Financial Services Booming; CFO Role Continues to Evolve

August 22, 2022 – The global financial crisis has brought increasing scrutiny from regulators and investors across the world. Combined with digital disruption, new technologies, and a high profile conduct agenda, financial institutions face a number of challenges to continued growth, according to Odgers Berndtson. The firm notes that today’s boards and executives need to foster a culture of transparency and reduced risk, while leveraging new technologies to improve operational efficiency and cut costs.

Within North America, the finance industry has the opportunity to achieve incredible growth over the coming years. “But firms must prioritize cultural change and look towards new alternative revenues streams to secure their success,” Odgers Berndtson said. “Low interest rates, low yield, and political instability in many parts of the world have led to pressure on financial firms to change.” This has left the market is highly competitive for top talent across the financial services sector.

The market for senior financial executives still remains strong, with an emphasis on digitally oriented talent, according to Rahul Kapur, managing director, global head of fintech at ZRG Partners. “The bigger players (banks/FIs, large fintechs) are focused on potential team lift outs of disruptive technologies that may be somewhat hampered by the current environment. PE firms are investing heavily on the piping in fintech – open banking, banking as a service, payments as a service, etc. Those leaders are in high demand – everyone is looking for executives that can identify new revenue streams and build via technology.”

“The need for chief data and analytics officers that aren’t encumbered by the shadow of the traditional risk averse culture of banking – these folks are in high demand,” said Mr. Kapur. “Lenders, asset managers, service providers and payments companies are all seeking to enhance both their businesses and new revenue streams through innovative analytic leaders that embrace AI/ML. Data leaders who are commercially oriented are in high demand, because typically banks have had their data people buried within IT. Overall, the need for executives to enable revenue growth and business expansion remains strong.“

Financial Services Firms
Traditional financial service firms are losing talent to technology and other innovative players in different verticals who have integrated some form of financial services into their offerings, according to Mr. Kapur. “Traditional FIs don’t always offer the innovative cultures that top leaders and emerging talents seek,” he said. “Thus, it becomes hard for FIs/banks to change the culture to be more innovative – those that have are rethinking how they do things, by bringing in more diverse talents rather than looking for been there/done that at another bank. Also, financial services will need to look at how they rethink hybrid office/remote policies, timing/mix of bonuses and other long-term incentives and align their culture to the talent they want, vs trying to shoe horn outside talent into a traditional financial services culture.”

The market for senior finance executives remains candidate-centric and brisk, according to Andy Miller, CEO of BrainWorks. “While public discussion of macroeconomic conditions continues to hint at inflation and recession, finance professionals remain fully employed and heavily engaged,” he said. “Among the finance executives in high demand, CFOs and business unit financial officers remain in high demand, both to provide oversight for portfolio companies in the PE space and to engage newly created business units by expanding public companies. Tax talent has been in demand for many years and is increasingly scarce. Global and complex tax guidance and leadership, including managers, directors, and analysts remain essential in the proliferation of business strategies. Also engaged at high volume over the last twelve months are controllers, analysts and FP&A professionals.”

At the sector level, geopolitical uncertainty, legislative uncertainty and uncertainty regarding interest rates, inflation, and the potential for recession create sector level challenges. While forecasting is fraught with uncertainty, BrainWorks believes that inflation has peaked and that recession, if it is to be named, is largely a lagging story at this point. “Given the degree of uncertainty in the world, any assessment of what financial services will face in the future is at best educated guessing,” said Mr. Miller. “That said, the challenge of securing top talent, the sufficiency of talent in the marketplace, the rate of change between currencies, tax implications of selected business strategies and the proper filing of documents in support of such strategies, accurate forecasting, analytics, and planning will all remain needful in the sector.”

The Path to CFO
Whether through VP finance, head of finance, finance officer for a business unit, or similar roles, the path to CFO requires extensive experience across finance disciplines including ideally multiple leadership roles with a track record that includes reporting excellence, cost containment and expense management, successful integration of business units and/or acquisitions and countless additional expressions of professional excellence, according to Mr. Miller. “While less than one out of five CFOs go on to become CEO, prospective candidates for CEO would be advised to pursue senior leadership roles in operations and/or strategy or business unit leadership to strengthen and/or broaden their candidacy and improve their chances of being considered for CEO,” he said.

Jeanne Branthover, managing partner of the global financial services practice at DHR Global, notes that “2022 is a pivotal year for the financial services industry. Since the pandemic, financial services has realized an opportunity to pivot and improve. Leading firms are prioritizing digital transformation and ESG initiatives while at the same time reconfiguring the working environment and the talent they need,” she said. “We have seen the most demand around: finance/CFOs; regulatory and compliance/CROs; business development/CROs; technology/ML, AI, cyber risk, and digitalization. The sectors seeing the most growth include wealth management, family offices, fintech, insurance, investment management, investment banking, M&A.”

Being More Cautious
Because of uncertainty, CFOs are being more cautious and strategic in their decision making, according to Ms. Branthover. “Coming out of the pandemic, it is critical that they have substantial financial and operational data to support decisions, frequent forecasting models to predict business changes,” she said. “They are asked to identify possible disruptions that can negatively impact the financial performance of the organization. CFOs are now utilizing technology more than ever, including cloud-based planning and reporting tools and machine learning solutions.” In addition, Ms. Branthover says that CFOs are now expected to lead organizations with clear communication and management skills, leading effectively in the hybrid work environment.

When recruiting senior executives within the financial services sector, Glenn Buggy, managing partner and co-head of Caldwell’s financial services practice, says that there is a definite “paradigm” shifting executives. “There is a renaissance in the thirst for new ideas – not just growth and innovation as an idea, but identifying executives that can execute on a strategy,” he said. “There is a pronounced edge for individuals with a technology-enabled focus. Also, in the current rising interest rate environment, doing more with less is always appreciated, which supports the call for technology. We are also seeing a consistent call for executives that appreciate, have thought about, and can execute on a comprehensive ESG and sustainability plan – at both the investment and portfolio level, and at the enterprise level. It is a talented and competitive market, so a demonstrated ESG arrow in one’s quiver is a plus.”

“Short term challenges still arise in getting people back in the office,” said Paul Heller, managing partner of Caldwell’s global financial services practice. “We think that will resolve itself to a workable hybrid model, but it is tough to unring the bell of remote work. Longer term challenges exist in identifying market indicators that affect hiring decisions. The past three years have tossed previously correlating market indicators out the window, so it is requiring financial services clients to look into murky waters when making hiring and expense decisions.”

“We have also seen the CFO role being under greater scrutiny,” said Mr. Buggy. “The past few years have developed an insatiable appetite for finance talent, but betting on talent that has not actually sat in the CFO chair can be scary to some clients. That said, in many cases more of the innovation and creativity can be found in candidates who are ready to step up the CFO role.”

Paul Herrerias, managing director at Comhar Partners, says that his firm is seeing a shift from sales/marketing to finance/operations functional demand. “On the one hand, organizations are looking to expand, grab market share, and avoid missing out on growth opportunities,” he said. “On the other hand, companies are looking to control costs, save margins, and protect cash. Operations and finance leaders are back in great demand.”

“As we progress through now the technically affirmed stock market recession, another .75 percent Federal Reserve increase in interest rates, soaring inflation, and continued supply limitations, companies will have to continue to adapt,” he said. “Profit margins will be under intense pressure. Supply chain cost increases are still working their way through the system, with manufacturers and now service providers raising rates to protect their margins. This will flush out inflexible or vulnerable companies, so the financial services sector will see increased write-offs and portfolio losses.”

“Within the CFO community the word is that CFOs are doing more than ever before,” said Mr. Herrerias. “Especially as they get pulled into supply chain operations. Like pulling a thread on a sweater, CFOs are following profit margin threads throughout the organization as CEOs worry more. CFOs are also facing increased expense, demands, and expectations around IT infrastructure, cyber risk, and multi-location consolidation reporting and foreign exchange hedging. Next up will be more challenges in equity fundraising, cash flow management, and borrowing to meet cash demands domestically and around the world in a changing.”

CFOs historically come from three channels: Accounting (50 percent), finance (40 percent), and investment banking (10 percent). “Most employers seek balanced CFO backgrounds that include general accounting, reporting, cost accounting, financial planning and analysis, treasury, strategy, IT, and HR,” said Mr. Herrerias. “Over the last decade companies have experienced long periods of economic growth, times when sales and marketing executives rise most often to the CEO role. During times of adversity, CFOs rise to the top to save the day and manage organizational risk.”

The labor market within financial services is still extremely strong, according to Dana Feller, founder of Hudson Gate Partners. “Top talent is hard to find, and candidates are still in control. The pace of hiring in the first half 2022 was frenetic. I am seeing the pace moderate a bit, but it is still at a historically strong level.”

“It has been increasingly difficult to attract junior talent within the accounting, operations and other Infrastructure spaces,” said Dawn Magnotta, head of infrastructure: accounting, operations and compliance practice at Hudson Gate. “These candidates’ peers who work in other industries are working largely remote and have a better work/life balance. In order to attract junior professionals into the middle and back office, financial firms needs to increase the professional development trajectory for these employees. Employers who are too rigid in the number of years of experience they are looking for, are often losing out on the best talent. In this market, employers who are willing to think outside the box, are the ones whose offers are being accepted.”

The role of the CFO can vary depending on the size of the firm and the firm’s infrastructure, according to Ms. Magnotta. “At times, fund CFOs manage operations as well as the finance function,” she said. “In the past, operations used to almost always report into the CFO, but now, as many firms have begun to proactively increase their infrastructure post-COVID, we have found that there has increasingly been a separation of duties.”

“More funds are hiring directors of operations, filling out their junior/ mid-level operations staff, and hiring COOs for the very first time,” she said. “So as it relates to operations, many CFOs are doing less than they did in the past. However, other CFO responsibilities have increased, such as their reporting responsibilities. Due to the recent uncertainty and volatility off the economy and the markets, reporting has become more complicated and detailed. Often CFOs will also be actively involved in investment due diligence meetings. Furthermore, depending on the products that a fund trades, CFOs may also on sit on the valuations team. Lastly, depending on the size of a fund, CFOs are often involved in investor relations, business development, and treasury, as well.”

“We have seen strong demand for executives in the financial services industry with expertise in treasury management, compliance and regulatory risk management, digital transformation, and operations,” said Gene Oh, managing partner at N2Growth. “Since the Great Recession of 2008, financial institutions have maintained capital ratios well into the low teens, which is well above the mandated 4.5 percent threshold. Maintaining such a high level requires a seasoned executive who can balance the firm’s core capital against its risk-weighted assets during times of high volatility as we enter a rising rate environment all while balancing regulatory requirements.”

Economic and Geopolitical Uncertainties
“The financial services sector faces a myriad of challenges during these times of economic and geopolitical uncertainties” Mr. Oh said. “Most firms in the industry have high capital buffers since 2008, but maintaining the elevated levels may prove difficult in this rapidly rising interest rate environment. Inflation levels in the U.S. have reached 40 year highs, exacerbated by the supply chain disruption by the pandemic and the war in Ukraine. Central banks of respective countries are seemingly in a global race to combat inflation by raising borrowing rates, which increases the cost of capital while presenting multiple challenges.”

Traditionally, the CFO had a dual mandate: manage the firm’s financial activities and provide strategy for the leaders of the organization – usually as it applies to the finances, according to Mr. Oh. “The role expanded to oversight over a multitude of activities in the firm including, but not limited to talent strategy and development, compliance and risk management, KPI and performance management, investor relations, big data analytics, technology, and transformation,” he said. “In fact, a modern day CFO is usually second to initiate change after the CEO.”

Talent Shortages
Without a doubt, talent shortages are the biggest obstacle for financial services companies today — and that’s something that could easily intensify going forward, according to Dominic Lévesque, president of Tatum. “After all, it’s already generating scenarios in which, for example, passive talent is the only talent that companies are willing to consider for business-critical roles,” he said. “Obviously, that’s not sustainable. Equally, the emergence of sign-on bonuses as a new expectation among FP&A executives, together with the widely shared preference for flexible or remote work options, could prevent financial services firms from effectively executing on their strategies.”

“Finally, while it’s true that the budgeting season invariably poses unique challenges for financial services companies, there are signs that this year might be different,” Mr. Lévesque said. “In light of lengthening hiring cycles, for example, a lot of hiring managers are going to be struggling to backfill for key roles, which means they’re at risk of essentially losing that budget in turn. Concerns like these should be top of mind for hiring managers and organizational leaders alike.”

The CFO’s role seems to undergo near-constant transformation, and the present is no exception, Mr. Lévesque says. “Arguably the biggest change, though, is that CFOs are now expected to work far more proactively with cross-functional stakeholders, serving as strategic partners and value integrators while also providing hands-on guidance and support,” he said. “Data, too, is now part of the picture in unprecedented ways, of course. CFOs are, for example, spearheading digital transformation efforts and leveraging data as a source of business value. These things weren’t even on their job description, say, five years ago, but now they’re among the key metrics by which performance gets assessed.”

“Obviously, all of this relates to the functional transformation of the modern finance function within the enterprise at large,” said Mr. Lévesque. “Simply put, these departments can no longer operate as the backward-facing, number-crunching siloes they once were. Top-performing CFOs today, recognizing that fact, have their hands firmly on the wheel.”

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