Options Group, one of the top recruitment firms on Wall Street, has wrapped up what it considers to be the most important trends in the financial services industry in 2016.
Richard Stein, chief growth officer at the firm, sent us the list below, and agreed to let us reproduce it in full.
It includes theimpact of various political risks, rapid technological progress, and investors’ preference for passive over active management.
Without further ado, here’s what Stein had to say:
1. Average global total compensation is forecast to decline in financial services
“Options Group forecasts global average compensation to decline in the low single-digits.
“Downward pressure on compensation is not directly a function of the big geopolitical events that preoccupied financial markets in 2016, such as Brexit and the US presidential election, though these headline grabbers contributed to the atmosphere of uncertainty in the financial-services industry.
“The general decline in pay is a manifestation of long-running challenges to financial firms, according to Options Group–relentless regulatory environment chief among them.
“Meanwhile, years of attrition among financial-services firms have resulted in desks staffed with the bare minimum, where vacancies must be filled immediately. Essential replacement hires typically command premium compensation levels.”
2. The dawn of talent analytics
“The tools and their applications are rapidly becoming mainstream. Their advanced statistical techniques enable firms see past the noise in the conventional recruitment process.
“Firms can now find previously obscured patterns and uncover hidden value-invaluable at a moment when the conventional talent pool is proving inadequate to a dramatically transforming financial-services industry.
“‘Talent modelling’ tools, for example, can directly address strategic questions like the probability of success for specific kinds of talent under different kinds of hypothetical scenarios.”
3. Big data, for good and ill
- REUTERS/Kacper Pempel
“The subject of hacking is on everyone’s minds as the new year begins. At financial services firms, the traditionally inward looking role of the Chief Information Officer as the defender of client and company data is acquiring a new strategic centrality.”
4. Relentless automation of functional infrastructure roles is accelerating
- Thomson Reuters
“The trend is driving an enrichment of intellectual capacity among average employees. The phrases “back” and “middle” office will lose cachet.”
5. New technologies make smaller banks big
“National and regional commercial banks are creating robust technological service offerings. Banks are limiting sales-force expansion and decreasing headcount focused on opening accounts, such as retail banking.
“Tech marketing teams will replace conventional sales professionals like wealth managers and retail bankers. Expect expanded hiring in technology roles in place of hiring more retail staff.”
6. Brexit took everyone by surprise in June
- Google Street View
“Thousands of UK finance workers will be affected by the vote. London’s place as the premier financial center in Europe will be out at risk. The result will be a more evenly dispersed human-capital approach across Europe as Frankfurt and Paris emerge as beneficiaries.”
7. Donald Trump took everyone by surprise in November
- Jonathan Drake/Reuters
“The election of Donald Trump with his message of renewed growth appears to have fundamentally challenged the psychology of global markets. There is a sense that the recent period of constrained macroeconomic growth has come to an end. Only time will tell.”
8. Money is flowing out of underperforming hedge funds and toward passive index investing and long-only managers
“By the fourth quarter of 2016, investors redeemed $77 billion out of what was a $3 trillion hedge-fund industry.
“According to eVestment, in October alone, 61% of funds recorded net outflows as large investors went in search of high-capacity beta. Both parties found themselves in need of new talent-management strategies-in the case of long-only managers, to capitalize on their windfall, in the case of hedge funds, to win their clients back.”
9. Hedge funds revised their human capital strategies
“Heading into the fourth quarter of 2016, the average return of all hedge funds was flat to negative for the third year in a row. Prominent US hedge fund managers went on record about their concerns about the thinness of talent pools, pronouncing themselves “blown away” with the difficulty of procuring the level of talent they are seeking.
“Meanwhile, pay levels remain eye-popping even by the standards of financial services. Hoping to regain their mojo, a number of prominent funds looked outside the industry for senior hires, like aerospace and software design.”
10. The Millennial wave is breaking
- Flickr / Aspen Snowmass
“The oldest baby boomers turned 70 in 2016. Millennials-anyone born after 1980-are taking center stage as clients and employees of financial-services firms.
“As they enter the most dynamic phase of their adult lives, millennials will be building college funds and retirement nest eggs. To a degree unprecedented in history, they will have inherited wealth as their baby-boomer parents pass from this earth.
“To appeal to this generation, traditional firms have to create an entirely different approach to address millennials’ unique values about work culture and personal motivation, and also how and what medium that is communicated to them.”