Employees work in the UBS "fintech lab" at Canary Wharf in London, the UK. Picture: REUTERS/HANNAH McKAY
Employees work in the UBS "fintech lab" at Canary Wharf in London, the UK. Picture: REUTERS/HANNAH McKAY

London — Chris Purves has been at the cutting edge of markets for more than a decade — from algorithmic trading to machine-learning.

Now, the head of UBS Group’s strategic development lab is turning his focus to the human survivors of the tech invasion, persuading them to understand things will never be the same. They’re going to have to — in the jargon of Silicon Valley’s missionaries — “unlearn” how they’ve always operated.

It’s not just that their software may know their next move before they do. The extinction of an entire way of life is looming, as Purves sees it: the end of the bonus culture. Compensation will be a last frontier in the onslaught of technology on finance.

He’s moving traders towards electronic systems as the era of legendary gamblers stalking the markets in search of the $100m payday becomes a distant memory. What’s coming is increased bureaucratisation, an evolution that renders individuals’ judgment less important — and with it the need to reward them as they might have once expected.

“We want to hire people who are less driven by their own bonus and P&L (profit and loss) and more by the long-term goal of what the market will look like in say 10 years,” said London-based Purves. “The idea that you are responsible for your own destiny has gone. It’s a team sport now.”

The moves in that direction are only accelerating. Coders have been handed licences to trade equities at JPMorgan Chase while they’re the focus of the biggest hiring spree in years for Goldman Sachs Group’s trading division. Citigroup plans to recruit 2,500 programmers in 2020.

The competition for talent with companies such as Google and Facebook hasn’t caused a surge in banker bonuses. And while tech skills are still in high demand, that doesn’t always translate to more compensation. Most trader payouts are forecast to remain steady or decline, according to an analysis by recruiting firm Options Group.

Even as demand for quantitative skills “showed no sign of letting up” in 2019, pay for these roles will probably stay flat, Options Group projected. For example, an equities MD in a financial engineering role can expect to earn $570,000-$775,000 a year, while associates are forecast to earn about $140,000-$190,000.

To be sure, post-crisis culture and weaker trading revenues have already put a dent in bonuses. Wall Street’s average bonus fell for the first time in three years in 2018 to $153,700, according to the most recent estimates by the New York State Comptroller.

But it’s not just about the amount of compensation reducing. Bonus culture is now at stake — with tech platforms centre stage, traders may no longer be paid on an “eat what you kill” model, but will have their bonuses determined more by the strength of a broader desk or unit.

“Good traders used to be easily identifiable,” said Tim Hall, who spent more than 20 years in banking, including at Credit Agricole and ING Groep. “Now trading is very commoditised and you’re being replaced by platforms and robots and people with different skill sets.”

The mismatch between skills and demands is putting even the industry’s highest-paying jobs at risk, says Marcos Lopez de Prado, the former head of machine-learning at the hedge fund AQR Capital Management and now a Cornell University professor. Many of the 6.1-million people employed in finance and insurance will lose their jobs “not necessarily because they are replaced by machines, but because they are not trained to work alongside algorithms”, he told the US House committee on financial services in December.

Traders have no choice but to adapt to the new environment. Automation could cut headcount for Wall Street and the banking industry by 200,000 in the next decade, estimates Mike Mayo, senior bank analyst at Wells Fargo Securities. Almost one-third of financial-services jobs could be displaced by the mid-2030s, according to a report by PwC in 2018.

“Some of the changes coming in with tech can make people feel uncomfortable, like it’s moving too fast and they’re falling behind,” said Niall Cameron, London-based head of corporate and institutional digital at HSBC Holdings, which has designed bots to help salespeople respond to clients. “That is unfortunately here to stay because these trends are only getting stronger.”

Quant minds

Investment firms are also turning to machines to cut costs amid the boom in passive investing. Janus Henderson Group replaced two fund managers with more than a decade of markets experience with a new quantitative team of four in May. New York-based PineBridge Investments, with almost $100bn of assets, is also focusing on quant skills, leading its existing traders to become nimble.

Chris Perryman, senior vice-president of fixed-income trading at PineBridge in London, adapted to survive. Four years ago he moved to a management role and helped hire two university graduates in their 20s to apply a quant approach to trading.

“Ten years ago I could be a good trader, now I couldn’t,” said Perryman. “I don’t have a quant background and that’s 50% of the job now. You need quant skills to handle, organise and rationalise the amount of data that’s available.”

Roosevelt Bowman, who traded bonds at Lehman Brothers back in 2008, learnt to code as the firm collapsed. More than a decade later and now senior investment strategist at AllianceBernstein Holdings’s private wealth-management division, he uses programming languages such as R and Python regularly in his job in New York.

At UBS, Purves is spearheading an effort to digitise the investment bank’s trading of fixed income and equities, and as part of that he went on a course with Silicon Valley’s Singularity University to learn how experienced bankers can evolve and stay relevant. When it comes to new hires, Purves says, the best candidates are those who have the least to “unlearn”. They are team players with computer science skills who are often new to banking, he said.

Jack Miller, head of trading for Robert W Baird in Milwaukee, agrees. For the first time in 2019, he included proficiency in coding as a requirement for a junior trader job, but hasn’t found anyone yet with the right mix of technical and people skills.

As investors increasingly track indexes rather than actively managing their investments, it’s another example of how machines are curbing the amount of money individuals can make. The shift to passive investing means individuals and institutions have low-cost alternatives to traditional asset managers, who’ve responded by cutting expenses, Miller said.

“There is a trickle-down effect that puts pressure on the overall pool of comp available to the sell side,” Miller said. That’s “driven by the buy side being much more cost-sensitive”.

Bloomberg