Kathy Freeman Company | Executive Search | Investment Industry
Executive Search & Human Capital Consulting for Financial Services
Is aggregation working for wealth management? In light of recent market developments that have impacted banks and their wealth management subsidiaries, we take a few minutes to ponder “What will the drivers of future success be?”
Take a look at this brief opinion piece by Derek Burke and Kathy Freeman which explores the conversation from multiple dimensions.
Over the last 18 months, the Kathy Freeman Company witnessed a substantial increase in Chief Operating Officer searches throughout the financial industry. During these searches, we accumulated market data which we have distilled down for helpful context to those firms which may want to consider upgrading or adding this critically important function to their leadership suite.
The searches conducted spanned asset management, wealth management, consulting, and venture capital.
The Necessity of the COO role
Many of the COO searches we conducted were new positions, being added into firms that had experienced substantial growth during the bull market, from 2010 – 2022. These crucial leadership roles were being prioritized around the necessity for building efficiencies, infrastructure, and process into their firms. In many cases, the responsibilities that this new role would take on were being “handled” or “assigned” to other leaders on the executive team. So, two things were happening: the current leadership team was getting burnt out, and the tasks assigned weren’t getting done well because these leaders didn’t necessarily have the proper skill set or time on hand to commit to a job well done.
Defining the Need
Whether a firm is looking to upgrade the talent in a COO position or looking for their first COO, it’s imperative to frame the expected outcomes and identify the current state of the firm presently. Some of the issues our clients needed to consider:
In addition to these important insights, we also gathered compensation data across the market for these national searches. We’d be happy to share additional information surrounding this COO function and correlating compensation bands. Please reach out if you’d like to receive compensation insights or to discuss potential needs for leadership talent within your firm.
Building the Talent Trends Report each year is always a unique opportunity to focus on how leaders look at their most critical resource– their people! New dynamics are at play each year, impacting talent acquisition, development, engagement, and retention.
Our highly concentrated research, which polled executives at firms with assets from $25 billion to more than $1 trillion, found that these leaders have effectively managed through the pandemic, the Great Resignation, and Quiet Quitting by embracing both fully remote and hybrid working models. To its credit, the industry has adapted remarkably fast to the new dynamics of the workplace.
But one fact remains unchanged as the industry evolves: there’s an acute shortage of talent. Our 16-page report, predicated on our proprietary survey conducted in the fourth quarter of 2022, confirmed that industry leaders are increasingly concerned about their ability to source and develop talent.
The Numbers Aren’t in our Favor
Our data showed that whether it’s leadership for a new product or business line, or for operations or technology deployments, there is an absence of capable talent. Thirty-nine percent of our leaders polled said there was insufficient leadership talent in their pipelines to continue to grow their businesses. In some cases, the challenge is the affordability of talent, in others, it may be the proper cultural fit, and for some firms, it’s simply about finding sufficient experience. These issues are being exacerbated by the ongoing exodus of Baby Boomers who are setting off on retirement. With 75 million Boomers expected to retire by 2030, the quest for the best talent to grow our firms is becoming a critical business issue.
In our search work with companies across the country and viewed through our data, it’s clear that the industry needs to cultivate the Next Generation of talent or settle for slower growth.
Considering Alternatives in the Face of Obstacles
One workplace dynamic emerging from the Pandemic that is in a firm’s favor is the flexibility provided by hybrid scheduling. Firms are leveraging remote workers even more through the use of AI and technology, creating schedules for workflow, and interactions with colleagues that don’t require an in-office presence each week.
With other industries laying off thousands of their workforce in massive waves, investment management firms should certainly take advantage of exploring these newly available, educated, next-gen, and diverse individuals who have unexpectedly found themselves sidelined.
In today’s environment, it is also incumbent for firms to step up to offer more formalized training to foster the development of their high-performing talent, as well as for those who are demonstrating a passion for their work and the industry. Training is a sizeable investment for firms to make in their employees, so it’s critical that individuals display an appetite for development as a precursor to being selected for training.
The Time for Perfect Has Passed
One clear shift in today’s hiring is the recognition that firms are frequently unable to find all that they are looking for in one candidate. There is an inherent need to prioritize what’s critical in expertise upfront and to identify where it makes sense to compromise. While developing someone’s skill sets or knowledge base to the next level is expected in today’s market, the elements which necessitate cultural fit should not be overlooked. Firms that understand and articulate their mission and vision to candidates, and who invest in defining a benchmark for alignment, will enjoy tenure and productivity from these hires in the years ahead.
For full access to our Talent Trends Report please visit click here.
More than half of the estimated 5.25 million people who left the workforce during the COVID-19 pandemic appear to have retired earlier than they planned to, new research indicates. By the end of August 2021, approximately 3 million people had retired earlier than they had planned. Based on current trends, those numbers are only going to grow. In November, a record 4.5 million workers quit their jobs, many of whom will never work again.
We wrote about the impact of early retirements on the asset management business in our recently published 2021 Talent Trends Research Report. We looked at the importance of succession planning from the workplace exodus now known as the Great Resignation. In fact, our survey of senior asset management leaders found that one in five of them had experienced an unexpected number of accelerated retirements at their firm in 2021. Thirty-eight percent indicated their own succession plans were lacking.
As the New Year begins, asset management is particularly susceptible to a new wave of Baby Boomer retirements. The industry’s strong growth during the decade-long bull market and its handsome compensation has given many Boomers the financial resources to retire on their own terms. Until now, there’s been a lack of motivation for Boomer leaders to retire. The pandemic changed all that. Q1 could be the tipping point.
Two dynamics are impacting this retirement trend. The first is that many Boomers are reticent to abandon the quality lifestyle they created during the pandemic by working remotely. It raises the question of whether they have the appetite and ambition or edge to lead their businesses with the same intensity. Many have discovered they don’t want to trade the mountains or beach for their downtown office or weekly travel on planes or trains.
The second dynamic at play is that some Boomers are at risk of being phased out simply because they haven’t demonstrated a lean in leadership approach during the pandemic. C Suite and Boards looking at a firm’s talent map for 2022 are focusing on those executives who haven’t innovated or embraced the new realities of remote work, digital outreach and reimagining the client experience. In these situations, firms will accelerate retirements for these executives.
So what can be done? How should firms prepare for transition in what could be a tumultuous year?
We recommend the following three initiatives, which many of the winning firms we’ve worked with are currently pursuing:
Open a fresh dialogue about their plans for retirement, or alternatively, their appetite for career growth. Age isn’t indicative of energy or passion, so avoid taking a one-size-fits-all approach. Customize the conversation with each of your high-impact leaders to determine how the firm can better support the individual’s desired career trajectory—or, if their retirement plans have accelerated, a smooth exit.
Look at your firm’s talent bench with an eye toward high-performing contributors, even those who may require an accelerated development plan. Next Gen skills development has been stalled as firms moved to remote work, a trend noted by 60% of leaders in our 2021 report. Stepping up to ensure that opportunity exists for the future growth and development of your high performers is a critical retention tool in today’s competitive market.
What has your leadership done to solidify your culture and keep everyone across the organization bought into your mission during this lengthy, remote work environment? Can you illustrate that you have a committed, collegial and purpose-driven culture? In the event you need to go to the market for talent, today, more than ever, you need to have well-articulated and compelling story on why your firm is a great place to build a rewarding career.
The financial services industry is undergoing a seismic demographic shift accelerated by the pandemic. An industry filled with aging Baby Boomer leaders and financial advisors is now experiencing a wave of retirements and culture-induced departures to other firms. As noted in a recent Wall Street Journal article, there’s a national trend of workers leaving their jobs for various reasons including better opportunities and a better work-life balance.
We’ve seen three recurring trends impacting turnover in the financial services industry:
Getting executives and their teams back to the offices is essential, but there is also a desire by many to continue working remotely in some capacity. Not all companies are on board with this. For example, Morgan Stanley’s CEO, James Gorman, recently said, “If you can go to a restaurant in New York City, you can come into the office, and we want you in the office…if you want to get paid New York rates, you work in New York,” he noted. He went on to say, “None of this, ‘I’m in Colorado, and getting paid like I’m sitting in New York City.’ Sorry, that doesn’t work.”
A CEO with this attitude may soon find his colleagues heading to companies who are embracing hybrid or remote work environments. For many, working for a company whose leadership listens to their employees, especially with regard to culture and remote flexibility, has become a driver of career satisfaction. Today, in the absence of a flexible corporate policy, companies might as well open their exit doors and prepare for departures.
At the start of the pandemic, many Boomers put their retirement on hold. Now that the crisis is waning, people are fast-forwarding their previously planned exit strategies. A few notable retirements include Kathleen Murphy of Fidelity Investments and Barbara Novick of Blackrock, two top-level industry leaders.
The pandemic has allowed many executives to work from their second homes at the Cape, on the beach, or in the mountains. Some were reminded that life is short and expedited their retirement over health concerns. Others are prioritizing time spent with their families, hobbies, or volunteerism. The idea of going back to the full-time daily grind in the office has become unappealing for many.
Meanwhile, succession planning across the industry is in full swing. The silver lining in these retirements is that many roles are now opening up for next generation leaders. This generational shift will certainly be bringing fresh ideas and new thinking to a mature industry.
Many companies are re-prioritizing their staffing expenses, which is a unique byproduct of the pandemic. Many companies have been proactively reducing headcount at senior levels to reduce payroll liability while simultaneously adding jobs at entry, junior, and mid-career levels. TIAA and Fidelity Investments are two major asset management companies that have offered early, and well-paying, retirement packages to many senior staff. Charles Schwab has also been in the headlines for reducing their headcount after acquiring TD Ameritrade yet aggressively hiring for their retail investor business.
For those who took a generous early retirement package and are looking for their next gig, there should be ample opportunities to get realigned with another company given today’s markets.
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The most noteworthy takeaway coming out of the pandemic is for companies to lead with empathy. Companies who do so will stem the tide of turnover and provide an attractive landing spot to people who are disenfranchised with their current company’s culture or work environment.
Companies across all industries have pivoted to virtual interviews since the pandemic began. Now 13 months into this grand experiment, the jury is still out regarding the effectiveness of solely relying on virtual interviews, especially at the executive level.
This new approach to hiring has also highlighted a new risk: Whether the virtual-only process works as well as the largely in-person, pre-pandemic approach. Here are three issues that are causing concern for our clients.
A key concern with virtual recruiting is determining how seriously a candidate is taking the interview process. Some companies that are solely hiring via virtual interviews, especially at the executive or leadership level, have been finding it challenging to assess whether a candidate’s interest is truly aligned with theirs. Some candidates are just kicking the tires from the convenience of home. It can be difficult to tell via video because visual cues and non-verbal communication, such as body language, aren’t as clear. Additionally, video interviews from home aren’t necessarily an accurate indicator of a high bar for interest. After all, another Zoom meeting is just part of the daily grind.
So, how does a hiring company know the interest is being reciprocated on the other side of the screen? How do firms protect the time of their leadership teams?
One of our clients worked around this challenge by creating to-dos for their executive-level candidates in parallel with their video conversations. After the preliminary or second round of interviews, they establish action items or tasks which require some level of preparation and commitment by the candidates. Those who weren’t that serious have bailed on the interview process. It’s better for everyone if a passive level of interest is discovered earlier in the process.
An increase in rejected offers is another concern – one that is not an unexpected byproduct of virtual interviews. We suspect this is due to a lack of personal connection and difficulty building authentic rapport. In fact, some companies have been experiencing an increase in rejected offers as candidates take counter offers at their current companies. Some candidates are even leveraging offers as a negotiating tactic with other firms they are interviewing with. Now more than ever, rejected offers are highly disruptive to any hiring company’s momentum.
One response to this challenge is taking a more pointed and proactive approach with candidates. Don’t hesitate to ask if individuals are considering other opportunities and how far along they are in the process. Candidates, especially those who don’t interview often, may not realize that their transparency is valued and appreciated. If hiring companies are aware that a candidate is parallel processing other opportunities, they can be more aggressive in their pursuit of a candidate or be prepared to have backup candidates for consideration.
Some clients are especially concerned about the cultural assimilation of executives who were hired virtually and have continued working from home. Many rightly wonder if and when a new hire will absorb the firm’s values and model that behavior. As a result, it’s more critical than ever that firms have a well-conceived executive onboarding plan for the post-WFH world.
Executive hires, who don’t typically need or expect nurturing, will be looking for confirmation that their new role is what they expected and that their new company is the right cultural fit. At the same time, everyone else will be checking to see if the new executive can rapidly assimilate, both culturally and influentially, in an office environment. Incorporating events that allow for team integration downstream will be equally as important.
Firms must embrace the cultural shifts that have occurred during the pandemic. The objective is to immerse new hires in the cultural values they are expected to exemplify when everyone returns to the office.
No one knows whether this experiment in virtual interviewing for executive-level hires will be successful in the long term. Only time will tell. In the interim, it’s prudent that companies transition to a hybrid interview model for executive roles if they haven’t already done so. As important is integrating and onboarding executives returning to the office, so they are culturally grounded and fully able to lead the growth of their companies in the months and years ahead.