Do banking jobs have a future? If you're a student who's thinking of into finance, instead of - say, accounting - you might want to consult Kerim Derhalli, the former head of global equities trading at Deutsche Bank. Derhalli left the industry four years ago. He now runs a fintech firm, Invstr, and apostolizes on the awkward reality for students embarking upon finance careers today.
“I’m doing a lecture tour of universities on the East Coast of the United States,” says Derhalli, speaking from Davos where he's gone to promote Investr and discuss, “the massive disconnect between the ruling class and the rest of us.” During his lecture tour, Derhalli says he tells university finance societies, “something they don’t want to hear.” Namely, “that this is a terrible time to be in banking but a fantastic time to be in finance.”
Digital disruption was a big topic at Davos this year. McKinsey and Co. and Oliver Wyman both issued reports on digital change in finance to coincide with the conference, which ran a roundtable on, "Disruptive Innovation in Financial Services." Derhalli says the finance industry has been relatively untouched by the digital revolution so far. "It still operates exactly as it did 20 years ago,” he says. “We still have commercial banks, asset managers, brokers and intermediaries, but one thing is certain – that’s going to change.”
Everything from M&A advisory to research to money transfer is being disrupted, says Derhalli. “And this has big implications for people who are looking to go into finance.”
The problem, says Derhalli, is that a lot of banking jobs are unskilled and ripe for automation. After 22 years in cash equities sales and trading, he's particularly well-versed on the coming changes for markets professionals. Market making is fundamentally about managing and aggregating liquidity, says Derhalli, and this is best done by, “a central hub that can generate pricing in an intelligent and automated way to meet the demands of clients.” When trades actually take place, Derhalli says it’s no more than, “ a value exchange” - the portfolio manager hands over the trade to the trade desk, the specialist salesman or sales trader solicits the trading desk and the order gets handed down and executed. The entire process can be - and is being - automated.
Banks are therefore questioning how many people they really need. In Europe, MiFID II regulations are separating out research, corporate access and execution, and leaving execution-only platforms. Commission pools in the cash equities business have plummeted. “The cash equities business was barely profitable at the best of times and when volumes collapsed it became unsustainable for a lot of players,” says Derhalli. Banks like Nomura have already pulled out of equities trading in Europe and those who remain are being forced to become, "hyper-efficient about costs.”
The upshot of this is that banks will need fewer and different kinds of people in future: “...people who are digitally and technologically savvy rather than people who can talk a good talk.”
Derhalli says students going into finance today need to be technologically astute. They also need to wake up to the fact that the best careers are not be in the biggest banks “Students starting today should work for companies that are disrupting established value chains,” says Derhalli. “Companies that are shaking up the process of intermediation. A traditional career in an investment bank doesn’t make sense any more – yes, go and get some training there, but then leave and find a part of the industry that’s ripe for disruption.”
There's a clear downside to this vision of young finance professionals skipping between disruptive upstarts: in a fragmented industry filled with new entrants, pay is likely to be lower than in an established oligopoly. This is true admits Derhalli: “There will be thousands of fintech companies and around five that will generate big returns. As an employee you won't make big money - you might make money as an equity holder, yes, but you'll need to be working for one of those five."
In Derhalli's vision, the good ole' days of banking are gone. "The finance industry was an extraordinary bubble, and it was a bubble for a relatively short period of time - from 2002 to 2008," he says. "People who arrived during that bubble assumed it was the norm, but it wasn't." Derhalli started his finance career in 1983 at J.P. Morgan. Then, he says J.P. Morgan was offering a starting salary of £7.2k ($9k), whilst Shell was offering starting salaries of £8.5k: "Banks weren't always the best payers. They didn't always enjoy bumper profits - there was just a period of excess in the 2000s."
Derhalli admits that he was part of the fortunate generation which benefited from this period of excess. "I was very lucky. I enjoyed the boom years in financial services, but since 2008 it's been a different story." Nowadays, part of Derhalli's mission is to democratize investment expertise: "Our mission at Invstr is to help everyone learn to become a great investor," he says. "We're all born with the talent- it's a little like learning a musical instrument."
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