Conference Presentation, Panel
The Future of Finance
Milken InstituteJohn Foley, Daniel Barclay, Michael DeAddio, Paul Hamill, Ali-Milan Nekmouche, Lara Warner, Mike D'Addio, Dan Barkley
- The finance sector is projected to evolve into a data-driven environment where data serves as a critical strategic starting point, with expectations that entities capable of reinventing themselves will survive the next 10, 20, 30, 50, or 100 years rather than facing extinction.
- Organizational structures are predicted to shift from top-down hierarchies to flexible "squad" models comprising data scientists, SMEs, and business people, which are expected to accelerate solution delivery from years to weeks or months while reducing risk and tension.
- Talent acquisition will face intense competition from sectors including healthcare and automotive industries, with a specific "war for talent" occurring in rates business due to bank downsizing and repositioning, alongside predictions that 80% to 90% of competitors in hiring contests will be students not yet hireable.
- Firms must recruit talent early before senior year or master's completion by looking beyond top universities, utilizing diverse skill sets from computational biology to nuclear physics, and prioritizing problem-solving opportunities and location over compensation alone for quantitative roles.
- Employee engagement strategies will focus on providing new platforms and a supportive work environment, though these factors are contingent on meeting a certain compensation level, while mission-oriented framing is considered vital for attracting compliance professionals.
- Technology is expected to drive efficiency by separating high-value from low-value tasks, enabling "compliance on demand" via AI queries, and reducing conduct risk costs, which have totaled over $300 billion in the last 10 years.
- While the cost of compliance has risen by at least 10% annually, technology offers a pathway to lower costs by replacing personnel with advanced surveillance capabilities, countering the risk that incumbents who do not drive internal disruption will be displaced.
- Challenges remain regarding data biases, infinite loops, and the management of human and machine blindsides, even as tools like AI and distributed ledgers act as primary drivers for the pace of industry change.
- US leadership in financial technology faces potential risks from restrictive visa and immigration policies, which could allow other regions to overtake the US, though China is not predicted to takeover US capital markets given their current vibrant status.
- Transitioning workforce roles is anticipated to be feasible rather than seeing machines completely take over, requiring a philosophy of grooming and training young bankers who typically become truly productive after 8 to 12 years of career tenure.
- Turnover rates for young bankers are projected to range from 15% in strong years to 30% in high-pressure years, with attrition slowing as employees advance within the organization.
- Senior management will face difficulties in adopting decentralized models by learning to let go of direct control, though success is expected once the improved pace and reduced risk of the new structures become evident.
- Innovation will lead to increased disintermediation and novel revenue streams, with some firms maintaining a low cost basis by building business models from day one to eliminate inefficiencies and employing only 10% to 15% of traditional staff levels.
- The industry expects a significant challenge in scaling up future talent needs while simultaneously scaling down requirements for roles that are becoming less necessary, creating a complex restructuring agenda.