It was just days out from the penultimate Formula 1 Grand Prix of the 2024 season when Mark Gallagher, a former executive with a four-decade career in the sport, stood on stage to address a room full of advisers at the FAAA Congress in Brisbane last November.
Out-of-category keynote speakers are nothing new at industry events and every address must tie things together to add a degree of relevancy, but Gallagher noted a key similarity to the Australian financial advice market and the peak motor racing competition in the world: strict regulations.
Gallagher joined Jaguar Racing in 2004, not long before it was bought out by energy drink manufacturer Red Bull to create Red Bull Racing which has since won six constructors championships and eight drivers championships, including Max Verstappen’s 2024 world drivers championship victory in Las Vegas, US, just days before FAAA Congress.
But it’s a sport that undergoes constant regulatory change every season.
“Some people sometimes complain quite a lot about our rules and regulations because they say it stifles innovation and yet the interesting thing is the competitive teams, the competitive organisations have a way of being not only fully compliant but also highly innovative,” Gallagher told congress in Brisbane in November.
“That is part of the challenge I love about Formula 1; how you build a fully compliant product that meets all those complex rules and regulations, but it’s also innovative.”
It’s mirrored what we’ve seen in Australia over the last decade – the best advice practices in the country have not only embraced the changing regulatory landscape but uncovered how to thrive in it.
The sweeping range of regulations that have come into place over the past decade to professionalise financial advice hasn’t been a simple process, and it’s seen the departure of around 12,000 advisers in the last five years.
But it’s been clear those that have remained in the industry and adapted their businesses by adopting a fee for service model targeted to the right set of clients, that they have reaped the benefits of those changes as the data has shown the best advice practices can generate a 40 per cent profit margin.
Both industries operate under a rigid set of rules and regulations that are constantly changing, granted for two very different reasons. One is to protect consumers while the other is to drive competition.
In the same timeframe since FOFA was introduced, several changes have been made in Formula 1 including the reduction in engine sizes from eight-cylinder engines to six, the reduction in amount of engines that can be used in a season, how wide and heavy the car is required to be, the introduction of the “halo” cockpit protection frame, and a budget cap.
Gallagher had the privilege of working with Adrian Newey – the lead technical designer for Red Bull Racing up until his resignation in 2024 to join Aston Martin for the 2025 season – and he discussed on stage how Newey developed a winning formula while operating under the guardrails of a fast-moving and ever-changing regulatory landscape.
Newey’s designs have won 12 drivers’ championships and 10 constructors titles for three Formula 1 teams, including this year’s World Drivers Championship.
He’s also designed cars for two Australian racers, Mark Webber and Daniel Ricciardo, whose 2015 car (pictured below) is on display at the Silverstone Museum in the UK.
“I read the regulations twice,” Newey had told Gallagher.
“The first time I read the regulations is for what they do say. And then I read the regulations for what they don’t say, because what they regulator doesn’t cover is where I have my opportunity to explore the art and science of what may be possible.”
Granted, this is of course easier said than done for Australian advisers. The one major difference is the fear of the regulator and potential punishments for breaking the law.
But breaking the rules in Formula 1 has serious costs: from time penalties for on track violations that could cost race positions impacting the results of the championship to financial penalties that could further impact the success of the team down the line.
Gallagher explained that Formula 1 has three sets of regulations: sporting regulations that cover the behaviour of the drivers on track and the operations of the team, the technical rules that cover the “nuts and bolts” of how teams are allowed to build their cars, and the financial rules that cover the amount of money that is allowed to be spent.
“Do we like compliance and regulation? Well, we have to. Formula 1 is very dynamic and exciting, quite a glamorous sport to be involved in, but there’s a hard reality to what we do as businesses,” Gallagher said.
Additional research by Beata Kuczynska.
