The Past, Current, and Future State of Work in the Financial Services Industry
In order to understand where the financial services industry is heading, it is important to first examine the past and current state of work in the industry in the United States. For starters, the financial services industry has always been an early adopter of technology that helps transmit data (including stock prices, bond certificates, etc.): The first transatlantic cable, a novel innovation in 1886, carried cotton prices between Liverpool and New York.[1] In the 1980s, Wall Street analysts were early adopters of spreadsheet software, such as Excel. Since then, computers have been ingrained in almost all of the dealings associated with analyzing and trading financial instruments.
The days of men (and some women) running across the trading floor with leaflets of orders to buy or sell are largely a figment of the past. The sounds that fill a trading room floor today are the purrs of data servers, not the thunderous stampeding of rowdy traders.[2] In banks across America today, teller positions have dwindled or been completely eliminated in favor of ATMs (automated teller machine) and other robotic technology requiring little to no human intervention. Scenes like “runs on the bank” featured in classic movies like “It’s a Wonderful Life,” and the mass shredding of paper stock receipts like that in “Wolf of Wall Street” will serve as bonafide examples of financial institution activities pre-advent of the internet and other such innovations associated with the Third Industrial Revolution.
Job Cuts Associated with the Current State of Work in the Financial Services Industry
According to a 2019 Wells Fargo & Co. report, “Technological efficiencies will result in the biggest reduction in headcount across the U.S. banking industry in its history, with an estimated 200,000 job cuts over the next decade.”[3] Most of these job cuts will be directly correlated to the amount of technological investment a financial institution makes. As it currently stands, the financial services industry spends roughly $150 billion every year implementing and updating new technology.[4] This kind of spending “will lead to lower costs, with employee compensation accounting for half of all bank expenses” said Mike Mayo, a senior analyst at Wells Fargo Securities LLC. While financial institutions are likely to continue to spend such huge sums in the name of technological advancement, it also means that an institution’s human capital will not only drive more value but also be a more valuable asset to the institution. The creation of new kinds of jobs in finance, complemented by such technology, is explored in further sections.
To put the above-mentioned investment spend into perspective, and as it stands today, “Funds run by computers that follow rules set by humans account for 35% of America’s stock market, 60% of institutional equity assets and 60% of trading activity.”[5] Additionally, due to advances in machine learning (the ability for a machine to analyze data, detect patterns and make inferences with little to no human intervention) new artificial intelligence programs are also writing their own investing rules. The human counterparts of such programs have little insight into the decision-making process of the algorithms drawn upon to produce such recommendations because the algorithms are auto-generated based on a wide-swath of rules and processes. The concept of a financial advisor relying solely on “word of mouth” or daily stock market “check-ins” to produce portfolio investment strategies is no match for computer-generated algorithms that use big-data to compile portfolios of greater risk diversity and return. The local neighborhood financial advisor/planner that will survive this revolution is the one who embraces data-backed decisions to evaluate portfolio risk and stock evaluation while simultaneously leaning in on his/her soft skills to generate new business and gain trusted-advisor status among clients.
[1] https://www.economist.com/leaders/2019/10/03/the-rise-of-the-financial-machines?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top&utm_source=morning_brew
[2] https://www.mckinsey.com/industries/financial-services/our-insights/the-transformative-power-of-automation-in-banking
[3] https://www.bloomberg.com/news/articles/2019-10-02/robots-to-cut-200-000-u-s-bank-jobs-in-next-decade-study-says
[4] https://www.pwc.com/gx/en/financial-services/assets/pdf/technology2020-and-beyond.pdf
[5] https://www.economist.com/leaders/2019/10/03/the-rise-of-the-financial-machines?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top&utm_source=morning_brew