I used to travel to China regularly. During small talk over the inevitable elaborate banquet I was always asked how many children I had. When I replied that I had three boys, my interlocutor would stare at me as if I had said I’d won the lottery. Westerners are less impressed.
Here, the question I get most often is, ‘Do you want them to go into finance?’ I reply that the eldest is studying English Literature, the middle one wants to go to drama school and the only career conversation I’ve ever had with the youngest – admittedly when he was six – was that he would like to be a penguin. In light of all that, I think it’s out of my hands.
All the same, I repeatedly get questions from friends about their children. If they want to go into finance what should they be aiming to do? What jobs are going to be in demand? Which ones will go? They are interesting questions, so I’ll tell you what I tell them.
The first thing to say is that I believe automation will continue to be a huge force in the development of the financial services industry. Computers are still getting more powerful per unit cost and software engineering techniques continue to advance. The ability to ‘hire’ computing capacity rather than buy it outright will be a trend; use of AI will become commonplace. Such tendencies will not be confined to finance, of course, but finance is especially vulnerable to automation because its products are ‘weightless’ – comprised purely of information. Not just that: finance folk tend to be expensive; this makes the cost/benefit calculation of replacing humans with machines weigh more heavily in machines’ favour than in other industries.
This statement leads to a natural conclusion: the safest place to be in finance (and indeed in the economy as a whole) is as someone driving automation rather than being driven by it. Or driven out, as is often the case. On a trading floor, it’s better to be an e-trader than a voice trader. It’s better to be the person designing algorithmic execution software than a salesperson who does the job manually. Probably the safest approach to banking and finance, therefore, is the geekiest: brush up on your C++ or MATLAB rather than your Brealey and Myers.
But what can be said about traditional trading and sales jobs? Two forces dominate. First, the risk of automation; second, the pressures of new regulation. It is like a giant set of pincers on the security and pay of finance jobs.
The cost/benefit of automation is the key to one jaw of the pincer. The more routine your job is, and the bigger and more ‘wrinkle free’ the market in which you operate, the more likely automation will come to it. Even if it doesn’t come and actually make your job redundant, the threat of it coming will lower your bargaining power for wages.
Take, for example, my old world of FX. It is no coincidence that the first job to be automated out of existence in the 1990s was that of spot broker. Matching bids and offers was routine for computers (though difficult for humans) and the market was global and quite simple. Spot traders came next since the spot market is both bigger than, and simpler than, forwards and options.
So where in the world of trading would I be worried right now about the automation ‘jaw’? Answer: the areas that have both a large market and a relatively simple product set. In particular: interest rate swaps, FX forwards and, to a lesser extent, credit default swaps (CDS). The temptation and motivation for banks (and funds) to automate these jobs out of existence is very high.
More structured products are less easy to automate but they are at risk to the other ‘jaw’ whereby increasingly strict regulation makes them less attractive for firms to provide. However, with the election of Donald Trump and his vow to ‘dismantle’ Dodd-Frank, it may be that the post 2008 regulatory regime may not last indefinitely. If that is the case, then structured products might make a comeback (I say this while making no comment on whether that is a good thing for society as a whole). Also, who could bet against banks and other firms reentering the exciting world of commodities?
In the world of sales a similar set of pincers applies. What is obvious is that the more routine the job, the easier it will be to do away with. If your job is purely about execution, you are, or will be, in trouble. Therefore the safest jobs to go for are those that are not standardised, require a lot of relationship skills or are in markets with lots of ‘wrinkles’. Two that pop to mind are M&A (it will a long time before that job is automated) and providing sales support in emerging markets, especially if they have a lot of red tape or need a great deal of human contact in order to assess and access liquidity.
Of course, if you are brave, the really smart move may be to join, or even create, a start-up. There is no doubt that the world of finance is changing rapidly and vast fortunes await anyone who can successfully aid its transformation. Non-fiat money creation; automated market making; boutique research; blockchain – all these areas are attracting a lot of money and talent. The only caveat is that if you choose the wrong horse it can be expensive.
Overall, there is still a lot of opportunity but with it comes much more risk than there used to be. So I’ll conclude by telling you what my Chinese hosts might have told me: ‘You live in interesting times’.
Kevin Rodgers started his career as a trader in 1990 with Merrill Lynch in London before joining another American bank, Bankers Trust. From there he went on to work as a managing director of Deutsche Bank for 15 years, latterly as global head of foreign exchange. His book, “Why Aren’t They Shouting?: A Banker’s Tale of Change, Computers and Perpetual Crisis” was published by Penguin Random House in July 2016.