I was recently approached by one of my clients with questions regarding current staffing and compensation trends in the investment management industry. What follows are some insights into recent activity we at Jamesbeck have observed in these areas.
Staffing: Back office and operations jobs are outsourced and senior staff replaced by cheaper, junior employees
Firms are both growing staff in value-added areas such as multi-asset, data sciences, and private market strategies and reducing headcount in ‘commoditized’ functions. As firms seek to cut costs, back-office, operations and middle-office jobs are being hit hard. These positions, as well as manual tasks, are either being outsourced overseas, or replaced with technology. The associated cost savings are assisting firms in preserving profit margins, while easing the shift to passive investing. These reductions are also helping firms prepare for a possible downturn in the economy.
Roles occupied by senior people are being increasingly repurposed for less costly junior employees. This activity is more prevalent on the distribution side. In contrast, the investment side recognizes the benefits of retaining experienced portfolio managers who have been through many market cycles. We are, however, seeing senior analysts on investment teams being replaced by less expensive junior analysts.
Compensation: Trending down in 2019 but base salaries are up across the board
Compensation is trending downward for 2019. Some firms believe the movement is slight, while others place the number at about ten+ percent. Much rests on how the fourth quarter plays out.
Base salaries are up across the board, for the following reasons: they’ve been flat for a long period of time; cost-of-living increases are pushing base salaries up; employees desire less volatility in their compensation; base salaries are being standardized for each level of an organization; and the financial services industry is now competing with technology companies for talent with higher fixed compensation requirements (as a percentage of total compensation).
Finally, companies are actively seeking to align employee economic interests with those of their firms. They’re doing this by offering equity ownership in a variety of structures, which is a practice favored by investors.
Outlook: More changes to market conditions in 2020 means firms must stay current
Firms are constantly challenged to stay current with, and adjust to, changing market conditions. This includes demands regarding best business practices that affect staffing and compensation.
If you have questions or would like to dialogue on any of the topics addressed in this piece, please feel free to contact me.