By Nicholas Jiang
The early achievements in the financial services sector no longer provide any guarantee of longer-term career success, says a 16-year industry veteran. Some of the jobs in traditional financial industry are shrinking as more firms consolidate and reduce their portfolio management and research staff.
“Graduates who think financial industry is still about making fast money are in for a shock,” but I believe many front-office professionals will have to “reinvent themselves” in the near future. But actually, the industry doesn’t need people who think they can make a few good stock calls. We need people who can digest information and understand the broader context of finance construction,”
If you’ve been through, say, many years in research and many years in practice, you might now need to gain new skills that will focus your career in a different and more in-demand area. Financial industry is challenging at the moment, so you have to be flexible and opened minded about your career plans these days.
For Investment banks over the past five years, many positions in banking have been changed, for example, nearly 7,000 front office investment banking jobs have disappeared. The majority of these cuts have been in the fixed income currencies and commodities (FICC) divisions.
FICC revenues have been the big drag for investment banks over the past five years, but they were up by 9% year on year in 2016, and there were big gains in rates (26%) and credit (20%). Factor in that FICC teams’ revenues were up 37% in the second half and continued cuts seems a little harsh.
Longer term, layoffs have slowed compared to five years’ ago, but they haven’t stopped, even now – Deutsche Bank laid off 150 people in its fixed income division only yesterday. There’s one good reason why investment banks are reluctant to hire more in FICC – productivity.
Investment banks are continuing to squeeze their fixed income markets staff because, simply, they can now. Juniorisation means that banks can get away with paying relatively inexperienced staff less – and some believe trading is a young man’s game anyway. Meanwhile, automation means banks simply need fewer people and an uptick in revenues is unlikely to counter this trend. Then there’s capital costs – banks generally can’t afford to allocate more capital to their trading businesses.
A code can’t be underestimated“Quants”
As for the income changing of financial service, we can also through an example to see. Quants are it. While sales jobs in banks disappear and trading jobs are automated into mundanity, quants are the new thing. Banks are alert to the value of data, and quants are the alchemists who are supposed to turn their data into gold. – Barclays CEO Jes Staley typified the mood yesterday when he said Barclays is building a “new strategic data architecture,” and, “looking at using data in new and innovative ways.” Barclays needs quants. And so does every other bank out there.
When people refer to quants in investment banks, desk quants are usually what they have in mind. Desk quants work with banks’ traders to create statistical models to analyze trading book risks and identify opportunities to create complex derivatives to help clients. The desk quants create pricing models for these derivatives. They also create models that create strategies to direct trading decisions and that make traders more efficient. But desk quants in banks aren’t actually traders. And because of this, they’re not as well paid.
“Even though quants are crucial to a bank’s profitability, they’re considered to be more of a support function,” says Max Soslove, a senior head-hunter at GQR Global Markets. “Quants build the pricing models and algorithms that price derivatives, so they are revenue generating – but not as much as traders.” The director-level quant puts it more bluntly: “A trader can claim that he/she “made” X amount a year, and shall be compensated as such. As for quants? They are viewed by most people (traders, sales, senior management) as coders who are not completely useless.”.
If they want to keep hold of the best desk quants, banks may need to up their game. After all, they’re not the only ones chasing financially-literate quant talent: systematic macro hedge funds want it too. And systematic macro funds are willing to pay big money. “Some of the highest paid people I’ve ever seen are “quants” running systematic trading strategies in hedge funds,” says one headhunter. “Those funds will hire from banks. They tend to want juniors who’ve spent a few years working in something like front office starts at Goldman Sachs. – A PhD who’s had the edges knocked off.”
Market risk and compliance departments are seeing increased MBA hiring as banks seek greater security and control of risky investment classes,” said the report from TopMBA.com. The upheaval in the financial regulatory landscape has created more job opportunities in risk and compliance, but banks have also been hiring MBAs into financial control and technology positions, it suggests.
MBAs have been falling out of love with finance. Investment banks are recruiting fewer business school graduates, while MBAs themselves are instead looking to more stable career options in consulting.
Will you be shown the door or welcomed with open arms by financial services firms in the coming year? Yes, few financial services companies were overly bullish with recruitment at this moment, but for certain areas of investment banking – notably advisory functions – the landscape was much improved. Meanwhile, competition for talent from the buy-side ensured a steady stream of replacement hiring throughout the year.
We believe some finance professionals will be happy, others could find themselves on decidedly shakier ground.
Banking sector is still a great place to a start-up
Banking sector is a great place to start your career, at the same time for the banks; it also helps train people up for the demands of working for a start-up.
Banking sector needs great Excel and financial modelling skills and requires their people working in an unstructured and changeable environment, which they have the right energy and can hit the ground running.”
“In the bank, it’s a great training ground. At bank, you learn professionalism, attention to detail, operating under pressure. Things come at you thick and fast and you learn to prioritize and make the right decisions. These are great skills to have in a start-up.”
Nicholas Jiang is Managing Director of Transwell Group.