It might be true that bull markets are all the same, while bear markets are all different. But one thing all downturns have in common is that they trigger a wave of redundancies.
The current downturn is no exception. This year, 26 January was a particularly brutal day for workers around the globe, as corporations slashed almost 80,000 jobs in a single day. Caterpillar topped the list that day, telling 20,000 employees they were out of a job.
Dramatic as it was, it is nothing compared to what is yet to come. According to the International Labour Organisation, global job losses could be as high as 51 million this year, driven by the ongoing financial crisis. This would push up the global unemployment rate to more than 7 per cent, compared to 6 per cent last year.
The financial services industry has been hit hard as the investment banking industry collapsed, while many retail banks have been partially or fully nationalised.
Australian workers have not escaped unscathed. Hundreds, if not thousands, of jobs have been cut at Australia's largest financial institutions. September to December 2008 saw an especially large wave of redundancies as companies went into defence mode.
Financial services behemoth AMP reduced staff levels by 300, Commonwealth Bank of Australia cut 200 staff and Axa Asia Pacific let go of 90 people. Macquarie Group has dismissed more than 1000 employees worldwide since September last year. And then there is the beleaguered Babcock & Brown, which plans to part with 850 staff.
Redundancies are made across the board, the institutions say.
"No particular area [was] affected more than any others," an Axa Asia Pacific spokesperson says.
However, there is a common theme among those positions that have been hit by the cost-cutting measures.
Functional roles, such as human resources, marketing and IT, as well as management roles seem to have borne the brunt of this crisis.
"We find there are more people [who have been made redundant] in value-add or non-revenue-generating roles," Link Recruitment financial services practice leader Sarah Wapling says.
"We have also seen a great influx of CVs in the middle management space - anywhere from $120,000 to $350,000 salaries."
In October last year, Wapling saw the supply in candidates shift dramatically. "Before that there was a real shortage of candidates," she says.
"We were very much in a candidate-driven market; it was very difficult to find top candidates for any type of role. Now that has totally turned around and the ball is in the employers' court."
Wapling has seen an influx in resumes, and not all of them are from the best performers. "Maybe 65 per cent of cases that come through have been performance management issues - companies that had to hire staff who probably are not quite the people that they wanted, but they had not had the ability to pick and choose," she says.
"Now that the bad times have come, these people have excluded themselves."
But the other 35 per cent are good experienced workers, she says. "They are very good at their job, but it was a matter of the business having to protect itself," she says.
The number of senior candidates in this group is rising. "There are some very good candidates. I can't recall any time in the last five to six years that we've seen so many candidates," Wapling says.
Recruiters also report a higher number of resumes from overseas candidates. The slump in the British financial market and a recession in Ireland have led to a dramatic decline in the demand for financial services personnel there.
"As a result of that a lot of young Aussies are coming back to Australia because they know the Australian financial services market is holding up better than there," Kyte Financial Recruitment director Robert Kyte says.
The decline of the British pound against the Australian dollar further reduces the incentive to stay, Kyte says.
The safety of revenue
Salaried financial planners have largely managed to escape the blades of job cutting executives, recruiters say. "Typically, we aren't seeing redundancies amongst financial planners," Profusion director of executive management Simone Mears says.
"Planners are in front-line, revenue-generating roles. The job losses have been in operations, paraplanning and dealer group support roles. In a market like this, your ability to produce revenue is what will keep you your job." Many practices have seen their funds under management (FUM) dwindle in the past 12 to 18 months as the stock market halved in value. As revenues are directly related to FUM, much depends on making sure they do not drop any further.
Planners play a pivotal role in the retention of funds. The strength of their relationships with clients often influences the decision on whether investments are pulled out or kept where they are. "While they may be writing reduced levels of new business, the retention of clients with existing funds is just as critical," Mears says.
Besides, many firms realise that just as the good times did not last, the bad times will certainly not go on in perpetuity either. HLB Mann Judd director of wealth management Jonathan Philpot says his firm has been reluctant to let staff go as the memories of the crippling skill shortage are still fresh in his mind.
"One of the reasons why I think our firm is not so keen to lay off staff is that it is so difficult to find them again when things turn around. It is probably better to carry a little bit of extra weight in the quieter times, because, as it always does, [markets] turn around quickly and then we need them again. The skill shortage doesn't get solved within a year. It takes quite a while for those numbers to build up," Philpot says.
HLB Mann Judd also prefers to appoint planners who have been trained by the firm. This model of internal recruitment provides an additional incentive to keep people with the firm as long as possible. "You put a lot of training effort into these young cadets and then to let them go after a year is obviously a waste of your training cost," Philpot says.
"The maximum benefit you get out of them is the few years after you've put them through all of that training and that's when they are really quite skilled in what they do."
At this point it makes more sense to just wait until the market picks up again. "And it will. It is called an economic cycle for a reason," Philpot says.
Retention of talent
In recent years, the large players in the market have made substantial efforts to not only attract planners to the company, but also to retain them once they are part of the group.
BT Financial Group's creation of a partnership model is a good example of this. The group recognised early on that when planners get more experience they increasingly long for a greater flexibility in how they run their practice. But not all senior advisers are charmed by the concept of running their own business, so the company came up with a solution somewhere in between the salaried planner and independent practice model. They call it the partnership model. "We launched our first live partnership in October 2007," BT Financial head of partnerships advice Sarah Forman says.
"It was originally designed to see how we could retain our senior advisers when the only next career step available to them was to get out there and open their own businesses.
"We also looked at meeting some of the needs of those top performing planners, which was around acquiring greater flexibility in how they operate in a larger dealer group."
Senior advisers are especially looking for more freedom in structuring their team and the number of assistants they can use.
Under the model, advisers receive a share of revenues from which they have to pay their staff's salary and their own income. They are still able to make use of the group's services, including training programs, but it allows them to structure their team as they see fit.
BT currently has 25 of these partnerships, involving 67 planners and a total of 101 staff. "We look to continue to grow it. [But] it is important to know that it is only an aspirational model. We're not forcing advisers down this path. It's suitable for those planners that are looking for an entrepreneurial career path," Forman says.
Not every financial planner is capable of leading a partnership, and they need to show a hunger for leading a team and coaching staff, as well as having a business plan that addresses operational aspects, including cash-flow management. "We certainly don't expect every senior planner in our dealer group to [enter into a partnership], but we see it as an important career path proposition to our planners," Forman says.
The partnership model helps those who do have the ambition to set up their own business, but are afraid to take the plunge. "We find it is a really effective stepping stone for planners who want to come out of the salary model and in a couple of years want to take that full step to owning their own practice," Forman says.
Of the initial participants in the partnership model, one planner has already taken the step to run his own business and has joined the BT-owned Magnitude group of practices. There are several others who are contemplating taking the step later this year, Forman says.
Support staff on the receiving end
Financial planners find job security in their role as revenue generators, combined with the shortage of talent in the industry in recent years. But it is an entirely different story for their support staff. "Paraplanners were the first people to have been made redundant," Wapling says.
In the boom times, the high demand for these positions pushed salaries through the roof and as a result paraplanners are now seen as a logical starting point for cost-cutting measures. "As business being written diminishes due to the lower investment returns and people's determination to keep their money in cash, certified financial planners are less busy and therefore don't need a paraplanner," Kyte says.
"This is impacting the support end of the financial planning market."
He recently advertised a paraplanning role and the response was overwhelming. "I've got a dramatically higher application rate than I had 12 months ago," he says.
He says he especially sees retrenchments in boutique financial planning firms. "Or if they haven't been retrenched, they are fearful it might happen," he adds.
Paraplanners with experience used to earn around $70,000-75,000, but salaries have come down by $5000 to $10,000, with entry-level staff salaries down at least $5000 as well.
In the funds management industry the picture is largely the same. The pain is mainly felt among support staff, while experienced fund managers are still hard to come by.
"There is the odd one or two [fund managers] around, but they are hard to find in any market - in a good market or a bad market," Wapling says.
Most funds management businesses are holding on to key staff. "Businesses are saying 'we're not going to burn the furniture this winter because we are going to need these people'. We hear that key staff are taken out to lunch and told their job is safe."
But at the junior end of the scale the supply of candidates is increasing. Aberdeen Asset Management head of Australian equities Mark Daniels recently tested the market for a graduate trainee and filled the position in January. "It's pretty easy to find people in this market. For this graduate job we had 80 applications," Daniels says.
Senior funds management staff are also less likely to move between firms, Australian Unity Investment general manager retail Adam Coughlan says. But Coughlan has seen interesting resumes for management roles. "There are great people opportunities at the moment, as many businesses are downsizing. We are running our expenses very tightly and we never had a hiring freeze," he says.
The company recently hired an interest rate strategist, a state manager for its Queensland operations and a product manager. "I think we are probably one of the more active companies in the market," Coughlan says.
"Certainly the calls I get from headhunters show that we are one of the only ones hiring at the moment."
Salaries take a hit
The redundancies in the financial services industry have certainly affected salary levels. Recruiters have seen staff at many businesses being asked to hand in part of their wages in return for job security.
"Smaller groups have been hit harder than larger institutions, and they have said everyone has to take a pay cut unless you don't want to work here," Wapling says. This has brought down the average salary by 5-10 per cent across the board, she estimates." This applies to anyone from paraplanners to middle management," she says.
Generation Y has been a bit slower in adapting their demands on pay, she says. "Generation X was very quick to adapt and realised they had to adjust to the new environment. [But] generation Y were pretty much saying 'I'm still demanding the same salary level'," she says.
However, they are now also realising their high demands will leave them without work and starting to be open on renegotiation of their salary level.
Firms might hold on to their financial planners, but recruitment of new planners has certainly slowed down. Job advertisements in the financial planning industry dropped 62 per cent over 2008, according to a report by eJobs Recruitment Specialists.
Planning practices are putting off the hiring of new staff and are also reluctant to replace staff that fall away through natural attrition. "Businesses are very cautious: they take a quarter-to-quarter approach. Rather than saying this is our package for the year, this is our growth strategy, they are pulling back and look at it three months at a time. There are actually many positions available, but companies don't go out and recruit," Wapling says.
This restraint has had a downwards effect on financial planner salaries, according to research from eJobs, and the median salary band for financial planner roles is currently $80,000 to $100,000.
But for those financial services employees with specialist skills, little has changed.
"It is important to note that in some areas of the market there is still a talent shortage," Mears says.
"We have not seen a drop in salaries for specialist roles. In most instances salaries have plateaued. However we are still seeing instances where people are getting remuneration increases to move. This is occurring if they are an exceptionally high performer, have highly specialised skills, or there is a real shortage of skilled talent in that sector."
The areas that are still growing in financial services are risk management, compliance, corporate governance and communications. "That is a direct reflection of the economic downturn," Kyte says.
"I think it's fair to say that the demand for these people will only increase over the course of this year."
The Robert Walters Salary Survey 2009 Australia, published early February, predicts salaries for risk management and compliance staff will increase over 2009. In 2008, operational risk managers with more than six years' experience earned between $130,000-140,000. They can expect a $10,000 increase in base salary this year. Quantitative risk specialists with the same number of years of experience could even see increases of $15,000-25,000 to annual salary levels of $150,000-170,000 this year.
The biggest change has probably been in the payment of bonuses; the era of exuberantly high additions to base salaries seems to increasingly be a relic from the past.
Sign-on bonuses and equity payouts that compensated for pending bonuses to entice people to leave their current employer were common phenomena in recruiting high performers during growth markets. But this practice stopped last year. "The people moving now are prepared to walk away from whatever equity or bonuses they may have," Mears says.
Wapling sums it up in a comment on the current attitude towards bonuses. "The bonus is that you have a job," she says.
The worst is over
The economic climate today is characterised by uncertainty and this extends to companies' intentions to reduce staff further. But overall, large-scale redundancies are not expected.
"We think the worst is over. Most companies went into protection mode by the fourth quarter of [calendar year] 2008. We do see some redundancies and there is talk that some institutions might go through a new round of cuts, but we think the worst is behind us," Wapling says. However, she doesn't expect recruitment to pick up until the stock market recovers. "Once the stock markets come up, revenue comes up in financial services businesses, and that is when there is a need for financial planners, paraplanners and funds management staff."
And when the stock markets pick up, it might still take some time before the job market recovers, Kyte adds.
"The problem is that the employment industry is delayed. Hiring intentions are not affected until there is a considerable downturn and they tend not to improve until there is a significant improvement," he says.
He estimates the time lag to be around six months.
"[When] there is an improvement and the stock market starts to stabilise and the stimulus package here starts to work, people want to see that there is evidence of some good stability before they start rushing back into hiring staff," he says.
When a recovery starts, contract roles will pick up first; contractors were the first to be retrenched and they will be the first to be hired again. This segment in the employment market will also benefit from several large merger and acquisition programs running this year, including the merger of Westpac and St George and the integration of the former HBOS businesses, BankWest and St Andrews, into Commonwealth Bank of Australia.
"We have seen a substantial increase in the number of contracting roles coming into our business over the past couple of months," Mears says.
"We anticipate a lot of integration projects this year. We are very busy with contract roles, particularly demanding project resources."
The Australian financial services industry has proven to be more resilient than some of its international competitors, and this has saved many employees from being left in the cold. Partly this can be attributed to the stringent regulatory regime, which has not always been appreciated in boom times, but certainly has proven its worth during this crisis. As a result, local financial institutions have not amassed nearly as much bad debt as their United Kingdom and North American counterparts.
"We are certainly not immune to all the turmoil, but in essence we are in the best position of any country in the world," Kyte says.
With the skill shortage still fresh in their minds, Australian companies have also shown a restraint in cutting jobs, recruiters say.
"Most organisations have tried their best to minimise redundancies," Mears says.
"Businesses are still mindful of the labour shortages which have impacted growth in recent years. No business wants to find itself in 12 to 18 months time in a position where it needs to rehire staff at increased costs."
This year might still be characterised by further, albeit smaller, rounds of redundancies and company restructurings, but at the same time people have started to look beyond the current downturn.
"The biggest difference we have noticed in the market between this year and last year is that people seemed to have adapted to the volatility and downturn," Mears says. "It's not that people believe things are better, it's more that everyone has accepted the market conditions for what they are and have decided to get on with the business of doing business."
Superannuation and Corporate Law Minister Nick Sherry captured the current mood perfectly in his address to industry participants at a new year's function at the end of January when he said: "Welcome to 2009; up to 2010."
