How AI is Shaping the Future of Investment Research
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The Great Resignation, the Great Reflection, the Great Realignment, the Great Attrition, the Great Renegotiation – these are just a few monikers used to describe the shift in workplace-worker dynamics.
Whatever you want to call this shift, one thing is clear: there is a fundamental mismatch between the demand for talent and the number of workers willing to supply that talent. The COVID-19 pandemic forced millions around the world to isolate themselves away from society and spend countless months at home. But it also allowed workers to reflect and repropiritize what they wanted out of their jobs, and long term careers. Needs for higher wages, remote-working policies, and safety protocols for the virus led to 18% of workers not returning to the workforce and 32% to switch their careers.
The problem is especially prevalent in the financial sector, where firms are scrambling to find ways to retain their talent. Executives at Citigroup shocked analysts earlier this year when they admitted to paying employees $3 billion more in 2021 than during the previous year and JP Morgan Chase followed suit by upping their compensation to investment bankers and traders by a whopping 13%.
Whether you agree if Great Resignation is still at play or not, it has undeniably left an imprint on the financial sector’s workforce. If these institutions can learn how to retain talent long-term, and how to evolve their practices, this era could mean a change for the better.
The Poaching Cycle
There is a stark reality within the banking industry: bankers are resigning from their positions whilst rejecting eight-figure hiring packages and escalating salary bid wars–leaving seminal institutions like JP Morgan struggling to find the talent they need. This mass exodus of financiers mixed with a large pool of competitive applicants, has left employers at top banks scrambling to find ways to keep their talent happy.
As mentioned, competition is thicker than it has ever been before, with banks even showing less apprehension towards giving out large, guaranteed bonuses later in the fiscal year to rope in and retain talent. This sort of behavior from top management is unprecedented within the industry, though it relays how desperate industry leaders are in reality—a reality where candidates can negotiate up to a $10 million job offer due to the low levels of talent available.
“Scores of senior executives are using the moment to explore ways to get more money, more prominent roles, or a potentially more lucrative job on the buy-side,” Mike Karp, CEO of recruiting firm Options Group, says. “Many of the eight-figure hiring packages are coming from investment firms, such as hedge funds and private equity shops.”
Outside of capital, banks are even offering more fluid work arrangements (work-from-home, hybrid models, etc.) that emerged in the COVID-19 pandemic to lure candidates who do not want to commute. Though, in a time where a number of financiers have hit their “FIRE Number” (financially independent, retire early) while others have made lucrative investments during the pandemic, this costly poaching strategy is the best, if not only, strategy banks are using.
However, is it not a long term, sustainable way to attract and retain new workers? No matter what benefits, salaries, or bonuses are offered, the constant cycle of resignation, recruitment, and remuneration will likely continue until this labor shortage is solved. While internal promotions would have solved the problem of filling higher-ranking positions in the past, something else is drawing once loyal talent to new employers: FOMO. Jealousy of receiving big rewards for moving banks rather than remaining a loyal employer is what’s motivating everyone to field recruiters’ calls—even if it’s just to learn their potential market value.
The Cost of Retaining Talent
While the Great Resignation is yet another milestone within the trajectory of workplace-worker dynamics, many leaders within the financial sector are seizing this moment as an opportunity for change by recognizing and rectifying where they fall short with their employees. In the AlphaSense platform, mentions of “retention” are up 21.36% amongst expert transcripts. This is a clear indicator, based on insider knowledge, that retention is top of mind for financial institutions.
And the research backs this up: the cost of retaining an employee is much lower in comparison to the costs of hiring a new employee, leading companies to prioritize what they can do to retain their talent and avoid diving deeper into the red. Leading companies have already addressed some of the needs workers are demanding in today’s marketplace to retain and attract new talent.
In an interview for the Reuters Global Investment Summit 2021 Post-Event Report, AlphaSense CEO & Co-Founder, Jack Kokko noted, “The pandemic is still building its legacy with the Great Resignation and the growing challenge of recruiting talent. Investment banks are facing challenges in recruiting analysts when tedious manual work doesn’t come coupled with the face time and exposure to top executives at their firms or on the client side. Unlike in the past, financial firms are now really looking to focus on offering their analysts more meaningful work, and also making that work more efficient through management practices and better technology solutions that are well-suited to the new world of remote work.”
Related Reading: 5 Data Analytics Trends in Investment Banking
AI as a Way to Enhance Employee Experiences
The introduction of AI to the finance world was initially met with pushback, but is now an integral tool that professionals are using to enhance worker experiences and make their overall work functionalities more seamless. Financial institutions that utilize AI are doing so in order to eliminate manual and unnecessary tasks so that their teams can actually focus on the decisions that lead to alpha and have more time back in their day.
To remain competitive, incumbent institutions have been pushed by FinTechs to implement AI to unlock insights, which frees their teams to do higher-value work. Another way incumbents have tried to keep up has been to form partnerships with FinTechs or incorporate third-party tools that successfully leverage these tools. When these partnerships work, both institutions stand to benefit. With these partnerships, incumbents are able to leverage the technological expertise of newer firms while the newer institutions can benefit from the pre-existing reputation and customer reach of the incumbent. As mentioned, investor managers are early-adopters of AI technology amongst incumbents. Many find that there is a direct correlation between their investment returns in the short, medium, and long term and the use of AI during their due diligence.
There’s plenty of predictions from analysts and industry experts that share their forecast on how the stock and labor market will fare in the coming months. However, no individual or firm is certain of the toll COVID-19 and ongoing macroeconomic events will take. That’s why it’s imperative to act now and change your company culture to reflect today’s labor market.
Want to learn more on how the Great Resignation is shaping the future of investment banking? Want to streamline your workflows and speed up your time to reach alpha? Learn how to enhance employee experiences by leveraging AI and NLP to cut down on research time in our white paper, How AI is Shaping the Future of Investment Research.