Workforce Development Strategy

Workforce Development Strategy for the Financial Services Industry

Acknowledgements IBSA wishes to acknowledge the work of Katy O Callaghan from Outpost Consulting who prepared this Strategy and Brent Taylor from Values Bank Research Centre for management of the survey process. Gail Smith from The Financial Services Academy assisted with securing Industry endorsement for this Strategy. Guidance was provided by IBSA s Financial Services Sector Advisory Committee. A list of organisations that contributed to this project can be found at the end of this report.. For further information about this strategy or other workforce development activities being undertaken by Innovation & Business Skills Australia, please visit http://www.ibsa.org.au/workforce-developmentprojects. Innovation & Business Skills Australia Ltd Level 11, 176 Wellington Parade East Melbourne Victoria 3002 T +61 3 9815 7000 F +61 3 9815 7001 www.ibsa.org.au E wd@ibsa.org.au This work has been produced with the assistance of funding provided by the Australian Government through the Department of Education and Training (DET). The views expressed in this work do not necessarily represent the views of DET. In addition, DET does not give warranty or accept any legal liability in relation to the content of this work.

Contents 1. Executive Summary 1 2. Introduction 2 3. About the Financial Services industry 3 3.1 Performance of the industry 3 3.2 Size and shape of the industry 4 3.3 Key influences on industry dynamics 4 4. The Financial Services workforce 6 4.1 Size and shape of the workforce 6 4.2 Education and skills 7 5. Workforce development challenges 9 5.1 Regulation and compliance 9 5.2 Technological change 10 5.3 Integration with Asia 11 5.4 Leadership and management 11 5.5 Customer experience 13 5.6 Industry structural change 14 5.7 Other challenges 14 6. Strategies for developing the workforce 16 7. Conclusion 20 Appendix A Businesses doing it well 23 Appendix B Sector Snapshots 31 Appendix C Summary of Survey Results 41 Appendix D Contributors 45 i

Financial Services Workforce Development Strategy Industry Endorsement This Strategy is supported by: ii

Foreward It s been a turbulent time for the financial services industry; with one inquiry after another, a myriad of regulatory changes, a fragile global economy and technology developing ever more rapidly. While the industry grapples with these changes, it also needs to look forward and plan for a different future. Our financial services industry in Australia is in a superior position due to our proximity to, and relationships with, fast growing Asian countries. Our sound financial regulatory system and deep financial markets are also a winning combination. Underlying all of this is the skills of our workforce and the innovation of our businesses. These strong foundations give me confidence that the financial services industry will respond cleverly to new demands and move from strength to strength in the future. An important recent development in the industry has been the Australian Government s Financial System Inquiry which lays out a blueprint for the financial system over the next decade. A major focus of the Inquiry was consumer protection. The Inquiry recommends higher level technical skills, relationship skills, compliance and ethical requirements for financial advisors and calls on the leadership of financial firms to create a workplace and industry culture to support appropriate risk taking and fair treatment of consumers. The report notes that What kind of workers will we need to attract to the industry? How do we retain high value workers and create a positive work culture? What skills do people need to work in the financial services industry in the future? How do we design, structure and measure the success of our workforces in responding to new goals and challenges? These are the questions that are occupying the minds of CEOs as we contend with change, reform and position our businesses for a prosperous future. This Strategy can assist decision makers in organisations to take a considered and structured approach to achieve the skilled workforce they need. I would like to sincerely thank the many industry stakeholders that contributed to this Strategy. Their insights and intelligence were freely given resulting in a solid framework that will serve to benefit the wider industry. organisational objectives, business strategies and systems all influence employees behaviour, which reflects on an organisation s culture. In other words, we need to look at the financial services workforce to ensure all workers act ethically, competently, and to create competitive advantage. IBSA developed this Financial Services Workforce Development Strategy to help businesses, and other organisations that support the industry, to understand how to best respond to the new world we are operating in. Michael Eichler Chair, IBSA Financial Services Sector Advisory Committee iii

iv Workforce Development Strategy: for the Financial Services Industry

1. Executive Summary The Financial Services industry covers a diverse range of money management services, including accounting and bookkeeping, banking, credit management, market dealing, funds management, financial planning, insurance, mortgage broking, personal trustee services and superannuation funds. It is the largest industry in Australia and highly productive, with a gross domestic product (GDP) input of 10.5 percent, yet only employs around 420,000 people. The industry has been through a tumultuous five years. The pressures of the global financial downturn were quickly followed by a raft of regulatory reforms, many of which are still being rolled out. Efforts to professionalise parts of the industry, along with increased competition internationally and within the local industry, have contributed to structural changes. Technological advances are affecting this industry more than most others. The Australian Government inquiry into the financial system recommends, in its November 2014 final report, further changes to policy settings which industry players will need to take stock of and accommodate. It is time to consider how the Financial Services industry can best position its workforce to respond to this, still, dramatically changing environment. Innovation and Business Skills Australia (IBSA) commissioned this workforce development strategy to provide evidence-based advice to the industry to help it better prepare for the future. The strategy was developed through desktop research, surveys and consultations with industry stakeholders and begins by outlining key facts about the industry and its workforce. It will discuss the emerging challenges for the industry in terms of workforce development and suggests strategies for dealing with each of the skilling priorities. Appendix A has case studies of three organisations within the industry that have successfully implemented workforce development strategies. A set of sector snapshots is in Appendix B, which provide headline data about the position of each sector within the industry. A summary of the survey results is presented in Appendix C. The research indicates that the following challenges will have a significant impact on the size, shape and skill base of the workforce in coming years: the fluctuating and increasing regulatory environment off-shoring of ICT functions integration of social media into business operations availability of large amounts of customer data cyber-security, online fraud and privacy opportunities and competition for business from neighbouring Asian countries gaps in management and leadership skills, particularly among front-line workers managing an ageing workforce low numbers of women in high level positions increasing employee turnover creating and working with a more diversified workforce increasing complexity of customer interactions improving the customer experience providing services to the ageing consumer understanding and accounting for financial risks from climate change. There are a number of strategies that businesses and industry stakeholders can apply to address these challenges for example, strategies to attract new workers to the industry, to retain existing workers, to develop new skills and to restructure organisations. This workforce development strategy sets out a series of actions which could be seen as a starting point for organisations in considering how to future proof their workforces for the challenges ahead. 1

Workforce Development Strategy: for the Financial Services Industry 2. Introduction Workforce development is about enhancing the prosperity of a business or industry by focusing on its people. Workforce development strategies look at how to match the size and shape of the workforce the level and type of skills and capabilities, the number and diversity of employees, values, culture and structure of organisations with current and future requirements. Successful workforce development strategies take a holistic approach, by identifying a wide range of impacts and trends affecting the industry and considering what changes to the workforce might be required to mitigate business risks, exploit opportunities and make industries and businesses more competitive. For Australia s Financial Services industry, the time is ripe to develop such a strategy. This industry is in a period of transformation. It is diversifying and growing to cater to a greater range of consumers, domestically and overseas. At the same time, it is responding to a range of global demographic, economic, technological, regulatory, social and environmental changes, including a wide-ranging government inquiry into the financial system. Industry players are currently grappling with the question of how to mould a workforce that can respond to looming challenges and opportunities. Innovation and Business Skills Australia commissioned this workforce development strategy to provide evidence-based advice to the industry to help it address these issues. The strategy was developed through desktop research, surveys and consultation with industry stakeholders. Six key processes contributed to the preparation the report: development of an issues paper to scope out the key workforce challenges for the industry and seek responses form industry stakeholders preparation of a series of two-page sector snapshots that present headline data on workforce, demographic and employment issues and trends in each of the Financial Services industry sectors capturing stakeholder advice through a Delphi survey methodology whereby key associations, industry bodies and enterprises in the industry are asked to answer a structured questionnaire over a series of three rounds follow-up telephone interviews with a selection of respondents from the Delphi survey process to unpack and gain a deeper understanding of key themes which came to light through the survey preparation of case studies which highlight how leading enterprises are developing their workforces to respond to emerging challenges, and analysis and synthesis of data to develop a report that outlines a range of strategies the Financial Services industry and other stakeholders can undertake to ensure that the workforce is well-prepared for future challenges. The process was overseen and report validated by a National Reference Group comprising IBSA industry stakeholders. 2

3. About the Financial Services industry 3.1 Performance of the industry The Financial Services industry covers a diverse range of money management services including accounting and bookkeeping, banking, credit management, market dealing, funds management, financial planning, insurance, mortgage broking, personal trustee services and superannuation. A snapshot on the state of the workforce in each of these sectors is provided in Appendix B. Financial Services is the largest industry in the Australian economy. It has been growing strongly for the past two decades and, in spite of the global financial downturn, remains larger and more stable than the mining, construction and manufacturing industries. The industry manages $1.9 trillion on behalf of more than 11 million Australians more than the capitalisation of the Australian Securities Exchange and larger than Australia s GDP 1. The industry s gross value added (GVA) to GDP is 10.5 percent. In the last 10 years the GVA grew by 5 percent, compared to an average across all industries of 3.5 percent. Financial Services experienced the third-highest growth of all industries across this period, and second-highest growth in the last two years. 2 See Figure 1 below. Figure 1: Australia s Real Gross Value Added Percentage Growth by Industries Achieving Above-Average Growth 1992 2013 Financial and insurance services Professional, scientific and technical services Information media and telecommunications Construction Health care and social assistance Wholesale trade Transport, postal and warehousing Administrative and support services Retail trade Mining 0 2 4 6 Source: Australian Bureau of Statistics, Cat. No. 5206.0 Australian National Accounts: National Income, Expenditure and Product, Time Series Workbook, Table 6. Gross Value Added by Industry, Chain Volume Measures (released 5 June 2013); Austrade According to Austrade, the size of the industry reflects the sophistication and depth of the country s financial markets, which have benefited from 22 years of uninterrupted economic growth, sound economic management, strong legal and regulatory systems and a progressive, business-friendly climate. 3 Austrade s assessment is backed by the Swiss-based Institute for Management Development, which rated Australia as having the lowest financial risk factor in the world and the second-strongest financial regulatory system. The World Economic Forum s Financial Development Report 2012 ranked Australia fifth of 62 of the world s leading financial systems and capital markets, ahead of Canada, Japan, Switzerland, the Netherlands, Germany and France. Australia was also rated fifth in terms of non-banking financial services. 4 1 FSC, 2013, Policy priorities 2013 2016. 2 Austrade, 2014, Benchmark report update. 3 ibid. 4 World Economic Forum, 2012, The financial development report 2012. 3

Workforce Development Strategy: for the Financial Services Industry There is still room for improvement, however. The financial sector is being transformed by forces such as domestic and international economic and financial crises, a substantial regulatory reform agenda, the growth in superannuation, changes in industry structure, new competitive dynamics, technology, innovation and broader macroeconomic trends. The 2014 Financial System Inquiry was established to lay out a blueprint for the financial system over the next decade in light of these wide-ranging impacts. 5 3.2 Size and shape of the industry Financial Services is a diverse industry and there is significant variation in the level of revenue generated by the different sectors. Figure 2 shows how superannuation funds, local banks and insurers dominate the industry s revenue base. However, the smaller sectors are still reasonably high earners for the economy, in relative terms. Figure 2: Financial Services Industry Revenue 2012 13 by Sector ($Bn) 250 200 150 3.3 Key influences on industry dynamics 3.3.1 Regulation The Financial Services industry is highly regulated and in recent years has been subject to intensified regulatory requirements. Regulatory changes can have a pronounced effect on demand for services and the industry s dynamics. The Financial System Inquiry has heard that the industry is over-regulated, and thus may be uncompetitive in some sectors internationally. 6 A key change recently was the introduction of the Future of Financial Advice reforms in 2012. These reforms ban commissions and increase responsibilities for financial advisers to act in the best interest of clients. Other new regulations are expected to come into effect over the next five years that aim to address depositors security and may have an impact on bank profitability. A new regime for the regulation of credit rating agencies is also being introduced, as well as new regulations around streamlining superannuation and increasing compulsory contributions, all of which are having a significant effect on the industry as they are rolled. Numerous recent inquiries into aspects of the industry have signalled further changes including a Parliamentary Inquiry into proposals to lift the professional, ethical and education standards in the financial services industry and a Senate Inquiry into the performance of the Australian Securities and Investment Commission. 100 50 0 20 15 10 5 Superannuation Banking Insurance 3.3.2 Technology Businesses in this industry are strongly affected by technological change. Deloitte Access Economics estimates that 65 percent of Australia s industries are going to experience significant disruption from digital technology in the next five years, with the Financial Services industry near the top of the list. Deloitte lists five key digital forces that are challenging, and are expected to continue to challenge, financial services firms. They are as follows: The cloud The cloud presents new business opportunities for financial services. It allows them to offer products that are fully embedded within the services of a separate institution and supported by the organisation s website, branch and call centre systems. 0 Accounting and Bookkeeping Financial Markets Financial Planning Credit Management Mortgage Broking Trustee Services Source: IBISWorld, 2013 2014, Industry Reports: K6221a; K6221b; K6222; K6223 Dec; K6310; K6321; K6322; K6330; K6411b; K6419a; K6419b; K6419c; K6419d; K6420; M6932. Mobile Smart businesses are launching applications (apps) that take advantage of the willingness of smartphone users to engage, experiment and provide real-time feedback. Social Financial institutions are flattening their organisations to increase transparency, improve customer service and partner in a social way with existing, successful networks. 5 Australian Government, 2014, Financial System Inquiry. http://www.fsi.gov.au. 6 D. Murray, 2014, Progress of the inquiry. speech to Australian business economists, 1 May 2014. 4

Analytics Harnessing and interpreting large volumes of data allows information to be made personal allowing firms to foster a more meaningful relationship with customers. Cyber crime Customers need to be able to trust their financial institutions to quickly detect, isolate and contain a cyber threat when it occurs. To counteract cyber criminals, financial institutions are moving from being reactive to proactive, using intelligence from both internal and external sources. 7 3.3.3 Globalisation As the mining boom slows, Australia needs new growth drivers in areas where there are global growth opportunities and where we already have a competitive advantage. Financial services is one such industry. Australia s financial institutions are well positioned geographically and in terms of expertise and business connections to capitalise on emerging and established markets in Asia. The Japanese market, for example, offers particular opportunities for fund managers in providing investment services to a fast-ageing population in need of high-yield investments. In fact wealth management is considered one of the five industry sectors that will grow more than 10% faster than global gross domestic product in the next 20 years 8. Our task is increase the pace and depth of our international commitment, and to build on our advantages to improve Australia s performance relative to our global competitors. The Australian Government is working to support financial services organisations in their forays into Asia by building further on the strength, stability and competitiveness of Australia s financial system. A range of policies is expected to support this objective, including implementing the Basel III capital and liquidity standards, boosting superannuation balances, ensuring reasonably priced credit for investment, supporting an efficient and well-regulated funds management industry, streamlining market disclosure obligations in the retail corporate bond market and reducing transaction costs while maintaining a high level of protection for retail investors. The establishment of the Australian Financial Services Industry Innovation Partnership based in Sydney, and plans to establish Sydney as an official trading hub for China s yuan, are also expected to facilitate Australian financial institutions in their engagement with the region. Longer term, developing a distribution network through alliances, franchises or acquisitions, combined with innovative product development, could help Australian businesses secure more success in the region. 3.3.4 Customer trends More empowered and demanding customers, armed with smartphones and experienced in digital commerce, mean that financial services organisations have new and powerful ways of engaging with customers. To create a consistent customer experience, many financial organisations are looking to transform their culture as well as their operations, encouraging staff to understand the customer rather than just the product and to be responsive in supporting customer demands. A challenge for financial services companies is to deliver a seamless experience to customers as they move from one channel for example, mobile phone banking, ATM or branch to another within an institution and to integrate their back office systems with an integrated front end. A coherent mobile strategy is particularly important for banks in meeting customer expectations and integrating the mobile channel with other channels. 3.3.5 Government policy Superannuation Government policy settings can dramatically change how this industry operates. One of the key policy influencers on this industry is compulsory superannuation. Superannuation and tax incentives to encourage individuals to invest in superannuation mean that household savings are being channelled away from bank deposits into superannuation. In the long run, the growth of superannuation relative to bank deposits has several implications for the Financial Services industry. Superannuation funds have tended to be investors in the financial assets created by banks. If banks are getting fewer funds by way of deposits, they may not have the same capacity to create the financial assets needed for superannuation funds to invest their growing pool of savings in. This shift may require adjustments to the roles of banks and superannuation funds and the development of new financing techniques. New tighter regulatory arrangements are expected to have an impact on how innovative banks can be. Banks may take on a larger investment banking role, to raise funds via equity or bonds and superannuation funds could move more into the business of creating new financial assets for their own investments by, for example, making loans. This would require either developing inhouse expertise or partnering with other specialists. 9 7 Deloitte, 2012, Five forces of digital disruption. 8 Deloitte, 2014, Positioning for prosperity 9 Australian Centre for Financial Studies, 2013, Funding Australia s Future project: from where do we begin? 5

Workforce Development Strategy: for the Financial Services Industry 4. The Financial Services workforce 4.1 Size and shape of the workforce Despite its value to the economy, the Financial Services industry only employs around 420,000 workers, or 3.7 percent of the Australian workforce. Over the past five years, employment in the industry has increased by 6.3 percent, which is slightly less than employment across all industries (6.6 percent). Most people in the industry are employed by banks, building societies and credit unions or accountancy firms. See Figure 3 below. Figure 3: Persons Employed In Financial Services Industry by Sector 2013 Auxiliary finance and investment, 93 Superannuation, Other, 18 14 Finance nfd, 31 Banks, building societies, credit unions, 169 in these services, as well as in banks, in 2012, which was possibly due to the impact of the FOFA legislation. See Figure 4 below. Figure 4: Financial Services Industry Employment Growth 2010 2013 ( 000) 200 160 120 80 40 0 Financial and Insurance Services 2010 2011 2012 2013 Professional, Scientific and Technical services Information Media and Telecommunications Construction Healthcare and Social Assistance Wholesdale Trade Source: IBISWorld, 2013, Industry Report M6932; ABS, 6291.0.55.003 - Labour Force, Australia, Detailed, Quarterly, May 2013; SuperTABLE E06_aug94 - Persons employed by Sex, Industry (3 digit), State, Status in Employment, August 1994 onwards. Insurance, 95 Accounting services, 132 Source: IBISWorld, 2013, Industry Report M6932; ABS, 6291.0.55.003 - Labour Force, Australia, Detailed, Quarterly, May 2013; SuperTABLE E06_aug94 - Persons employed by Sex, Industry (3 digit), State, Status in Employment, August 1994 onwards. In recent years, employment growth has been strongest in the accounting sector and in non-defined financial services (Finance nfd). Auxiliary Finance and Investment services (which includes businesses involved in trading stocks and shares, investment management and advisory services, stock exchange and share registry operation, and other fund management services) reduced staff numbers in 2013. However, there was a spike in employment Employment in the Financial Services industry is slightly skewed towards NSW and Victoria, with both of these states employing more Financial Services workers than their population share. The other states employ slightly less than their population share. About 67 percent of employment is based in NSW and Victoria. Employment is also skewed towards the cities. Only 18 percent of employees work outside capital cities, compared to 37 percent for all industries. Overall, there are slightly more females than males working in the Financial Services industry. However, this varies between the sectors. Banking, for example, is a feminised sector with women accounting for 56 percent of workers. Insurance also has more female workers, at 58 percent. The auxiliary finance and 6

investment services sector, which includes brokers, financial planners and fund managers, is male dominated with only 40 percent of the workforce being female. Looking across the occupations in the industry there are some that are highly feminised, such as bookkeepers (92 percent female), accounting clerks (81 percent female) and bank workers (72 percent female); while others, predominately the more professional and highly paid roles, are male dominated, including financial advisers and planners (70 percent male), financial brokers (67 percent male), auditors (56 percent male) and accountants (52 percent male). Two occupational groups, Clerical and Administrative Workers and Professionals, dominate the Financial Services workforce, accounting for around four in every five, or 80 percent, of workers. This is significantly higher than their share of total national employment at 37 percent. 10 Figure 5: Financial Services Occupational Profile (% Industry Total) Managers, 15.30% Professionals, 34.50% Other, 5.50% Source: Department of Employment (2014) Australian Jobs. Clerical and administrative workers, 44.70% Accountants, accounting clerks and bookkeepers are the most common occupations in the economy that require Financial Services skills. Together, these three occupations employ 435,000 people across the economy. Accountants are the seventh most common occupation in the economy and accounting clerks are the tenth most common. Only a fraction of these workers (about one tenth) are employed in the Financial Services industry. Other common Financial Services occupations are bank workers, finance managers, investment advisers and managers, insurance, money market and statistical clerks, credit and loan officers and financial brokers. See Table 1 below for the top ten employing occupations in the industry. 10 Department of Employment, 2014, Australian jobs. Table 1: Top Employing Occupations in The Financial Services Industry Occupation Number employed Bank workers 54,000 Financial investment advisers and managers 37,400 Insurance, money market and statistical clerks 24,600 Credit and loans officers 23,500 Financial brokers 20,600 Accountants 16,900 Other hospitality, retail and service managers* 16,500 Financial dealers 15,000 Insurance agents 12,900 Software and applications programmers 11,400 * This category includes people who organise and control the general operational activities of a branch of a bank, building society, credit union or similar financial institution. Source: Four quarter average and custom data based on ABS Labour Force, Australia, Cat no: 6291.0.55.003 and Employee Earnings, Benefits and Trade Union Membership, Australia, Cat no 6310.0. 2013. The Financial Services industry has a relatively low unemployment rate at 2.8 percent (average in 2012). This compares with 3.2 percent in all industries. Wages in the industry are slightly higher than average, with median weekly earnings for full-time employees being $1,260 compared with $1,153 for all workers. Employees in this industry tend to work more hours than in other industries, 83 percent work full time (compared to 70 percent in all industries) and the average number full-time hours worked per week is 41 (compared to 40 in all industries). The industry has a younger profile than most, with only 31 percent of workers being over 45, compared to 39 percent across the whole workforce. Appendix B presents a set of sector snapshots, which highlight key workforce and employment trends of each sector within the industry. 4.2 Education and skills The Financial Services industry is one of the most highly educated industries in Australia, with 57.5 percent of the workforce in the industry holding an Advanced Diploma or higher. Consequently, the higher education sector plays an important role in the provision of skills in this industry, with 40 percent of workers holding a Bachelor Degree or higher qualification, compared to 26 percent for all industries. Twenty-three percent of Financial Services workers hold a Certificate III or higher VET qualification. Data presented in Figure 6 below highlights that enrolments in Financial Services Certificates III and below are decreasing while enrolments for Certificate IV and higher are increasing or 7

Workforce Development Strategy: for the Financial Services Industry remaining relatively stable. The highest overall enrolments are in Certificate IV. There are now very few enrolments in Certificates I and II. Interestingly, demand for Diploma or higher qualifications levelled off in 2012, despite the well-documented need for higherlevel skills in this industry. This could be occurring for a number of reasons, including competition from universities, employer preferences for Degrees, increases in VET fees deterring enrolments, or students choosing to undertake Skill Sets rather than full qualifications. Figure 7: Previous Highest Education Level of Participants Enrolled in Financial Services Qualifications, 2012 Unknown or Misc Year 11 or 7% below 15% Bachelor Degree/Higher Advanced Degree Level Diploma/ 12% Associate Degree 2% Diploma 8% Figure 6: Enrolments by Qualification Level in Financial Services, 2009 2012 Certificate IV 11% 30,000 25,000 2009 2010 2011 2012 Year 12 29% Certificate I 0% Certificate II 1% Certificate III 15% 20,000 15,000 10,000 5,000 0 Certificate I Certificate II Certificate III Certificate IV Diploma or Higher Source: VOCSTATS (http://www.ncver.edu.au/resources/vocstats/intro.html), extracted on 24/07/2013. Accounting-related courses are by far the most popular courses to enrol in. In fact, in 2012, 80 percent of the enrolments in the Financial Services Training Package were in Accounting and Bookkeeping qualifications. This reflects the high employment outcomes for these occupations. Table 2: Top Five Qualifications in The Financial Services Training Package, 2012 Qualification Number enrolled Certificate IV in Accounting 14,120 Diploma of Accounting 12,753 Certificate IV in Bookkeeping 8,979 Certificate III in Accounts Administration 7,511 Source: VOCSTATS (http://www.ncver.edu.au/resources/vocstats/intro.html), extracted on 07/08/2013. A relatively large and increasing proportion of Financial Services students are in the older age groups. There are many more students aged over 30, than there are aged under 30. Students in the 40 to 49 age group outnumber those in the 20 to 24 age group. There are also many more Financial Services VET students aged over 50 than under 19. This development has occurred within the last three years. The 30 to 39 age group is the fastest growing of all age groups. See Figure 8 below. Figure 8: Enrolments by Age Group in Financial Services Qualifications, 2009 2012 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 19 Years and Younger 2009 2010 2011 2012 20 to 24 Years 25 to 29 Years 30 to 39 Years 40 to 49 Years 50 to 59 Years 60 Years and Over Source: VOCSTATS (http://www.ncver.edu.au/resources/vocstats/intro.html), extracted on 07/08/2013. Advanced Diploma of Accounting 4,797 Source: VOCSTATS (http://www.ncver.edu.au/resources/vocstats/intro.html), extracted on 24/07/2013. While almost a third of Financial Services VET students have Year 12 as their highest previous education level, 12 percent already have a Bachelor Degree or higher qualification. This is a relatively high proportion compared with similar services occupations, such as IT and Business, for which degree-qualified participants comprise eight percent. See Figure 7 below. 8

5. Workforce development challenges 5.1 Regulation and compliance In surveys with industry stakeholders, the fluctuating regulatory environment was rated as having a major or strong impact on the workforce by 75 percent of respondents and a moderate impact by the rest of respondents. This supports findings from another recent survey of finance and accounting executives, which found that 90 percent of executives in the industry felt that managing recent regulatory changes has been challenging for their business. 11 The Australian Banker s Association points out that the flow of regulation is particularly important, as the major costs are associated with changing systems and implementing compliance regimes and related training. Once a regulatory change has been embedded within an organisation, the ongoing costs can be significantly less than the cost of implementing further changes. 12 Other issues related to regulation that more than half of the IBSA stakeholders surveyed saw as impacting strongly on workforce dynamics include (in order of importance): outcomes of the Financial System Inquiry undertaken by the Australian Government superannuation reforms complying with FOFA legislation, and the increasing cost of compliance. This result is not surprising as the Financial Services industry is highly regulated and, as noted above, in recent years has been subject to intensified regulatory requirements, generally in order to build the transparency, global interconnectedness and stability of the financial system. The interim report from the Financial System Inquiry, while aiming to reduce regulation and red-tape in a number of areas, also posits the option of imposing additional requirements to respond to ongoing consumer concerns on the quality of financial advice, including raising the minimum education and competency standards for personal advice (in particular, standards for more complex products or structures, such as self-managed superannuation funds [SMSFs]), and introducing a national examination for financial advisers providing personal advice. 13 Regulatory changes can have a pronounced effect on demand for services, the industry s dynamics and how innovative firms can be. For some businesses, cultural change is required to improve the focus on ethics and transparency. For others, new organisational structures to bolster compliance capacity need to be established, including internal controls and governance mechanisms. Most enterprises will need to focus on finding ways to innovate within a more tightly controlled environment. Changing regulatory requirements put great pressure on businesses to stay up to date and have their staff accredited or licensed as efficiently as possible. Corporations rely on the vocational education and training (VET) system, including registered training organisations (RTOs) and education and training professionals, to be on top of regulatory change and to offer products and delivery methods that allow staff to be upskilled in timeframes that meet business requirements. 11 Robert Half, 2013, 2013 salary guide: finance and accounting. 12 Australian Bankers Association, 2014, Submission to the Financial System Inquiry. 13 Commonwealth of Australia, 2014, Financial System Inquiry interim report, 15 July 2014. 9

Workforce Development Strategy: for the Financial Services Industry SCU Study and Rewards program Operating in a highly competitive marketplace and working within a strict licensing regime presents ongoing challenges for SCU. Skilling and training has become an important strategy in improving the business s competitiveness. In 2013 SCU initiated a Study and Rewards Program. The program offers support for customer service staff and managers to undertake national qualifications. Managers and staff together choose the units that would best fit business and individual needs, with consideration of licensing and compliance requirements as well as career pathways. SCU supports staff financially, giving them time for study at home and work, and access to materials. Participants also have their achievements formally recognised by the company through presentations and in the Staff Newsletter. The rewards for the company and its people have been many. The study ethic is strong within SCU and continues to pay dividends for business productivity. IBSA stakeholders reported that responding to regulatory issues will involve implementing a range of workforce strategies. They saw developing the skills of the workforce as extremely influential in responding to this regulatory challenge, while implementing strategies to retain workers was also considered very influential. The box above shows how the SCU (Sydney Credit Union) has used upskilling to respond to a strict licensing regime. A more detailed case study on this organisation s workforce development approach is provided at Appendix A. 5.2 Technological change The strongest theme emerging from the IBSA surveys of Financial Services industry stakeholders was that technology is having, and will continue to have, a massive impact on the shape of their business and workforce. Over three quarters of respondents said the following technological trends will have a strong or major effect on the workforce in the next five years (in order of importance): the need for IT security and combating cyber crime IT impacts on internal processes and systems increasing use of big data for knowledge about client behaviour increasing use of cloud-based storage and software, and integrating social media strategies into business operations. This industry is more exposed than almost any other to digital forces. This presents both opportunities and challenges. On the one hand, the freer flow of information has intensified the competitive environment that many businesses face. On the other hand, the technological advances are providing businesses with new means to change their internal processes in order to raise efficiency and remain competitive. For example, the growth of cloud computing services is enabling both small and large businesses to outsource some of their information systems requirements and thereby lower their costs. 14 Over the next five years, financial services firms will need staff who can better understand and use a range of technologies including the cloud, mobile apps, social media, big data and analytics, and defences to cyber threats. 15 Submissions to the Financial System Inquiry note that Australia s financial system needs to adapt to the opportunities and risks presented by technology, including cyber security, online fraud and privacy. The fact that in 2013, 56 percent of the four major banks customers used the banks website or an app, while only 31 percent used a branch, and that satisfaction levels were higher for internet than branch banking 16, indicates that careful thought needs to be given to designing a workforce that has the technological know-how to respond to customer preferences. The Chairman of the Financial System Inquiry, Mr David Murray, points out that there are also more and more examples globally of businesses that begin outside the financial system but leverage media or technology capabilities to then provide financial services ancillary to their original business. A good example is the growth of the market financing or shadow-banking sector. The internet and platform developments have enabled new business funding sources like crowd funding and peer-to-peer lending. The workforce implications are significant. Many finance companies are now off-shoring IT functions because the skills can be acquired more cheaply overseas. Some industry stakeholders report that overseas workers also have a broader exposure to different types of technology and companies would prefer to import overseas IT graduates than hire Australians. 14 Reserve Bank of Australia, 2013, The business services sector. March Quarter 2013 Bulletin. 15 R. Hillard, 2013, Banking technology trends 2013. 16 Roy Morgan, 2013, The rise of internet banking. 10

The sweeping changes to businesses that technology brings means that finance firms need leaders with a strategic understanding about technology impacts. Leaders need to know which of the various products and platforms should be adopted and how they should be deployed within the organisation. Firms also need access to staff who can sort masses of data, draw conclusions and effectively communicate what the data is saying. Data analysis always takes place in the context of business strategy and decisions. Data analysts have to understand what business problems they are solving and how their work advances the company s goals. Thus, IT skills may be less important here than creativity and business acumen. It is widely believed that it is virtually impossible to find all the necessary data analysis skills in one person and organisations need to create a portfolio of talent within a team. 17 This Financial Services industry also needs to consider the particular ethical, legal and security risks associated with applying different technologies, and ensure staff members understand these. Cyber security is emerging as a particular skill gap around the world. A recent survey of over 500 large businesses in the Asia-Pacific region found that a lack of security skills was one of the largest technology skill gaps they were facing. 18 5.3 Integration with Asia Half of IBSA stakeholders surveyed felt that opportunities in Asian economies would have a strong to major impact on the Financial Services workforce in coming years. A further 19 percent felt this issue would have a moderate impact. There is no doubt that the pace and scale of growth and change in Asia reflect a significant shift in the world s balance of economic power. Over the past 20 years, China and India have more than doubled their share of the global economy. The size of China s economy has expanded nearly ten times in that period and India s has grown five times, both in purchasing power and parity terms. 19 With an expanding middle class in Asia, particularly in China, new markets are being created for financial products. Australia s financial institutions are well positioned, geographically and in terms of expertise and business connections to capitalise on these emerging markets. With an expanding middle class in Asia, particularly in China, new markets are being created for financial products. Australia s financial institutions are well positioned, geographically and in terms of expertise and business connections to capitalise on these emerging markets. Deloitte lists wealth management as a growth hotspot for Australia one of the fantastic five industries that collectively have the potential to overtake mining and keep Australia at the top of the world s national prosperity charts. This is because we have a competitive advantage in this industry. But the industry will face strong competition from other financial centres, such as Hong Kong and Singapore. Australia will need to look at ways to improve and capitalise on business and cultural ties with businesses and governments across Asia and beyond. 20 More successful integration with Asia will be less about pushing product and more about developing joint ventures and franchises that foster deeper longer-term engagement. Stakeholders contributing to the Financial System Inquiry agree that facilitating integration with Asia is critical. A recent Financial Services Council Chief Executive Officer (CEO) survey found that there is a strong interest in Asia among Australian businesses. Over two thirds, or 68 percent, of surveyed organisations currently have some presence or connection with the Asia region, and over a half, or 58 percent, see Asia playing a role in their future strategic plans, with 42 percent suggesting Asia is very important to these plans. The good news is Australia has been working to facilitate Australia becoming a larger regional financial centre. In 2013, for example, Australia became the third country to enter into an agreement to trade the Chinese renminbi directly on the Chinese mainland. As China s currency becomes freely traded, this will have wide-ranging implications for the Australian financial system, including potentially significant amounts of Asian direct investment moving into our market. 21 But Australia will need to improve its development of relevant skills and develop new business models and new relationships to fully benefit from the rapid increases in Asian demand. The 2012 Australia in the Asian Century White Paper states that Australia may need to develop job-specific skills, scientific and technical excellence, adaptability and resilience and the ability to use creativity and design-based thinking to solve complex problems. We also need to broaden and deepen our understanding of Asian cultures and languages and become more Asia literate so that our firms can develop collaborative relationships and connections with others in the region. Certified Practising Accountants (CPA) Australia believes that Australian managers need to improve their knowledge of international markets, particularly of Asia, in order to improve the competitiveness and productivity of their businesses. 5.4 Leadership and management IBSA industry stakeholders reported that the demand for management and leadership staff will be one of the greatest workforce issues over the next five years, second only to the increasing complexity of customer service roles. Eighty-one percent of respondents said gaps in management and leadership skills would have a strong to major impact on the workforce and that skill development strategies would be extremely influential in dealing with this challenge. 17 J. King, 2013, What makes a data scientist. 18 W. Lee, 2013, The evolution of the networking skill gap in the Asia Pacific. 19 Austrade, 2013, Why Australia: benchmark report update June 2013. 20 Deloitte, 2014, Positioning for prosperity: catching the next wave. 21 D. Murray, 2013, Financial System Inquiry: progress of inquiry. Speech to Australian Business Economists, 1 May 2014. 11

Workforce Development Strategy: for the Financial Services Industry Mortgage and Finance Association of Australia Professionalising an industry In the past the MFAA was supporting an industry that lacked consistent career pathways, had little structured mentoring or training and was having difficulty attracting talent. Credit advisers were not recognised as having the same status and level of professionalism as other finance professions such as accountants or financial planners. The MFAA realised that professionalising the industry meant demanding higher standards from members and higher skill requirements. The MFAA designed and implemented a workforce development initiative, which will ensure their members are legitimately understood to be professionals, and that the industry has the talent it needs to thrive in the future. The initiative has two strands: Attract talent, a structured two-year mentor program for new entrants to the industry; and Retain talent, a career path for existing workers that involves higher education standards, backed by nationally recognised qualifications. MFAA s workforce development initiative is beginning to yield results. Five years ago, two thirds of credit advisers left the industry within the first five years. Now that advisers have a structured career path and professional mentoring to help them problem-solve and develop their skills, the attrition rate has dropped significantly. There are also indications that consumers are now more likely to perceive credit advisers as professionals who offer a quality service. In 2012 Credit Advisers arranged 44% of home loans; now they have over 50 percent of market share. Getting the workplace environment right for high performance and innovation requires strong leadership skills. Changing demographics mean that leaders need to have the skills to nurture cross-generational relationships and adapt to the emerging and evolving needs of employees. Industry consultations indicate that Financial Services workers, particularly financial planners, come to the industry from a broad range of backgrounds and many are middle-aged and older people looking for a total career change. Strong communication and interpersonal skills are needed to build engagement and trust, connect with all types of workers and understand their needs. Training and development must be perceived as core to the organisation. Research has highlighted the need for businesses to invest in first-time managers. 22 Mentoring and coaching is often touted as a useful way to cultivate the skills of up-and-coming staff. Leaders and managers need to have the skills and confidence to play the role of mentor, to ensure the time, energy and money invested in this activity is optimised. The box above highlights how the Mortgage and Finance Association of Australia (MFAA) uses mentoring as part of a broader workforce development initiative aimed at professionalising the workforce. A case study on the MFAA s approach is provided in Appendix A. Westpac is also focusing on developing leaders with management skills. They want great leaders who attract, select, develop and 22 LMA, 2013, Leadership, employment and direction survey. retain talent. These qualities are expected to become increasingly important as the labour market tightens and the workforce ages. Over half of IBSA stakeholders felt that increasing employer turnover would have a strong to major impact on the workforce in the next five years. The ability of managers to provide flexible work options and deliver work life balance is central to creating environments where people want to stay, rather than leave. A 2013 survey found that work life balance is the number one pressure on employees and organisation leaders and the number four pressure on managers. Among Financial Services employees, almost a third cited work life balance considerations as reasons for leaving their previous positions. The industry also needs leaders to show the way in terms of maximising the participation of women, Indigenous Australians, people with disabilities, older people and other Australians to make the best use of the human capital available. There is a strong business case for individual organisations to focus on workforce diversity. Benefits for businesses include: increasing workforce capability and responding to the skills/ talent shortage by being an Employer of Choice broadening market share via gaining insights into diverse customers and local environments gaining a better return on investment by engaging and retaining top talent for longer promoting innovation and risk management by including diverse perspectives 12

Westpac Professional Qualifications Program Westpac s Professional Qualifications program is key to its vision to be the Best Retail and Business Bank in Australia by 2017 and to ensure it has the best bankers in the market. This program is about developing market-leading, externally recognised professional qualifications that allow the bank to demonstrate that their bankers have the capability, knowledge and skills to ensure their customers, communities and people grow and prosper. The Professional Qualifications program is targeted at all key customer-facing roles across the Retail Business Banking Division. This is because customer satisfaction and confidence are key priorities for the bank. The Professional Qualifications program has the full support of Gail Kelly (CEO) and the executive team, and is being driven by Jason Yetton, Retail Business Banking Group Executive. Since 2012 Westpac has supported 1,470 bankers to become professionally qualified through the Professional Qualifications program and by 2017 aim to have 80 percent of their customer-facing workforce professionally qualified. improving alignment of business practice with values and corporate social responsibility, and enhancing brand and reputation. 23 Supporting women into higher level positions in the industry is a particular issue in the Financial Services industry. It has the second-widest gender pay gap of all industries at 31.4 percent. 24 This was seen as a key workforce development issue by over half of the IBSA stakeholders surveyed. A FINISIA report into the issue found that companies could implement more flexible workplace policies to benefit both men and women, and to assist those with parenting and caring responsibilities. 25 Australia s changing demographics means that Financial Services firms will also have to craft methods to engage or re-engage older workers and position workplaces to make the most of older workers contributions. 5.5 Customer experience The number one workforce change predicted by IBSA industry stakeholders is that customer service roles will become more complex. Given the immediacy of social media tools, customers have come to expect that their interactions elicit rapid, or immediate, responses. Business front-line staff may need to be empowered to make immediate decisions and information may need to be available in real-time for employees to properly address customer concerns. 26 Financial Services staff must be highly adaptable so that institutions can quickly respond to customer requirements. 27 Resourceful use of data will also assist Financial Services businesses to provide a more personalised customer experience. Recent research on global consumer banking shows that customer experience is a key driver of trust in banks ( the way I am treated is second only to financial stability ) and that banks must earn the highest level of trust in order to retain customers, win more business and create genuine loyalty. How they communicate with me, Quality of advice provided and Problem resolution/ complaint handling all rated highly as reasons for having trust in a Financial Services provider. Equipping staff with the right skill sets, incentive structures and a network of specialists are strategies proposed for improving the customer experience. 28 Westpac, in recognising the increasing complexity of customer interactions, has created a new role, called Personal Banker Advisor, and is progressively training all tellers in these higherlevel customer service skills so that they can relate to customers on a broader range of services. See box below and a detailed case study in Appendix A. To create a consistent customer experience, many financial organisations need to transform their culture as well as their operations, allowing staff to understand the customer rather than the product and be responsive in supporting customer demands. Research on high-performing workplaces in the Australian Financial Services sector shows that they truly strive for customer centricity. They: exert more effort trying to understand customer needs than low-performing workplaces are curious to learn new things from customers and invest additional time and resources to this effect 23 Deloitte, 2011, Only skin deep? Re-examining the business case for diversity. 24 Workplace Gender Equality Agency, 2013, Gender pay gap statistics, August 2013. 25 Financial Services Institute of Australasia, 2012, Significance of the gender divide in financial services 26 KPMG, 2012, The social banker. 27 Mayo, 2013, Revolution, not evolution, required to redefine the customer experience in financial services. 28 EY, 2014, Winning through customer experience. 13

Workforce Development Strategy: for the Financial Services Industry are better at acting on suggestions and feedback received from customers, and do whatever it takes to create value for customers, for example, by investing more resources in responding to customer needs and by exerting more effort to better service customers. IBSA stakeholders reported that skill development strategies will be very influential in responding to more-savvy, betterinformed customers. 5.6 Industry structural change IBSA stakeholders highlighted issues such as increased competition between sectors of the industry (e.g. superannuation funds, banks, brokers), increasing product synergies from multiple parts of the Financial Services industry (e.g. financial planning, insurance and mortgage broking) and consolidation within the industry as creating workforce development challenges. The interim report of the Financial System Inquiry also raises these structural changes in the industry as a particular theme in recent years. The system overall has seen considerable consolidation and integration, particularly in banking. The Inquiry observes several issues resulting from this, including opportunities for improvement in competition and contestability, distortions in funding flows, and issues with the efficiency and policy settings of the superannuation system. It notes that in the superannuation and wealth management sectors in particular: The most successful platforms have been getting larger relative to their competitors. The five largest platform providers now hold almost 80 percent of primary planner relationships. Financial planners have consolidated or moved in-house to work directly for wealth management institutions. Vertical integration is increasing, with the major banks at the forefront of this trend, combining advice, platforms and fund management into single businesses. 29 Outsourcing, particularly offshore, is also creating structural changes in the industry as Australian firms attempt to manage costs more carefully post the global economic downturn. There are strategic questions companies need to address about what functions are best kept in Australia and if there are hidden costs from having functions offshore. In particular, organisations need to consider whether offshoring, they may impact on their employment pipeline of younger workers. 30 These trends present issues for businesses in shaping their workforce to maximise competitiveness. Businesses need to develop workforce planning strategies that support quick and flexible changes to respond to market conditions. They will also need to support the development and monitoring of partnerships; consider the sourcing and management of talent, globally; and apply workforce analytics to make strategic evidence-based decisions on the shape of the workforce, and control workforce costs. In this environment, businesses may also need to consider how to address uncertainty and stress in workplaces undergoing periods of transition. 5.7 Other challenges The ageing population means that businesses will need to look at new and innovative products to respond to the changed demography. For example, superannuation funds and insurance companies will need to develop products that protect retirees from the risk of outliving their savings and tax-effective products for intergenerational transfers. As governments struggle to cope with rising health care costs, the private sector will be called upon to innovative financial products. Financial services companies will need staff who can understand and communicate sensitively and knowledgably with clients about life and work post-retirement. With the rise of SMSFs, advisers may need particular expertise and training in these and other complex product options. Clients, too, need to have a reasonable understanding of financial products and risks. The Financial System Inquiry noted, for example, that clients are often disengaged and do not invest the time, and often lack the financial literacy skills to understand disclosure documents. 31 Skilling the general public on financial literacy will increase in importance with the increase in numbers of older investors, who will be more readily accessing financial services. Climate change poses very real risks to financial systems and businesses. Nearly two thirds of respondents to the IBSA surveys saw this issue as having moderate, strong or major workforce implications. The world s biggest insurer, Lloyds of London, recently urged insurers to include risks posed by climate change in their models, after a record-breaking year in 2011, which saw the industry lose $138 billion to natural disasters. Australia has high exposure and sensitivity to climate change, as do many of its neighbours and trading partners in the Asia-Pacific region. Insurers, superannuation funds, financial markets and financial advisers will all need staff who can monitor and understand the potential implications of climate change on various assets and investments. 29 Commonwealth of Australia, 2014, Financial System Inquiry interim report, 15 July 2014. 30 Howard, 2013, Impact of offshoring jobs for Australian financial institutions 31 Commonwealth of Australia, 2014, Financial System Inquiry interim report, 15 July 2014. 14