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Wall St. Vs Tech St.

Looking back

Not long ago, an eight-block stretch in lower Manhattan distinguished itself as the preferred destination of many highly pedigreed college graduates. Wall St. became a haven for many talented MBAs and even some computer scientists who sought their rather large piece of the pie by working for storied investment banks and brokerage firms. In the early 1990’s, years before tech giants such as Amazon went public, Wall St. and Tech St. consummated a glitzy, yet fragile marriage that saw many dotcoms, along with shareholder net worth, bite the dust. Fast forward to 2008, and the street’s love affair with technology flourished on the backs of Apple, Intel and Microsoft. But, the financial services industry took a huge hit that year when U.S. taxpayers had to come to the rescue of four mega-banks that lost more than $240 billion through risky home loans made to borrowers with poor credit histories.

Bank Gains (Losses) by Income Statement Category Above Pre-Crisis Levels. Dollars in Billions.

Wall St. Woes

The worst financial crisis in 80 years brought Wall St. to its knees, bankrupting massive investment banks such as Lehman Brothers, a financial stalwart founded in 1850. Until that point, the folks that ran the Securities and Exchange Commission thought another Black Tuesday would never happen. The reckless practices of these financial behemoths elicited a new wave of oversight in the industry.  And the SEC, the FDIC and the Federal Reserve hastened back to the drawing board to plug holes in the laws that did not prevent the bankruptcies of countless financial firms and individuals. Enacted in 2014, the Volcker Rule, named after former Fed chairman Paul Volcker, prohibited banks and insurance companies from holding complex investments in proprietary accounts built for maximizing internal profit while shunning the interest of customers.

With tighter control and fewer players, New York City’s diminishing supply of jobs marked a turn in the road traveled by careerists seeking highly compensated positions in finance. In April 2017, despite a nine-year bull market run, 10,000 fewer jobs exist on Wall St. than did in 2008. Adding to the decline, investment firms have now embraced their Tech St. partners, cutting operational costs by building systems and investment platforms through machine learning and artificial intelligence. Where brokers, market makers and underwriters once reigned supreme, those positions have gradually given way to increased opportunities for coders and data scientists. Financial companies will spend about $1.5 billion in 2017 on artificial intelligence pursuits, with that number expected to grow to $2.8 billion annually by 2021.

Heaping further disdain on the financial industry, millennials have called into question the standing of companies that collect the tolls rather than design and build the thruways. Bernie Sanders’ campaign rhetoric in 2016 helped breathe new life into the Occupy Wall Street movement, a grassroots effort that sought big bank reform among its many, scattered objectives. Rather than roll over and die, the old-school money managers now attempt to court 18-35-year old consumers through technology. Many financial advisers offer investment services that drive themselves. Using artificially intelligent computers, wealth is created for a young generation not completely opposed to possessing it. Some on the street have their doubts about technology erasing Wall St.’s negative image. David Siegel, co-chairman of the $35 billion Two Sigma Investments LP, chuckled at the notion that the financial sector will regain favor among millennials solely because transactions now take place in the cloud.

Tech. St Rumbles On

As Wall St. idles, Tech St. soars. No better example of the sea change can be seen than through the migration of c-level executives from the financial sector to the technology realm. Tom Jessop, head of Goldman Sachs’ global tech development, bolted for Chain Inc. in April 2017 after 17 years at the investment bank. The San Francisco startup specializes in developing and deploying blockchain networks that digitize assets, allowing owners and not intermediaries to directly control the storage and transfer of those assets.

Alongside the new disruptors, darling tech companies continue to grow at a rapid pace, drawing top talent into the fold. See the Paysa CompanyRank which measures the flow of tech talent across Uber, Airbnb, Google and Pinterest.

 

Also reflected are the significant salaries that can be earned across the tech sector’s leading companies.

Job growth in technology continues to impress. In 2016, almost 7 million workers accounted for about 8% of gross domestic product or $1.3 trillion in goods and services. That output would rank the sector as the 12th largest economy in the world, sandwiched between Russia and Spain. Silicon Valley employment gains remain steady: The U.S. Bureau of Labor reported about 45,000 new jobs created since the second quarter of 2015.

The Financial Sector Bytes Back

Western locales such as Seattle, Washington and Austin, Texas have seen their share of tech migrants. The Kauffman Growth Entrepreneur Index recently reported that Austin startup tech firms grew 81.2%  in 2016.  As opportunity blossoms in companies out west, their East Coast counterparts have also been doing some heavy recruiting of data scientists and programmers. While market mavens schooled in Modern Portfolio Theory once ruled the roost, those folks have given up ground to individuals who excel at JavaScript and Python. The state of New York’s tech sector jobs accounted for 4.2% of the total labor force, and many of the hiring firms seek new methodologies to buying low and selling high. Goldman Sachs, often seen as a Wall St. bellwether, has invested heavily in its Data Lake that combines market research with a wealth of information from emails, instant messages and voicemails. All this data falls into clients’ hands through an application programming interface or API that analyzes information faster and more efficiently than any human can ever hope to.

In February 2016, JPMorgan Chase chief financial officer Marianne Lake stated that the company has entered new waters. “We are a technology company, ” Lake told investors, alluding to the big bank’s team of 40,000 technologists that includes 18,000 developers. If Lake and chief executives such as Goldman’s Lloyd Blankfein want to back up their claims- they have indeed made inroads – there is still some ground to cover. One of the glaring differences between some of the world’s largest finance and technology companies lies in their market capitalizations. The vaunted FANG stocks (Facebook, Amazon.com, Netflix and Google) gains in 2015 nudged the S&P 500 into the black, as the index eked out a 1.38% total return. While the companies hail from two different sectors, compare JPMorgan, which traces its roots back to 1895, to Amazon.com, now a household name founded in 1994. In terms of market cap, it has taken Amazon a bit less than 20 years to reach a level of $427.8 billion. The largest bank by asset size in the United States, JPMorgan’s market cap has grown to a shade over $300 billion since its initial public offering in 1983. And while it may be unfair to place a web services whale alongside a stodgy financial forerunner, there exists no way for JPMorgan to match the growth rates of Amazon. Some analysts forecast Jeff Bezos’ first-born as the initial public company to reach $1 trillion in market size. Nonetheless, Wall St. has shown a serious commitment to computer systems as JPMorgan expects to spend 9% of 2017 revenue or about $9 billion on technology. While headcounts decreased overall in the financial sector, Goldman reported an 8% increase overall in tech hires between 2012 and 2015. The surest path to a career on Wall St. might now extend from a computer science degree and not an MBA program.

 

Money Talks

Capital investment says a lot about a company’s direction, but for the prospective job seeker, the proof is usually in the pudding. And in that case, salary sets the table. The best minds in the industry tend to follow the money. A high-level overview of compensation offered to computer professionals across the financial and tech sectors gives a clear advantage to the latter. Paysa reports the average salary advertised by JPMorgan Chase for open technology positions comes in at $90,000, ranging from $67,000 on the low end of the scale to $141,000 on the upper end. Currently, a Java applications development manager at the bank can expect to receive about $126,000 in total remuneration, inclusive of bonuses. This position requires experience with technical frameworks such as spring and JMS as well as expert-level core Java knowledge (JDK 1.7 at minimum). A business UAT analyst’s salary starts at $111,000, counting bonuses in the total package. Average salaries at Amazon ring in at $208,000, with the lowest quarter of pay levels at $159,000 or less and the upper tenth of the range coming in at greater than $261,000. Data scientists salaries at Amazon begin at $170,000 with a signing bonus and annual stock options comprising the total income picture. The company prefers prospects who have 2+ years experience in analytics and business intelligence engineering, with advanced data mining skills using SQL and ETL.

Advantage: Investors

The move toward technology in the financial sector has clear-cut advantages for operational efficiency in banks and brokerage houses, but how does this trend benefit the end user? Consumers, especially young professionals, typically represent a population segment that is least resistant to change. Whereas baby boomers and seniors have generally sought investment guidance from human investment advisers, millennials desire portfolios that can be accessed on mobile devices from any place at any time. Convenience attracts younger investors and more sophisticated market participants have grown tired of paying high fees for subpar investment performance. Hedge funds that typically charge 2% of assets under management have been under intense scrutiny. The blowback has resulted not only from questionable trading and valuation practices but also from lackluster market returns on dollars invested. Completely removing or reducing exposure to the human element from the investment equation has allowed money managers to significantly cut fees. Actively managed stock mutual funds may charge an expense ratio of 1% or greater. Over two-thirds of those funds fail to beat the performance of the passive S&P 500. Consequently, more investors of all ages have been turning to automated investment platforms such as Wealthfront and Betterment whose fees range from 0.25%-0.50% of assets under management. As it shall always stand, most individuals will happily pay less for portfolios whose market returns exceed or equal that of fee-laden options.

The Bottom Line    

Technology companies have become the darlings of Wall St., both for their eye-popping growth and the value their strategies and services bring to banks and investment firms alike. The meltdown from the subprime mortgage crisis sent the financial sector reeling and while job growth in the traditional role of traders and analysts has stagnated, employment opportunities for data scientists and software engineers have increased. Technology hubs outside of Silicon Valley have cropped up across the nation and New York City refuses to be left out of the mix. In 2017, a data scientist may have as good a chance landing a job in Manhattan as they would in San Francisco, albeit for a few bucks less.

Paysa.com stands out as a leading resource to find such jobs, analyze salaries and even negotiate a raise in an existing position. Offering a wealth of comprehensive data on more than 198,000 companies that hire technology professionals, Paysa should figure prominently in any new job search and also help leverage value in a current position.

Author: Thom Tracy