply.
Clear job descriptions are necessary for every individual. Employees need to understand their actions and the consequences of delay such as inefficiency and negative impacts to client experience resulting in revenue outflows and poor staff experiences that trigger churn.
High-performing organisations have built out processes with powerful automation tools. 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 remain focused on the task at hand.
These same firms apply continuous improvement practices, revisiting each step for optimisation and weighing the value of each individual action.
They leverage system capabilities in workflow tracking to monitor execution speed and identify bottlenecks, and they use individual performance data to identify and train team members who are lagging.
Like F1 teams, they are always seeking precision and high performance.
This is avoided with a laser-sharp focus.
Lesson 3: Reduce or remove noise by introducing role-based technology that drives focus
Back in 2011, Team McLaren were taking close to twice the average pit stop duration of other leading teams. After detailed analysis, the team found the primary difference was down to where the ‘gunners’, those who release the wheel nuts, were looking as the car approached. The time it took the gunners to refocus their vision was the difference between being the slowest in pit lane in 2011 and setting the then pitstop record in 2012.
By gathering data to determine the root cause and then focusing specifically on addressing that issue, they went from laggards to leaders.
Businesses like F1 teams need to remove the ‘noise’ and distraction to deliver a more focused operating environment.
Using a generic one-size-fits all technology system, where regardless of their role everyone sees the same thing, does not help a business. The absence of role-based user experiences consigns everyone to compromise and reduces focus. It also reduces adoption which drives down ROI and increases risk.
Another major system-related issue creating noise in most firms is the lack of integration, and the subsequent need for individuals to double key data.
The more times we ask people to do repetitive work, the higher their frustration and the lower the quality of that work. The result is more errors and rework. Both of which add cost and risk to a business.
A lot of older systems can’t integrate well so it’s important to look to providers with open, bi-directional APIs and a culture of making data flow seamlessly.
Another major cause for a loss of focus is people leaving the firm. The time it takes to train new team members and the loss of knowledge from those who left can be majorly disruptive.
Standardisation of process, automation of steps and embedding instructional content within systems offsets some of this risk. Of course, investment in the right technology upfront will also reduce churn because team members won’t leave because they’re frustrated.
Lesson 4: Create a positive data culture and define the critical data points that underpin your success
With over a mile of cabling capturing around 300GB of data per car, per race, via hundreds of sensors on the car and driver, F1 is the most data-driven business there is.
Data is analysed in real-time, trackside and back at the factory by engineers looking to find any advantage or minimise time in the pits. Every piece of data has a purpose, and everything is scrutinised.
The wealth management industry is awash with data but starved of insight. Our answer to the lack of insight has been to amass yet more data. But we need to understand whether we have the right data and whether that data has purpose.
Data without context is almost entirely useless and data without purpose is worse.
Huge portions of the data across the industry is on investment performance and that’s useful. We also have data such as client details, adviser qualifications and even business profitability, but it’s often lightweight and fragmented. There are vast amounts of operational data available too but sadly for most firms, this information is out of sight and out of mind.
Top-performing firms know the power of data points and use them to constantly improve. Those looking to grow inorganically use data to determine optimal acquisition targets. These firms also constantly assess the highest performers in their teams and use them as a benchmark to measure everyone else.
In addition to all these lessons, firms must be inspired to look beyond our industry for learnings and be relentless in their pursuit of greatness.
The wealth management industry has long been accused of having an operating myopia. Only looking for innovation from within, with blind faith that we know what we need better than anyone else could.
Inspiration can and should be drawn from diverse sources, and the best performing firms’ hunt for excellence wherever it exists, and bring those learnings into the industry. The financial advice industry should be no different.
Adrian Johnstone, president and co-founder, Practifi
They’re both exceptionally expensive industries that logic says to avoid