Wall Street Headcount Shrinking, But Recruiters Still See Opportunities
March 8, 2018 – Competition among recruiters in the financial sector has always been fierce, and that’s no less true in 2018. Although the Great Recession is receding further away in the rearview mirror and things may soon be looking up in terms of regulations, search firms still have their work cut out for them in terms of winning, and keeping, clients.
As investment banks have watched revenues decline and fixed costs climb, their employee rolls continue to dwindle. Many are also casting a wary eye on the growing impact of robotics and machine learning on jobs in the field. For recruiters, the challenges are many. Yet opportunities remain. Boutique recruitment firms in particular are finding that they can go toe-to-toe with the biggest of search firms in financial services, and win handily, but with just one caveat – deliver or be gone.
One firm that has no lack of confidence in that regard is DMC Partners. The firm’s founder and CEO, David McCormack, spoke with Hunt Scanlon Media recently about the challenges facing the banking industry, and how he and his team are meeting them. In the following interview, Mr. McCormack discusses DMC Partners’ work in non-traditional asset management; the launch of its new management consultancy, Broadhaven Associates, which serves seed, growth stage and small to medium enterprises and start-ups; the New York salary history law; and the outlook for the banking industry in the year ahead. It is wide ranging, and insightful.
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Mr. McCormack began his career in London as an institutional equity sales trader at Merrill Lynch and moved into executive search in 2001. Since then, he has built several leading equities businesses for investment banks, boutiques and hedge funds in Europe and across the U.S.
Well known and highly regarded within the industry, Mr. McCormack specializes in team builds, lift-outs and acquisitions. Before founding DMC Partners, Mr. McCormack was a partner at Westwood Partners and a managing director at Sheffield Haworth. With his broad expertise in all facets of financial markets, he is frequently sought by trade publications such as CNBC and Business Insider for his views on industry trends.
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David, Wall Street’s headcount has been on the decline. Why is this and how is it impacting specialist search firms like yours that work in the space?
This is true. Wall Street headcount has been steadily declining for years. There are many reasons for this but if you specifically look at the business from 2007 until now, it’s easy to understand. Revenues at the top nine bulge investment banks are down considerably, and banks haven’t been able to make up the shortfall from proprietary trading due to regulation and regulation since 2007 that has been very costly and cumbersome. Banks have also faced heavy fines since the financial crisis and fixed costs are up dramatically. As an example, one of the top nine bulge investment banks had 4,500 people in global equities in 2007, same bank today has 2,400 people in global equities, but fixed costs are up 20 percent. All of this has led to headcount declining.
Automation hasn’t helped either, has it?
Banks have automated many business functions. However, we aren’t seeing robots trundle across trading floors — where judgement, trust and emotion play a big role. It’s hard to imagine humans not at the core of that. This is a relationship business – very simple. But through all this, demand for our services has been increasing for years. This is a tough business and no banks are handing out retainers left, right and center, so you need to bring a lot to the table. The large global search firms have no edge in financial services – they do well in the C-suite, but they aren’t specialists. Recruiters who want to play the advisor role also miss the point. Advisory, like knowing your market inside-out, trust and most importantly – closing – is what matters. Our clients appreciate our candid counsel but most importantly, they value our closing track record.
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DMC Partners works regularly in the non-traditional asset management sector. What’s driving this sector from a senior-talent acquisition standpoint?
The same thing that drives every traditional and alternative asset manager – performance. There is direct correlation between talent and performance and it’s our job to educate clients on running proper interviewing processes and hiring A-players. The traditional asset management space is more retained, but we don’t see it as a growth area. Our alternatives business is still client driven and we have a real edge in this space. Our client and candidate connectivity and access is second to none and our ability to cross reference every candidate for extra due diligence with the sell side and vice versa is differentiated. We also offer our clients fundamental and quant solutions – so our business is directly aligned with their diversified investment ethos and success. Our fundamental clients are always looking for ways to boost returns and data is more than just a theme. Similarly, in the most data driven funds, there is constant human intervention. We believe a healthy mix of both is the right strategy. Although I’ve deviated from the question, we choose to align ourselves with the alternatives space (not exclusively) but we find them to be some of the most sophisticated investors around.
“There is direct correlation between talent and performance and it’s our job to educate clients on running proper interviewing processes and hiring A-players.”
The salary history ban law will potentially impact the retained search industry in New York, and other locales, in a substantial way. How are you approaching this from a strategic standpoint and is there a silver lining in all of this?
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I don’t think it impedes retained search. We approach it legally and offer our clients strategic opinions based on prior benchmarking. Ultimately, some candidates will abuse the system and in other ways it creates price inflation for very good candidates. It’s less of an issue on the buy-side as the majority of our work is for investment professionals and the majority of their comp is linked to performance. As it relates to banks, some will be savvy around putting compensation bands in place linked to corporate titles, and others will ask the candidates to justify the compensation number being asked. I have compensation history for thousands of candidates, so we are holding our clients hands and keeping candidates honest. The majority of hiring demand on Wall Street today is for A-plus producers. In this scenario, the bid/ask is now wider and it means there are no bids for candidates who have steadily seen their comp decline over the years. And because the very good candidates are more expensive, the RIFs will equally be as aggressive to accommodate. There is no silver lining as such, it is what it is.
Another Look at the Impact and Implications of Pay History Legislation
As more cities and states enact legislation to restrict employers, and their search agents, from asking candidates about their pay history, questions remain about the effectiveness of such laws, according to a study by NGS Global.
What was the impetus for launching Broadhaven Associates and how will this play off your firm’s traditional pure-play retained search business?
Broadhaven is a completely different business. At DMC, we aren’t trying to be all things to everyone. We have our core businesses and we drill a mile deep. Broadhaven is everything outside of the institutional world and where technology meets finance. We have so far completed mandates in the supply-chain finance space (fintech), the reinsurance space and with pure technology firms. Fintech is an area we see huge potential, particularly blockchain and artificial intelligence, and we are going to continue to let the market and the clients define our end goal. It’s a free option for us. It’s growth. It’s a diversified revenue stream. And it will hopefully make everyone in the office smarter. Where we can find synergies, technologies and acquisition targets for our mainstream DMC clients, we will.
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What does the forecast look like for the banking sector in 2018 and beyond? Do opportunities exist to hire exceptional talent and why is this?
It’s a moving target. CEOs of investment banks manage month to month, partly based on market conditions. Volatility or lack of, geopolitical threats, regulation, central bank policies and the EU, it has become difficult to predict markets 12 months ahead. If banks are lucky enough to have four main units – wealth, equities, FICC and IBD – you can naturally subsidize poor-performing business units on a quarterly basis and manage your cost base. Wall Street isn’t exactly a growth business but there are always pockets of opportunities and upgrades. We have great clients and enough expertise and bandwidth internally to be very busy across markets and thankfully we haven’t felt the pinch. Given the slowdown in FICC and the MiFID regulatory debacle, we will unfortunately see more supply than demand this year and a lot of candidates simply won’t get back in. The barrier to entry is too high hence why we won’t see another DLJ – even though the market is crying out for one from a morale perspective.
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Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Will Schatz, Managing Editor – Hunt Scanlon Media
