The Lance Armstrong guide to wealth management operations

Grand Tour cycling experienced a global boom in the late 90’s and early 2000’s largely down to what are now known to be chemically enhanced heroics of the disgraced rider Lance Armstrong. In the dark years when most of the Peloton was chemically turbo charged it was easy to forget that for success in a Grand Tour, such as the Tour de France, a team requires exceptional strategy and operational excellence in measures equal to rider talent.

Anyone who has read biographies from riders of that era will know that strategy and operational skills were very much at play, but neither provide good lessons for the future since the strategy was mostly one of selfish efficiency and the operational skills were heavily focused on the complex ‘border games’ of international doping.

I should explain selfish efficiency in more detail, there are times when it's acceptable, but this tends to be if the beneficiary delivers the results expected of them. 

The single biggest efficiency gain for any cyclist comes from all the riders around you, those in your team and those in the teams you are competing with. In the first part of most stages a huge peloton sets off with teams collaborating by taking turns at the front generating efficiency gains for the rest of the riders. 

When the race heats up and nears the competitive stages the cordial collaboration of the peloton is replaced by each team's specific race strategy which generally focuses on putting their lead rider in the optimal position for success. Until that point each teams lead rider has had an ‘armchair ride’ especially when compared to the domestiques who spend time and energy ferrying water and food, taking time at the front of the pack, and riding themselves to exhaustion as per the team orders and so it's no surprise that when the moment comes the lead rider is expected to be ready to excel because they are the ultimate beneficiary of selfish efficiency.

When racing it may have seemed that Lance Armstrong regularly ‘paid back’ his US Postal/Discover colleagues with multiple victories but in reality the toxic environment, rapid turnover of riders and meagre thanks for the effort made the strategy - unparalleled selfish efficiency - unsustainable.

Armstrong first retired in 2005 and made a couple of comebacks until his past actions caught up with him in 2012 and he finally admitted to the institutionalised doping that led him to seven consecutive Tour de France titles. It takes a lot of effort and a helpful dose (excuse the pun) of luck for any enterprise to recover from the dark position professional cycling found itself in.

This story draws parallels with the global financial crisis of 2008 - a financial services system that was outwardly enormously successful and able to make money hand over fist whatever market conditions were. Obviously the reality was somewhat different. Artificially enhanced synthetic instruments formed the shaky foundations of a system that came crumbling down and took many ordinary people with it. 

Making the 0.5% count

Cycling made efforts to clean up the sport that came in the form of WADA and USADA prosecutions alongside the sports governing bodies' determination to clean house.The financial services industry did the same, with straitjacket-like regulations and their own set of prosecutions. Cycling’s aforementioned dose of luck came in the shape of Team Sky (now Team Ineos).

Team Sky was formed off the back of Team GB’s cycling success in the 2008 Beijing Olympics. Emboldened by a record haul of 14 medals including 8 Gold, Team Sky set out with the incredible ambition of winning the Tour de France within 5yrs but to achieve success in the new era of cycling required fresh thinking.

The leader of Team Sky, Sir Dave Brailsford, often referred to seeking marginal gains, the little improvements that can be made that when added to all the other improvements make a significant difference. These gains came in many forms, better bike technology, better kit, better training and nutrition or the best hotels, this focus on detail is the epitome of operational excellence.

The team was ahead of its competition in other ways too, culturally it was poles apart from the ‘cult of Armstrong’ and strategically the depth of planning was unparalleled as highlighted in this article by Tom Fordyce the BBCs Chief Sports Writer highlights the lengths the teams go to create an opportunity for their lead rider to succeed https://www.bbc.co.uk/sport/cycling/44372328 

Similarly, the financial services has made huge efforts to distance itself from the sins of the past. Wealth management had its darkest days around the crisis, but has roared back to strength, and is probably now in better shape than at any time in history. Whilst it has eschewed some of the more egregious monetary synthetics that led to the events of 2008, the growth in the sector is somewhat reliant on the fuel of M&A warchests, to the detriment of other strategies and operational excellence.

There’s no I in team

There is no doubt that M&A will be the most powerful force of growth in the industry for a few more years, but other strategies are beginning to emerge as firms look for an edge to find the extra edge required to beat their competitors. Unsurprisingly since im writing this from a desk* in a tech firm (*actual desk, in an office, with other people) i'm going to highlight digitisation as one of the edges the industry is keen to explore. The pandemic proved to be a good catalyst for digitisation in wealth management, but rapid success can breed complacency and overconfidence.

As observed in this and other industries when clients do digitise, their appetite grows for greater functionality but, as in cycling, there is a danger in pushing too hard, too quickly. An overconfidence in what you can convince clients to do digitally is potentially dangerous. Digitisation impacts a firm's efficiency in a similar way to the collaboration of a peloton, a collective of riders (or in digitisation clients) all working together to reduce friction means the overall mass moves forward faster than each individual can achieve for less effort. This is a win win, but the risk is in what happens next. 

Some firms are targeting the next round of digitisation as a portal for passing admin to the client under the assumption that the client will embrace it, saving them operational effort and propelling them forward, but this strategy is akin to some of the worst elements of selfish efficiency exhibited by Armstrong, there is only winner until the strategy catches up with you. The efficiency gains realised by the firm in pushing admin to the client are not really gains. Rather it’s making your undesirable tasks your clients’ problem. And in a service industry, that’s not a good thing. It’s far better to remove these inefficiencies entirely by focusing on business operations.

When things are going well, as they are for the wealth management industry, it’s easy to get complacent and ignore some of the powerful basics such as the importance of operational excellence. A cycling team with no mechanics in pursuit with spares or no domestiques willing to fetch the essential nutrition for the team will fail the first time the strategy is challenged and this is the same for wealth managers who don’t invest in operational excellence alongside their primary goal of growth.

As with cycling, success is dependent not just on the stars of the show but (perhaps moreso) on the team behind them. A main rider without a well oiled machine behind them (literally and figuratively) has little chance of success. Indeed where would wealth firms be without the back and middle office? Without compliance? Technology? 

It's time for wealth management leaders to convince the ‘money men’ that investing in operations is essential if they want the high pace of growth to continue. Operational excellence, channelling the marginal gains approach, will allow firms to create efficiencies across multiple tasks performed by front office ‘stars’ and back office ‘domestiques’ dramatically increasing the speed of the firm for a reduced effort. 

Forget selfish efficiency, harnessing selfless efficiency is the strategy that will turbo charge the winner ahead of their competition.