Lynn Strongin Dodds assesses why financial services (including derivatives) has a dearth of talent and how technology can address the imbalances.
Skills shortages are not a new phenomenon in financial services but one that has gained momentum due to technological advancements, evolving workforce demographics, and ongoing geopolitical tensions. However, it is not just about the requisite expertise needed to keep pace with fast moving technology but also those old-fashioned softer skills required for creative thinking and communication.
Upskilling required
A recent survey by eFinancialcareers showed that 83% of the 465 global financial recruiters polled said the current hiring environment was difficult. Three-quarters reported vacancies, and 65% of those found themselves struggling to fill them.
These obstacles were also highlighted in a separate study – People + Technology: How skills can unlock value for Financial Services published by the Financial Services Skills Commission (FSSC), along with PwC and EY. It pointed out that the technological shift over the past decade has created an environment where 73% of roles in the sector are now highly skilled compared with 51% across the whole economy.
As a result, EY estimates that at least 16% or 160,000 of the UK’s workforce currently require upskilling, with an estimated 8% proficiency shortfall across all skills. Unsurprisingly, candidates well versed in digital literacy, data analytics and software development are in the most demand, but they also need the human touch such as empathy, creative thinking, and adaptability.
London and Derivatives Clearing
In some ways the UK has more to lose as its reputation as a world financial centre has been under threat in the post Brexit world.
London has had some luck in retaining derivatives activity with LSE’s LCH continuing its reign as the main hub with a 90% chunk of the interest-rate derivatives market including for euro-denominated trades. However, like all derivative exchanges as well as sell-side firms, their long-term success will also depend on smoothing out the imbalances in demand and supply of talent.
Attracting Younger Generations
At the moment, many firms are trying to attract the younger generation while also stopping their more experienced older cohorts from leaving the industry or moving onto a new field, according to a recent report – Strategic Workforce Development: Talent and Technology – from Acuiti in partnership with ION Trading.
The report notes that clearing operations and margin management are the two hardest areas to recruit for. It is not solely due to the function but the wider perception of the financial services sector. It has lost its appeal mainly due to its reputation as a pressure which the study found did not sit well with the younger generation who want a different working culture. Historically, sell-side firms had been able to offset the longer hours with higher wages than in other sectors. In addition, they were the only place to hone mathematical and quantitative acumen.
Over the past 15 years, this has changed, and pay is no longer the main reason to join a firm although it does come in second on Acuiti’s chart. Hybrid working is at the top with an improved work life balance coming in at third. Providing all three conditions is not always easy for a sell-side firm and it is no wonder that other sectors such as high tech, pharmaceuticals and energy have pounced. Listen to the related DerivSource podcast – Workforce in Flux – The Great Resignation, Changing Values & Risks of Getting it Wrong
For example, the report showed that salaries at large technology companies, range from $65,000 to $95,000 and $55,000 to $75,000 at investment banks, on a par. Meanwhile, leading US technology giants including Meta, Apple, Amazon and Alphabet all have policies that require staff to be in three-days a week while many of the major banks, have implemented five-day a week mandates for most staff.
There are though regional differences with the report noting that in North America, which has the most advanced technology sector, higher wages in other sectors were a bigger obstacle in hiring and retaining junior talent than in Europe. Its biggest hurdle was the appeal of other industries and the requirements of the role in finance.
The role of technology
Regardless of jurisdiction, the sector must up its game to regain its lustre. The study recommended sell-side firms developing a long term gameplan that creates a more flexible, adaptable, innovative and agile workforce for new and existing staff. Investment in technology and people was seen as one of the main components. By eliminating manual processes through automation and digitalisation, greater efficiencies were generated which allowed more time to be devoted to higher value activities. This was seen as not only intellectually challenging but also as a morale booster.
The study illustrated this point with the benefits derived from upgrading post-trade processing. It significantly reduced the amount of time and resource dedicated to fixing trade breaks. This in turn enabled employees to focus on activities such as risk management and client services. The outcome was a high job satisfaction of 83% in the three-quarters of firms that invested significantly in post-trade technology over the past three years.
The other advantage was the reduction of the so-called key person risk. As the report noted, the evolution and piecemeal approach to building a firm’s infrastructure has been well documented. This has often left firms exposed to a small number of executives who have become experts in the operation and legal risks to operating a Futures Commission Merchant (FCM).
The response has often been to hike salaries to persuade them to stay on board. For clearing businesses, in particular, this was usually done during times of high volumes as well interest rates. However, this was not a permanent or sustainable solution. The solution is in scalability and inbuilt automated controls which not only builds the next generation of talent but also an infrastructure that can be fit for the future.
The report’s conclusion succinctly said it all, “The battle for talent within derivatives is not going to go away any time soon. The weakening economy that is expected in the coming months may provide some short-term relief in the battle for talent, but the firms developing their workforce and technology strategies will be the real winners in the long run.”
*DerivSource ran a podcast series on Professional Pivots in Q3 2023 which covered some of the tactics financial professionals can use to upskill and seek out new career advancement opportunities. See episodes covering professionals working in financial compliance, risk and collateral management here.
