automation

Like driverless cars replacing taxi drivers, automation in financial technology (fintech) is supposed to replace those tasked with managing peoples’ money.

To some extent technology has ‘disrupted’ the sector: Fintech platforms have cut the need for an advisor when it comes to portfolio planning, while algorithms deal with the bread and butter of daily trading.

But if these technologies are replacing people’s jobs, why is the private banking and wealth management sector on a hiring spree like never before?

Judging by recent news and analysis, wealth managers are in high demand. Goldman Sachs just announced plans to hire 200 as it aims to target more UHNW customers.

Even in the less-wealthy end of the market recruiting is in full swing. The wealth management joint venture of Schroders and Lloyds – which will target mass affluent and HNW individuals – has added 500 staffers, just a part of the 700 it apparently plans to hire.

These numbers pale in comparison to what is going on in Asia, where wealth has been growing fastest. HSBC has announced plans to bring 1,300 new hires into its China and Singapore offices to deal with the amount of wealth it expects to manage over the next three years.

Adding up all the large-scale hiring announcements PBI has reported on so far this year, private banks are looking to hire about 3,000 skilled staffers between 12 months and three years from now.

And that is just the tip of the iceberg. Most hiring is small scale, unannounced or simply not reported. However, private bankers are so popular right now that the supply and demand balance has been tilted in their favour.

In the US, 52% of those surveyed by recruiter Kathy Freeman had seen their salary increase in 2018, up from 49% in 2017. Most saw a double digit rise and 54% are expecting similar pay increases for 2019.

Those who do not follow suit with such wage hikes will see their bankers walk out the door and into a competitor’s. Between November and April this year, UBS’s US business lost 109 advisors, according to an internal report viewed by AdvisorHub.

Clearly there is not a rising tide lifting all boats, however. Firms with a poor set of 2018 results have to make cuts, both to headcount and wages.

PBI has reported on a number of industry lay-offs and, though these are fewer in size than hiring announcements, they are nonetheless damaging.

Last month Leggs Mason said it was cutting 120 jobs, amounting to 12% of its entire workforce, after reporting a net loss of $28.5 million.

Earlier in the year Brooks Macdonald said it would layoff 50 as it plans to “improve operational efficiency”.

But look at where those job cuts are taking place and it is clear that the expected automation of the industry has failed to live up to expectations.

Brooks Macdonald said most job cuts will be in its IT and administration departments. Last month, Investec announced it was closing its Click & Invest platform. Though it is not yet clear whether the move will create redundancies, the private bank’s robo-advisory platform was loosing around £12 million a year.

Investec’s move follows UBS’s closing of Smartwealth, its robo-advisory platform, last year. The Swiss bank struggled to make the product pay for itself, and instead sold off the technology to cover losses.

Ironically, these fintech platforms were designed to save costs, not increase them. Introducing automation meant firms could employ less people, cutting their largest overhead and thereby improving bottom lines.

However, that strategy is not working. Even standalone fintech firms are hiring personal advisors, their digital solutions not matching expectations. Nutmeg, which is the UK’s largest online wealth manager, made a string of hires last year in order to roll out personalised financial advice.

Nutmeg followed in the wake of Scalable Capital in promoting non-automated advice, but it has since been followed by others, such as Moneyfarm.

 So what happened to such forecasts, as the one by the World Economic Forum’s ‘Future of Jobs 2018’ report that 56% of financial services companies would reduce their workforce due to automation?

Or the one by Opimas, a consulting firm, which in 2017 predicted artificial technology would eliminate as many as 90,000 jobs in the asset management industry?

Then there was a 2017 report by McKinsey, which estimated 30% of the work currently done at banks would be replaced by robots by 2020.

Industry leaders even added their names to the chorus, with Deutsche Bank’s former CEO, John Cryan, predicting, “we will have robots behaving like people” and former Citigroup CEO, Vikram Pandit, saying technology will cut 30% of banking jobs.

Such predictions seem way off given the current hiring underway at private banks and wealth managers as well as the lay-offs they are making in their technology departments.

Their predictions might be off the mark, but does that mean they are wrong?

Today a new jargon gets bounded around wealth management conferences: ‘Hybridisation’: A hybrid formula between human advice and tech delivery.

The idea cherry picks the best of both worlds: Slick online platforms for user experience and seamless technology for execution married with the best personal advice to help clients navigate the more complex issues.

Automation, it seems, is not replacing jobs in the industry, but it is merely reallocating them.

To be sure, fintechs are not letting up on their own recruiting of coders and designers. Analysis of LinkedIn job postings by AltFi shows Canadian firm Wealthsimple is expanding its team by 11% with 26 positions currently listed. Moneybox has grown its team by 78% in the past 12 months.

But while the fourth industrial revolution has not been so revolutionary in the wealth space as in other industries, private bankers still have the next wave of tech innovation to consider: Artificial intelligence.