Overview of the industry

Further transformation of capital markets is imminent. The development of financial services is reaching a turning point that will involve everything from research to after-trade services, complex derivatives and equity products. In contrast to other industries, modern banking is still a new, fledgling business. As markets move and change and the age of disruptive technological invention dawns, the eventual industrialisation of financial services is ineluctable and will introduce dramatic changes.

Traditionally, investment banking was a closed book and it was extremely difficult to gain access to the exclusive inner circles of investment information. This lack of intelligence resulted in a demand for increased levels of production to ensure success. Bigger was better, and more successful, but this is beginning to change. Investment banking is no longer the exclusive purview of the all-powerful portfolio manager who works alongside sales traders, who themselves are seeking to bring to power the next investment leader, to forecast single stock investments. A significant transformation is taking place.

Passive participation has been replaced by a new, forceful consumer who expects uninterrupted access to options and the ability to personalise their needs. Capital markets will soon be accessed in the same way numerous other industries are.

The evolution of investment strategies and markets will most likely bring with it a change in what is needed from products. A variety of products in a variety of locales may be able to be utilised concurrently.

Technology will become an integral part of the investment process but, to provide investors with the best returns, this will need to be underpinned by better data analysis in order to provide access to pertinent information, to improve risk management and to reduce the total costs of execution.

A new type of investment banking stands poised to take over and bring an end to current capital markets which are inert and closed-off. By incorporating cutting-edge technology and human capital, new approaches to investment banking aim to be agile, effective and quick to respond to the requirements of clients.

Conventional investment banking has been rattled by the Global Financial Crisis, the lowest ever interest rates and crumbling returns. Those who participate in the market have had to seriously alter their behaviour as developed markets and previously safe ‘vanilla’ equity market products begin to falter, the flow of funds slows and commissions are decreased.

Basel III’s effect on business models will continue and, in order to correspond to the new state of the market, models will be right-sized. The accord will also continue to be felt by banks which will have to reduce their balance sheets even more. Investment banks will be limited in their use of retail deposits to finance trading and take chances and capital markets will be re-thought due to the onslaught of pending regulation.

The development of investment banking demands that banks continue to charge less and provide more. Capital equity markets have been industrialised by the use of algorithms in trading and this will be establishing across all asset ranges. There has been a rise in transparency and margins are now being tightened for even complex businesses and spread and commissions have been persistently condensed.

Financial services are being offered new opportunities as disruptive business models, services and products, which have been created by the substantial technological advancements of recent years, undermine current market structures and organisations. The financial industry stands to be completely transformed.

A differentiating factor in the sustainability of future business models will be technology but cultural changes, the redevelopment of processes and the management of human capital will also be vital components. The age of industrialised investment banking is beginning and the primary concern of capital markets in this century will be the establishment of investment banking as a service.

Recruitment trends in the industry

Since the recession investors of every kind – wealthy individuals, speculators, and insurance and pension funds – are looking at how to hedge against risk. That means buying derivative products, which insure investors against volatility on foreign exchanges or future price rises. This insurance is vital, and means that the investment banks are the sought-after intermediaries.

Although front-office jobs in sales and trading may be hard to find, there is an increase in operations such as risk management, financial management and IT services, which allows banks to claim that their recruitment is steady.

Many opportunities are still available in other parts of the sector, including financial services, hedge funds, the insurance industry and the actuarial profession. Fighting financial crime is a growing area, the likes of information security and anti-money laundering have been providing job opportunities, and this is being fuelled by all the regulators.

Investment banks downsize their most risky activities as the cost in capital put too much pressure on their results.

As a consequence of the crisis, investment banks are obliged to invest in positions, such as compliance and risk, to respond to the demand of the regulators. However, those investments do not generate business for financial institutions, is the very opposite. People working in those departments claim high salaries and are therefore a major cost for institutions. The optimistic mood shows a change towards a period of expansionary plans, increased volumes moving away from the cost-cutting and fee structure focus of previous years.

Asquare Partners helps its clients to anticipate trends in terms of talent management. We are in contact with talents on and in the market to be a strategic partner for our client’s recruitment plan.

Mapping – Functional practice vs Industries