Filling the skills gap
The low unemployment levels driven by a buoyant share market and thriving economy, as well as an increased need to recruit compliance professionals following the implementation of Financial Services Reform (FSR), has led to funds managers placing greater importance on human resource issues.
According to the annual PricewaterhouseCoopers (PwC) Investment Management survey conducted earlier this year (see tables), human resources as a risk management priority is second only to avoiding breaches of FSR, and ahead of the need to resolve unit pricing errors.
The research also found the use of headcount as a benchmarking tool is virtually non-existent, with investment groups desperate to attract new employees in order to grow their businesses.
PwC’s partner insurance and investment group Peter van Dongen says: “Staff costs and numbers continue to rise. Emerging issues for investment managers seem to be resolved through labour intensive means.
“Headcount, once a key performance indicator of some importance, appears to be of little relevance in this growing market.”
PwC’s leader of people and culture advisory group Chris Blake says human resources “has certainly gone higher up the food chain of issues. Mainly as a result of the changing market itself, but also the changing regulatory environment”.
Market conditions
The increasingly competitive funds management environment is also driving the human resources agenda, with Blake saying that “the performance of the fund is almost the right to be in business, so differentiation and therefore growth are going to come from service”.
As customer expectations are raised, Blake says fund managers have needed to recruit individuals able to service those clients.
“There’s the whole issue of how you actually recruit, retain and develop people to deal with the higher service expectation, and that actually requires a completely different skill set to what we’ve seen in the past,” he says.
“We’ve only seen that mature over the last three or four years, and there’s actually not a really deep pool of talent in that environment. So everyone’s competing for the same people.”
Skills shortages
Financial Recruitment Group executive director Peter Dawson says “a number of the investment banks, and I would suggest most of them, are actually looking at recruiting senior level positions”.
“What they are finding is that the market is so tight, it’s so candidate short, that to get the right people in terms of track record and cultural fit has been a major challenge,” he adds.
But it’s not only the funds management sector that is suffering from skills shortages — it is a widescale problem across all business industries, says Simone Mears, head of Profusion Executive Management.
“The bottom line is that we still have skills shortages in Australia across a number of areas, and that’s not going to go away. What we might see is six or 12 months where the market is alleviated because there is negative growth or very slow growth, but then it will speed up again,” she says.
Mears says the more difficult recruitment areas in funds management are in research, product and sales, adding “product development, product management, any type of product area, and anything to do with superannuation, is pretty tough”.
Blake says one area in particular that is suffering from acute shortages is the leadership field of investment management.
“Today you have a much more strategic environment in which these organisations need to be led. You have got much higher regulation, and a need to understand that regulation, and there are all these service issues at a segmented level, so people need to understand the decisions around service,” he says.
The impact of boutiques
Ideal market conditions have led to a flurry of boutique investment houses, all recruiting from the same pool as the institutional groups, which has forced a greater demand for experienced staff.
As investment professionals leave employment to set up on their own, the larger fund managers have also suffered in terms of having to replace experienced staff.
“There’s clearly been some examples of people leaving the large investment managers and setting up their own businesses. I think that some part of that is just the cycle — it’s a very buoyant cycle at the moment,” Blake says.
He adds that boutique houses rarely have the same impact on recruitment and retention when market conditions are less favourable.
Mears believes the rising popularity of boutique managers is definitely having an influence on the employment market.
“I think the reason why it’s harder to find people in, say, research, sales, compliance and product is because these are the core roles that a boutique manager needs,” she says.
“So you might get a boutique with 10 staff, but chances are they will have an analyst, someone looking after product, someone looking after sales and someone looking after compliance. These are the fundamental roles.”
Greater opportunity
Working for a boutique also seems to hold a special attraction for many individuals.
Mears explains: “It can give you the opportunity to do something different. As an analyst, you might be sitting in a team of five and reporting to a team leader or manager [in a large group], with responsibility for only a single product. But you could then go into a boutique and have complete ownership of research.”
Having greater control, the opportunity to make a real impact on the business, and work closely with a small group of people are all non-monetary benefits, which often attract the best and brightest in funds management.
“For people who have only ever worked in large companies, there’s a curiosity about what it would be like to go and work in a small boutique. Some people really enjoy it and stay, and other people come back to the majors,” Mears says.
However, she adds that boutiques are likely to find recruitment just as difficult, saying, “I don’t think the boutiques will find it easier to hire, it’s not easy for anyone to hire good staff”.
Methods of retention
Due to the recruitment difficulties faced by fund managers, retention of existing staff has been given greater importance.
According to van Dongen: “As well as asset growth, the industry seems to concentrate on inward looking measures such as employee retention and quality of management when evaluating the performance of their business.”
Blake adds: “It used to be all about the musical chairs that happened at bonus time. You either retained or didn’t retain people depending on the corridor conversations around how much people got in bonuses.
“There will always be some of that, but the shift is to a much more strategic view of the employee … how you develop them and how you engage with the individual, to ensure that they understand where they are headed in the organisation, not just how much they need to sell next year to be considered a good employee.”
According to Mears, organisations are less focused on the cost to the business of a vacant role, and are looking more closely at how to retain existing employees.
“There’s a lot more emphasis on learning and development … providing coaching, mentoring, sending people off to training courses, supporting them in tertiary qualifications. There’s a real emphasis on that type of development because people want it,” she says.
Upskilling employees
It seems good sense for fund managers finding it hard to locate new staff, to look to those already in the organisation, and up-skill their talents where necessary. Blake says: “It’s clear that it’s not just salary which retains people; it’s opportunity. So in terms of other broader human resources issues, they are being much more strategic in how they manage people’s careers, how they develop them through the leadership ranks, and how they create opportunity for people within the organisation — particularly in the large investment managers.”
According to Mears, financial institutions have always had a good record at training and developing staff.
“We see a lot of people get opportunities within their own organisations. So I wouldn’t have said that I have seen a noticeable increase [in upskilling] based on the fact that it’s harder to fill the jobs. I think what companies are saying is ‘we need to upskill our people because it’s all about retention’. So retention is a more critical issue,” she says.
Remuneration packages
According to the PwC report, staff costs are growing significantly, with 40 per cent of respondents experiencing an increase in staff numbers of at least 9 per cent this year.
In addition, salaries have grown, with over 75 per cent seeing salary cost increases of over 10 per cent in the last three years, and 50 per cent forecasting an increase of up to 20 per cent in the three years ahead.
Mears says: “In the last two years, there has been a solid increase in salaries. It hasn’t been a skyrocket, just a consistent upward swing.”
Dawson adds that more organisations are offering long-term incentives, in order to keep people in the business.
“What happens is that they may stagger access to the bonus. Some of them will offer part cash and party equity. So you may earn a $200,000 to $300,000 bonus, but 50 per cent goes into equity and that’s held in escrow — in other words, you can’t access it. It usually vests for three years,” he says.
As such, headhunters like the Financial Recruitment Group are finding their work cut out for them.
Dawson says: “I know there are a number of searches out there. We are doing work at the moment, our competitors are doing work and we are finding that a real challenge.
For senior level positions, Dawson adds that “the major investment banks really try to lock in their good people, and they look after them. So it becomes difficult to shift them.”
At the next level, it doesn’t get any easier, with investment advisers remunerated on a revenue share basis.
“So if you approach any of these people, one of the first questions they will ask you is ‘what percentage of revenue will I get?’ And so unless the model you are presenting is at least as good if not better, then they just say ‘why I am bothering with this?’,” Dawson says.
Difficult days ahead
So is the employment market for funds management likely to improve?
Mears and Dawson both agree that difficult times lay ahead.
Dawson says: “The markets are relatively hot in terms of transactions, so you are going to find that for the foreseeable future it’s not going to get any easier.”
Mears adds: “There are more jobs than there are people, so it will put pressure on salaries. And it will also put pressure on organisations to compromise around skills and experience. So they will have to be more flexible and more prepared to give people a chance at a job where they might not have hired them a year ago. It will just cause people to look for alternative solutions.”
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