BY FABIANA CONSOLI

Against a backdrop of digitalisation and the seemingly unending desire for differentiation, the twenty first century investment banking industry looks radically different to the previous one. These phenomena have not only affected the way banks operate but also transformed the skills that are required to deliver their services. As investment banks continue to evaluate the evolving roles and skills of their employees, they must also probe the more fundamental questions concerning their workforce. At present most of these institutions depend on an ageing pool of labour whose jobs, once they retire, will be taken up by millennials. At the same time tighter regulations, constant technological advancement, greater transparency and loss of return on equity have forced banks to find new ways of delivering client value whilst maintaining a competitive edge.

The percentage of Harvard Business School graduates entering investment banking, sales or trading dropped to 5 percent in 2014 from 12 percent in 2006, while those entering technology almost tripled to 18 percent during that period. At the University of Pennsylvania’s Wharton School, the percentage of MBAs entering investment banking dropped to 13.3 percent in 2014 from 26 percent in 2006, while those entering tech more than doubled to 11.1 percent.[1] Herein lies the challenge: how will this traditional and corporate industry attract, retain and reward this new talent, whose wants and desires do not necessarily align with the business needs of traditional investment banks. How will these huge global corporations compete with those edgy tech start-ups in the East End who offer flexi-time and let staff wear trainers to work?

The Millennial Challenge:

Today between 60-65% of a bank’s employees are over 40 years old.[2] With this in mind, the banks face not only the challenge of integrating and keeping the millennials that already work there but also the trial of retaining the knowledge of the older generations and integrating this into the fresh approach for the younger workforce, once the former have retired. Additionally, the desirability of investment banking as a career path has waned amongst younger professionals over the last decade. Many of those who, once upon a time, would have chosen to work in the industry have instead opted for careers in technology. The crucial difference between the older and younger generations is that the millennials are often willing to sacrifice compensation for the opportunity to be part of a company that is smaller, more agile and purportedly more challenging.[3] The consequences of this tendency for the banking sector are already manifested in the skills gap. In response, banks are relying on an external workforce in the form of freelancers, consultants and contractors. Whilst in the short-term this approach papers over the cracks, in the long term it adds unnecessary costs, creates disjointedness for the banks and ultimately fails to address the underlying problem.

The role of technology in Investment Banking:

The combined forces of regulation and technology are standardising the role of the Front Office, creating a need for a broader skillset with IT at its core. Traders of the future will oversee a largely automated trading system. An example of this is “IBOR” (Investment book of Record). This combines front-office portfolio reporting with back-office accounting data in real time, reducing human error and allowing for a central point for users to view any type of data, for any instrument, at any time. Over the last five years, 43% of brokerage firms have shrunk their sales workforce, relying instead on technology to handle the same trading volumes. This trend is mirrored in the buy-side where 73% of institutions are using algorithms to direct trades.[4] This move towards technology has transformed the relationship between the Front Office and IT. As the line between the two blur, necessary skills such as analytics, electronic trading and alternative messaging protocols are becoming critical and will need to be learnt and adopted. With these challenges in mind, the banking industry needs to focus on attracting and cultivating the technological know-how required to ensure that their Front Office remains efficient and profitable. With the constant threat from traditional rivals, and the emergence of smaller, alternative ‘challenger’ banks popping up almost every day, looming large, competition is fiercer than ever. This is especially true for the larger, corporate banking institution as it tries to attract a new workforce whose mind-set is completely different to their predecessors.

The Future Solutions:

In order to attract and retain the necessary talent, work will have to be designed in ways which provide more exposure to a greater body of internal stakeholders. This would fulfil the millennials’ desire for challenging work and variety of experience. In addition, the flexibility and agility of the smaller organisations that is so appealing to the millennials will need to be mirrored in the banks. Their employee benefits will also need to reflect this sought-after agility through the provision of flexible working and time off to suit personal needs. A work-life balance, innovative work environments and challenging work is crucial for attracting talent and ensuring that the financial industry continues to thrive. There are advantages to this: by adopting this focused and yet flexible strategy, an organisation can become more customer-focused and digitally competent which in turn will enable the bank to build its brand both externally and internally; a crucial step that towards ensuring banks will succeed in the future.

[1]D.Kopecki, Young Bankers fed up with 90-Hour Weeks Move to Startups,2014, http://www.bloomberg.com/news/articles/2014-05-09/young-bankers-fed-up-with-90-hour-weeks-move-to-startups.

[2] Workforce of the future: dealing with change and the millennial challenge, 2016, https://www.accenture.com/us-en/insight-investment-bank-challenges-workforce-future

[3]J.Fromm, Millennials in the workplace: They dont need trophies but they want reinforcement, 2015, http://www.forbes.com/sites/jefffromm/2015/11/06/millennials-in-the-workplace-they-dont-need-trophies-but-they-want-reinforcement/#468d09455127

[4] Workforce of the future: dealing with change and the millennial challenge, 2016, https://www.accenture.com/us-en/insight-investment-bank-challenges-workforce-future