By Kenan Maciel, Director of Strategy, Lab49
The Covid-19 pandemic necessitated a widespread shift to remote working. For many Wall Street organizations, the health crisis fired the starting gun for identifying different approaches to ensure business and personnel stability, talent retention and the ability to weather the wider economic storm. Now, after almost two years of primarily remote working, banks’ return-to-office plans have been largely defined – albeit with the latest, Omicron-fueled surge delivering another setback.
Many banks navigated the challenges created by the sudden shift to remote working well, invoking disaster recovery systems to enable a smooth transition of business operations. Subsequently, there has been a realization on Wall Street of how design and software development technologies can ensure projects requiring intense collaboration are delivered remotely with ease. The benefits felt by banks which had already digitalized their operations has prompted others to not revert to old ways of working wholesale. Instead, institutions are embracing the accelerating trend of digital transformation.
Flexible models of collaboration will continue beyond the pandemic. However, as the large-scale return to office kicks back into gear in 2022, firms must decide which areas of their operations would most benefit from a retention of the Covid-era changes to working practices.
Recruitment driven by culture
Over the summer of 2021, a clear divergence emerged in how banks attempted to balance changing employee priorities with what is deemed best for their business. Some firms, such as Citigroup, encouraged a flexible return to the office. Whilst recalling some of its staff back to its empty Tribeca tower, Citigroup also instructed employees that they could work up to two days a week at home and implemented an office vaccine mandate. Following this, UBS announced it will allow up to two-thirds of its staff to adopt a hybrid model of working.
This approach was not reflected across the wider industry. Bosses from two of the most prominent firms preferred a full return to the office. Goldman Sachs required all its US employees to report to the office, reflecting CEO David Solomon’s opinion that the year of remote working was an “aberration”. Chief Executive of Morgan Stanley, James Gorman, held a similar view, equating employees’ readiness to go out to a restaurant in New York City with the expectation that they could and should come into the office.
Arguments for and against a mass return to in-person working mainly center on topics regarding culture and recruitment. Research from January 2021 found remote workers cited lifestyle reasons, specifically the lack of a commute and an improved work-life balance, as the main benefits of flexible working. In banking, this view has led to the adoption of permanent hybrid working models as a recruitment tool, with Citigroup using their flexible working scheme as a way not only to retain employees, but also as a key attraction for new talent.
Nevertheless, despite the undeniable benefits generated by increased flexibility, bosses from top firms insist that these do not outweigh the advantages that bankers gain from traditional, physical working models. Many industry leaders see professional learning and business development as being best achieved through an apprenticeship model which is “impossible” to recreate virtually. Jamie Dimon, JP Morgan CEO, contended that working virtually reduces opportunities for spontaneous learning and creativity, vital for business development.
While many trade-offs and elements of this debate are universal, the compatibility of flexible working with regulatory requirements is unique to the financial services industry. When the pandemic hit in March 2020, the Financial Industry Regulatory Authority (FINRA) recognized the impact of lockdowns on traders. It therefore permitted them to work remotely, dependent on firms implementing alternative supervisory systems to facilitate this properly, and temporarily waived several record-keeping requirements. FINRA altered its rules to allow sensitive mail, usually delivered to offices, to be directed or forwarded to an associated individual’s address.
Similarly, the U.S. Securities and Exchange Commission (SEC) reconfirmed changes to its rules in recognition of the inability of office access. The SEC reiterated that it would not recommend any enforcement action against a broker-dealer if they did not count physical securities in a quarterly securities count from April 2020.
Even if remote working remains the norm for some firms, changes to regulations will not follow suit. FINRA has announced its amendment allowing firms the option to satisfy their Rule 3110 obligations remotely will not extend to inspection requirements beyond 30th June 2022. If this becomes an established trend across regulatory boards, firms intending to adopt a flexible working model in the long-term will be required to reconsider their policies. Alternatively, some on Wall Street may face serious barriers to day-to-day activity.
The ability to execute and operate effectively from anywhere has greatly benefitted business. However, for a high-speed industry built upon instant communications and capabilities, consistent connectivity remains crucial. Work from home rulings witnessed the implementation of thick client software by buy-side portfolio managers and traders, including market-makers at leading banks. In turn, this created three prominent issues relating to timings and market data.
Firstly, with lag times impacting peak activity, traders experienced execution difficulties during certain times of the trading day. Limited responsiveness during the day hampered those attempting to achieve tasks before close. Whilst this may seem minimal to regular internet users, a 3+ seconds delay or frozen screen would heavily impede traders’ ability to operate.
Secondly, the proliferation of market data has made information feeds less targeted. With more frequent updates, which brings with it less relevant news to their orders, an increase in the notifications high-speed traders receive may prove to be disruptive. Alternatively, indications of interest arriving in large numbers, prompting a mass series of notifications, could overwhelm traders. For certain, both factors will overload the thick client software and impede execution.
Finally, whereas most offices have a wide, high-speed, reliable local data network which facilitates this, hardware is not accessible to employees working in make-shift home offices. With market data not always up-to-date, traders working from home with less screen space are unable to have the correct terminal up at all times. They must rely on the market data in the client. This needs to be responsive.
This reliance by remote workers on standard internet connections lacking VPNs and susceptible to connectivity issues has a knock-on effect on execution and operational standards. It is therefore unsurprising that some of Lab49’s buy-side asset management clients still working remotely have encountered execution and latency issues, with the lack of sufficient technology meaning data received by traders is often out-of-date. Clients such as these are now seeking forms of digital transformation, highlighting how Covid-19 has acted as a catalyst for many businesses to upgrade long-outdated technologies.
Relationships – at the heart of sales
For banks’ salespeople, a shift back to traditional, in-person working models which facilitate relationship-building is very welcome. Wall Street holds fast to tradition, even whilst understanding that working from home has not limited sale operations. Whilst market volatility has sustained high trading volumes and driven record investment banking revenues, there is an understanding that in-person sales relationships will be required beyond the short-term growth.
Although technologies such as Zoom and Microsoft Teams have revolutionized internal and external company communications, they do not offer a like-for-like trade. Organic, in-person communication is still valued over digital relationship-building. This is summarized by a sign that hangs in the entrance of Goldman Sachs’ New York headquarters: “Don’t let a day pass without client interaction – In person beats video, video beats phone, phone beats email.”
As a result, some salespeople have not only been back in the office, but resumed traveling again. We are slowly witnessing the return of in-person meetings and industry events, with many proceeding in a hybrid fashion to offer flexibility around ever-changing travel restrictions. Regardless of the industry, superior customer interaction will remain crucial to success. As competition continues to drive Wall Street’s boom, experiences, undoubtedly elevated by human interaction, will be key to offering truly personalized approaches.
Given the scale of the pandemic’s impact, and the significant long-term changes many firms made in response, it is unlikely that a full-scale return to traditional pre-Covid sales processes will occur; balance will be required. What’s more, with travel much more targeted, technology has cemented its worth in playing a significant role in the delivery of sales support, particularly when operating or delivering at speed.
Striking a balance
Overall, uncertainty surrounding the pandemic remains. Alongside the wider questions of culture and recruitment, Wall Street organizations face a crossroads in how they configure their working policies of trading and sales teams considering evolving regulations, execution requirements and the changing nature of the sales cycle.
However, what does seem certain is that despite the benefits of traditional, in-person office life for business, a greater degree of flexibility and remote working, particularly within banks’ mid- and back-offices, is here to stay. After all, as change on Wall Street takes time, it may be a while until the correct adjustments and approaches become clear and for organizations to truly understand how far the landscape has been reshaped.