the massachusetts financial services sector talent and

The Massachusetts Financial Services Sector Talent and Technology – A 2024 Vision

A Sector Impact Report produced for the Boston Financial Services Leadership Council by Mass Insight, McKinsey and PWC

June 2015

Table of Contents

• Executive Summary

• State of Financial Services in Massachusetts

• Trends Impacting Mass Finance

• Talent in Massachusetts

• Conclusion

• Financial Services is a cornerstone of the state’s economy and a critical component of the innovative system.

• State’s most important for-profit sector: Provides 4.8% of state employment, 9% of GSP.

• Above-average wages, solid middle class jobs

• Average employee income of $115,810/yr, more than double the state average.

The Massachusetts Financial Services Portfolio Today


Retirement Savings

• Boston is home to 3 of the top 10 retirement savings managers, making it the number one cluster of market leaders.

Mutual Funds

• Home of the mutual fund, MA accounts for 18% of assets under management in the U.S. Assets under management in the state grew 16.3% in 2013.

Custody: The national leader • A national leader in custody and administration services with two of the nation’s largest operations, BNY Mellon and State Street, totaling approximately $55 trillion in assets under custody and administration.

Insurance: Top ten portfolio

• One of two states to be home to top 10 insurers in each of the property & casualty, life, and health sectors.

Hedge Funds: A Connecticut competitor

• MA is home to 6 of the top 50 hedge fund managers in the U.S.1

Venture Capital/Private Equity

• Of the $57.4 billion invested by the VC sector in 2014, 9.2% was invested in New England-based firms

• Third to NY and CA in number of PE firms, third in aggregate capital raised over the last 10 years2

• Home to 3 of the top 15 private equity firms in total funds raised over the last 10 years

• Private Equity funding is a top indicator of innovation and new technology in the region.

Education: Cultivating and Retaining Talent

• Top graduate business schools: Harvard, M.I.T., Babson, Bentley, BC, BU, Brandeis, Northeastern, and UMASS

• Over 50,000 international students come to Massachusetts to learn every year.


1: Source: Absolute Return: Billion Dollar Club Top 100 2: Source: Thomson One

The Future Vision Massachusetts as a Financial Technology Center

Talent

• Talent is short in high-demand areas such as FinTech, risk/regulatory and advanced analytics. • International students are coming to Boston and Massachusetts more than ever to learn and live, but

are too often returning home after graduation. • Massachusetts is hindered due to negative perceptions on infrastructure and cost of living.

Technology

• Technology advancements have enabled enhanced customer experience and operational enhancements across the Financial Services sector.

• The regulatory landscape is challenging the structure and economics of the industry. • Retirement savings is becoming more important as the world ages. • Alternative and passive investments are becoming more mainstream, and will represent

35% of assets under management by 2020.1

1: Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

The Future Vision Massachusetts as a Financial Technology Center

Key Takeaways

• Mass Finance is well positioned to take advantage of growth in the sector by developing new products to lead in asset management and insurance.

• There is an increased need for graduates and professionals with skills in new technologies.

• Massachusetts strengths in education give the region a unique advantage to develop and attract the top talent needed to grow.

• Massachusetts can fight negative perceptions by branding Boston as an attractive city for young professionals.

Table of Contents





• Conclusion

Mass Finance makes a leading contribution to Gross State Product

Industry Employed Percent of total MA employment

Finance & Insurance 166,800 4.8%

IT* 170,600 4.9%

Professional, Scientific, &Technical Services

288,600 8.3%

Source: Bureau of Labor Statistics, 2014

*Includes the following: Computer Systems Design and Related Services, Computer and

Peripheral Equipment Manufacturing, Computer and Electronic Product Manufacturing; and

Software Publishers.

NOTE: Total statewide employment as of December 2014 was 5,462,800

Mass Finance employs approximately 167,000 in 2014

• The Finance and Insurance industry contributed to 9% of the total state output in 2013. This is the third highest contributing for-profit industry in the state behind Real Estate and Professional Services (of which a portion supports the Finance and insurance industry)

Mass Finance supports more middle income jobs

• In 2013, the average salary for all occupations in the private sector and non-farm payrolls in Massachusetts was $49,910.

• The average 2013 wage for Massachusetts employees in the Financial Activities industries was $115,810.

Massachusetts Finance Wages, 2014

Financial Services Median Income

Financial Analysts $84,220

Financial Managers $114,520

Personal Financial Advisors $95,760

Securities, Commodities, & Financial Services Sales Agents $117,610

Mass Finance is a For-Profit Employment Leader

2014 Mutual Fund AUM ($US billions)

CA 21%

NY 18%

PA 19%

MA 18%

Maryland 5%

Rest of US 19%

CA

NY

PA

MA

Maryland

Rest of US

Source: Strategic Insight/Simfund, Dec 2013

2014 Top 100 Hedge Funds AUM by Location ($US billions)

CA 70.84

CT 138.88

IL 22.1

MA 98.4

NJ 14.6

NY 466.25

Other 62.29

California

Connecticut

Illinois

Massachusetts

New Jersey

New York

Other

Source: Absolute Return, September 2014

In 2014, mutual fund assets in Massachusetts grew 4.2% and at the end of the year, Massachusetts accounted for 18% of the total U.S. mutual fund assets under management. In the US, Mutual funds saw significant net new flows in 2014 ($177.8 billion), the second-highest since 2008.

14 of the hedge funds in Absolute Return’s Billion Dollar Club are located in Massachusetts and have more than $120 billion in assets under management.

The Massachusetts Financial Services Portfolio

Mass Finance firms are also critical to financing emerging companies and startups. In the past 4 years, the state has ranked second in the U.S. in terms of the total investment of venture capital. The capital invested by private equity activities is being put to use by Massachusetts based companies across a variety of industries, such as, Software, Biotechnology, and Medical Devices. Massachusetts based companies captured close to 9% of the total US venture capital invested in 2014. The amount of VC money invested increased approximately 50.4% in 2014 for Massachusetts.

Number of Private Equity Investments By State

2011 - 2014

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

CA NY MA TX PA

2014 Venture Capital Investments Amounts

Total VC Investments in the US $57,344,570,000

Total VC Investments in New England $5,289,530,000

• Biotechnology

• Software

• Medical Devices & Equipment

• IT Services

• Retailing/Distribution

• Electronics/Instrumentation

• Media & Entertainment

• Industry/Energy

• All Others

$2,093,690,000

$1,228,900,000

$434,820,000

$240,710,000

$229,660,000

$189,160,000

$177,040,000

$169,390,000

$525,170,000

Total % of US invested in New England 9.2%

Product Innovation: Funding the Companies of the Future

Cumulative Venture Capital

Investment By State (US$

millions) 2011 -2014

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

CA MA NY TX WA

Source: Thomson One Source: The MoneyTree™ Report from PwC and the National Venture Capital Association based on data provided by Thomson Reuters

Massachusetts is a leader in the U.S. with respect to “savings banks” with nearly $72 billion in total deposits.

Source: Company Reports, 2014, SNL

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

NV NY MA TX NJ

Mass Finance: A Competitive Banking Sector

Custody: A National Leader

Massachusetts is a leader with respect to Asset Servicing, led by State Street which is headquartered in Boston, and BNY Mellon, whose custody operations are in the State, which together serve as the custodians for over $55t of assets.

Top US custodians (US$ trillions)

27.6 27.4

20.5

14.3

5.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Bank of New York Mellon State Street JP Morgan Citi Northern Trust

Source: Company Reports, 2013, SNL

Source: SNL, 2014

Massachusetts is home to sizeable Life, Accident & Health Insurers in the US that add to the strong insurance industry presence.

Top US Property & Casualty Insurers 2014 Top US Life, Accident & Health Insurers 2014

Company name Net Premiums Written (US$

millions)

US Market Share %

Location

1. State Farm Mutl Automobile Ins $58,509 10.3% IL

2. Liberty Mutual $29,317 5.2% MA

3. Allstate Corp. $28,892 5.1% IL

4. Berkshire Hathaway Inc. $26,447 4.7% NE

5. Travelers Companies Inc. $22,791 4.0% MN

6. Progressive Corp. $20,057 3.5% OH

7. Nationwide Mutual Group $18,936 3.3% OH

8. Farmers Insurance Group of Cos $18,612 3.3% CA

9. American International Group $18,351 3.2% NY

10 USAA Insurance Group $15,678 2.8% TX

27. Hanover Insurance Group $3,948 0.7% MA

39. MAPFRE $2,380 .4% MA

Company name Direct Premiums US Market Share %*

Location

1. MetLife $95,331 16.1% NY

2. Prudential Financial $44,720 7.6% NJ

3. New York Life Insurance Group $28,394 4.8% NY

4. Jackson National Life Group $26,708 4.5% MI

5. AEGON NV $25,339 4.3% IA

6. Lincoln National $24,329 4.1% PA

7. American International Group $23,280 3.9% NY

8. Principal Financial Group $18,892 3.2% IA

9. Manulife Financial $18,514 3.1% MA

10. Massachusetts Mutual $16,818 2.9% MA

42. FMR LLC $2,066 0.4% MA

50. Liberty Life Assurance Co. of Boston

$1,879 0.3% MA

60. Sun Life Financial Inc. 1,162 0.2% MA

Source: SNL, 2014

*: Market share determined by national direct premiums

Massachusetts is home to Liberty Mutual Insurance Group, the overall second largest Property & Casualty insurer in the US.

Mass Finance: A Strong Presence in Insurance

Bachelors Degrees Awarded (per capita) by State

Masters Degrees Awarded (per capita) by State

Source: US Department of Education, 2011 0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

DC MA NY AZ MO IL CT MI

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

DC RI UT ND VT MA IA NE

Source: US Department of Education, 2011

• The Finance sector in Massachusetts has long had connections to academia and has employed and cultivated the top talent in finance along with the strong universities in the region.

• Massachusetts has been able to supply top talent to the Finance sector and is a critical piece of the “ecosystem”, as the state’s residents are among the most educated in the country.

• In 2011, Massachusetts ranked second in the number of Masters degrees awarded per 100 people at 0.43.

• Massachusetts is home to the country’s top graduate business schools including:

- Harvard University

- Massachusetts Institute of Technology

- Babson College

- Bentley University

- Boston College

- Boston University

- Brandeis University

- Northeastern University

- University of Massachusetts

Education: Cultivating Top Talent for Mass Finance

Table of Contents





• Conclusion

Changing Landscape among Asset Managers, Banks and Insurers

Regulation may hinder banks and insurers and force them to abandon proprietary investing and other noncore businesses with asset managers filling the vacuum.

Changing demographics: Retirement and healthcare needs

As the world ages, retirement and healthcare will become critical issues where asset management and insurance could play a key role.

Product Innovation

Within Banking, there will be a shift from branch to digital banking. Insurance products will be “bought” by customers as opposed to “sold” by insurance companies and intermediaries. Alternative Funds and ETFs will continue to grow within the AM sector. Community banks will need to continue to invest in technology to stay competitive with larger global banks.

Rise of the emerging markets

Asset managers will be at the center of efforts by SWFs to diversify their huge pools of assets. Banks and insurers will need to address the needs of new groups of people in emerging regions.

Changing Landscape among Asset Managers, Banks and Insurers

Considering Massachusetts’ dominance in Asset Management versus banking and insurance, the State should benefit disproportionally to the rest of the country due to this shift.

Changing demographics: Retirement and healthcare needs

Products will need to be changed and developed as the population gets older. New asset management and insurance products that focus on distribution of wealth will need to be created.

Product Innovation

Given the heavy reliance on future technology needs, large global banks outside the State will be better positioned for success versus the local community banks unless the smaller players can carve out a specific niche. In insurance, companies will need to re-examine their roles in the value chain as consumers bypass intermediaries and work with the carrier. In AM, Massachusetts firms are well positioned within Alternatives and ETFs and poised for further growth.

Rise of the emerging markets

Driven by a rapid accumulation of foreign assets by oil-exporting and Asian nations, SWFs will grow from $5t to $9t by 2020. Based on PwC analysis, with an asset management center of excellence in Massachusetts, the State stands to benefit from this trend.

Key Financial Services Trends Impacting Mass Finance

Financial Services Trends Impact on MA Finance

• As the deleveraging of banks continues through 2018, in part driven by the European Central Bank’s ongoing focus on stress testing the balance sheets of Europe’s top banks, asset managers will continue to move into areas traditionally dominated by the banks.

• Global Investable Assets for the asset management industry will increase from $60t to more than $100t by 2020, with a compound annual growth rate of 6%.

16.1 25.4 27.0

41.2 18.7

28.8 30.4

47.2

2.5

5.3 6.4

13.0

0

20

40

60

80

100

120

2004 2007 2012 2020Mutual Funds Mandates Alternative Investments

Changing Landscape Among Asset Managers, Banks and Insurers

Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

• Global AuM growth will be driven by pension funds, HNWIs and sovereign wealth funds as shown in the table below. Given Massachusetts’ competencies in mutual funds, alternatives, wealth management and retirement assets, the State is well positioned for future growth. The shift of assets from the banking industry should be an overall benefit to the state given the relative size of the AM sector.

Changing Landscape Among Asset Managers, Banks and Insurers

Note: Differences in sums are due to rounding. The sum of AuM by clients does not equal the sum of AuM by products shown above due to double counting. (1) The 2020 ‘s value for SWF is under the best case scenario.


Developed-market populations are aging, driving focus towards savings and investment and away from credit and consumption. As a result, the expansion of retirement products across insurance and asset management to assist this aging population is expected to continue. Retirement assets have risen from $21.3t in 2004 to $33.9t in 2012 and we predict they will grow by 6.6% a year to reach $56.5t in 2020.

Massachusetts is home to the largest retirement assets recordkeeper in the US in Fidelity Investments. In addition, Mass is home to 3 of the top 10 DB/DC managers.

•

In banking, we expect that Wealth Management will move alongside deposit-taking as a baseline service as customers are taking increasing responsibility for their lifelong financial well-being and planning in both the developed and emerging worlds. Boston has a strong presence in Wealth Management, including Fidelity and Boston Private Bank. As detailed earlier, HNWIs assets are expected to double to $77t by 2020, and Massachusetts Wealth Managers stand to win their share of this growth. Additionally, Massachusetts' insurance industry should also benefit from the projected increase in retirement assets.

Changing Demographics


The size of Sovereign Wealth Funds is rising fast, and their presence in international capital markets is becoming more prominent. SWF’s AuM are currently above $5t and are set to surge to $9t by 2020. Again, with Asset Management as a core competency, Massachusetts stands to benefit.

4

Rise of the Emerging Markets


• Alternatives and passive investments combined will represent 35% of total assets managed by the industry; and

• ETFs will continue to gain momentum globally across all channels.

11%

10%

79%

AuM in 2012 (USD trn)

Passive Alternative Active

7.3

6.4

50.2

22%

13% 65%

AuM in 2020 (USD trn)

Passive Alternative Active

22.7

13.0

66.0

Passive ETFs

AuM 2020

$6.8 trn

Active ETFs Leveraged ETFs

Smart Beta

Projection of active, alternative and passive investment within global AuM towards 2020

..and ETFs proliferate

Product Innovation: Alternatives become more mainstream – a US $13 trillion market by 2020


NY 47%

MA 23%

PA 20%

IL 8%

MD 2%

• Massachusetts Asset Managers continue to be innovative and poised to capitalize on trends within the ETF space. Fidelity, which launched 14 ETF funds since 2013 has already experienced inflows of $2.4b. In addition, Eaton Vance recently received approval for non-transparent ETFs, which have the potential to change the industry. Mass is second in ETF assets managed, with 20% growth in assets in 2013 alone.

• In addition to strong position of hedge fund managers in the State, the major mutual fund players are also benefiting from the trend toward Alternatives, with the increase of liquid alternative funds. Firms such as Putnam and GMO have a significant amount of assets in “alternative mutual funds”

2013 Top Five States ETF AUM ($US millions)

Source: Strategic Insight/Simfund, Dec 2013 0

500000

1000000

1500000

2000000

2500000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

United States ETF AUM ($US millions)

Product Innovation: Massachusetts Continues to Lead

While the traditional Asset Managers may have dominated in the past and enjoy a favorable market position, new competitors are an emerging threat.

Asset management players

• 40% of the top asset managers are not actively involved in social media and only 15% of asset managers active on social media are interactive; and

• More than a quarter of asset managers are not sure whether the use of mobile technology for distribution or communication would play a critical role in their business.

Social media

Big data

Cloud

Digital intelligence

CRMs

Drivers

Tailored products

Accurate and timely information

Cost reduction

Interactive communication

Efficiency and control

POTENTIAL NEW ENTRANTS ?

Today Consequences Tomorrow

AM

fund data ?

fund platform

?

?

fund platform

?

Product Innovation: Potential Disruptors in Asset Management

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=KM0fdhF3OM0fAM&tbnid=ciHPaZ1NJ7MGtM:&ved=0CAUQjRw&url=http://www.nunwood.com/?portfolio=15-applestore&ei=HtLzUsDTHcaRtQbnpIDIDQ&bvm=bv.60799247,d.ZG4&psig=AFQjCNF5ZUGvR4HHJwKWyHsk5GZu_sRRIQ&ust=1391797136280653

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=L7dusuPOBgalzM&tbnid=pSnrdkTDt8O8XM:&ved=0CAUQjRw&url=http://www.psdgraphics.com/tutorials/google-logo-photoshop-tutorial/&ei=PdDzUsWqHtHXsgaFxICQCA&bvm=bv.60799247,d.ZG4&psig=AFQjCNG5cKQ0MVU1o5HqDr1Mr98Y0XXINg&ust=1391796657195663

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=E4eiLI9r74rQSM&tbnid=oHW5Te5k6tochM:&ved=0CAUQjRw&url=http://www.lenco.com/duitsland/amazon-logo/&ei=H9HzUsm_HIaTtAbPtYA4&bvm=bv.60799247,d.ZG4&psig=AFQjCNFiRA2v-8o_1FIwHuro2HdDQ-oj9Q&ust=1391796882403595

Table of Contents





• Conclusion

There is a shortage of talent in high demand areas such as Fintech, risk/regulatory, and advanced analytics

• Enforce curriculum changes focusing on developing key skills in a practical manner (e.g. combination of quantitative skills with business problem solving skills, industry deep dives,…)

These is significant potential to improve existing mechanisms to integrate youth talent in the workforce and retrain existing talent

• Shape ongoing academic programs at the graduate and undergrad level • Create specific ongoing programs:

• Evening and weekend courses • Industry partnerships to:

• Train the next generation in the skills and the transition to the professional work

• Retrain existing professionals in new skills so that they can transition to other jobs within the company or the industry

• Intensive internship opportunities • Create an ecosystem to promote collaboration among 1st party FIG

leading institutions, academia, 3rd party providers, and State organizations

Negative perceptions about Financial Services industry in general and Boston’s high cost of living and public infrastructure present barriers to attract talent

• Reinforce branding efforts both for Financial Services and for Boston as an attractive city for young professionals

• Create remote collaborative working areas (open space) in Boston suburbs

• Promote part-time and work from home practices

There is an opportunity to train, develop and retain MA trained international talent

• Create opportunities through training/ internship visas

Key takeaways Proposed actions

Financial Services Talent Outlook

Summary of findings (1/3)

SOURCE: Moody’s Analytics, US Bureau of Labor Statistics; Team analysis

INDUSTRY FACTS AND OUTLOOK

THE TALENT CHALLENGE

• Overall, the number of jobs in Massachusetts has experienced an increase (2.8 million in 1993 to 3.3 million in 2013), and financial services has slightly grown from 6 to 8 percent share of that total employment (Exhibit 2).

• The U.S. financial services sector GDP is expected to grow at 1.6 percent, which is below the overall US GDP growth projection of 2.4% (Exhibit 4A/B). However, Massachusetts financial services industry will grow almost on par with overall US GDP growth (Exhibit 4B)

• Talent replacement will be a major challenge for this sector which will need approximately 30,000 people – a result of high attrition, aging workers in select occupations and an expected shift to jobs that will require new skills

• Within banking, advisory type services has highest expected GDP growth of 2.6 percent relative to 0.4 percent for other sub-sectors such as commercial banking, savings institutions, and credit unions. Within insurance, highest growth sub-sectors include distribution agencies, brokerages and other insurance related activities for which expected GDP growth is approximately 1.9 percent. If we expand the analysis to Massachusetts, both insurance carriers and agencies and brokerages present above US financial services average growth rates with 1.97% and 3.4% respectively

• As a result of the variance by sub-sector, there will be a natural shift in the mix of occupations and core skills required within financial services throughout the U.S. over the coming decade. Massachusetts's share of financial services employment within the U.S. is expected to remain stable through 2022


1 Figures based on US. Massachusetts represents 2.7% of the US financial services workforce (and is expected to remain the same proportion until 2022)


IMPACT ON KEY OCCUPATIONS

• In Banking, those occupations with advisory/ counseling profiles are expected to have significant replacement needs (>130,000 people in the US) driven by aging population in these roles and above average attrition rates. There will also be an acute need to replace the current teller population (~250,000 people, representing almost 50% of current banking workforce). While there is a lot of attention on digitization trends and branch optimization which each call for specialized skills, the teller population with its astronomical 30% attrition rate, represents the most significant talent replacement challenge within banking. Currently, the only training currently received by tellers appears to be on-the-job training (Exhibit 7 & 8)1

• In Insurance, actuaries, computer system analysts and insurance sales agents will be the fastest growing occupations with 2.4%, 2.4% and 1.1% growth, respectively. These three professions require highly specialized skills sets. As for banking, replacement needs vary significantly by role. Insurance sales agents represent significant replacement need (> 100,000 agents) as do actuaries (>4,000). In both cases, the replacement need represents approximately one third of the respective workforces. Finally, approximately 25% of the customer service representatives (>70,000) and claims adjusters/appraisers/examiners/investigators (>50,000) will need to be replaced in the next ten years (Exhibit 7 & 8)1

• Across all occupations, insurance underwriters are the only occupation to present a decline over the next decade. Replacement needs are still significant (>25,000, almost one-third of the current workforce). This is driven in part by the industry’s push to automated underwriting for personal lines insurance (auto, homeowners) and small commercial as a way to preserve shrinking margins in these lines of business (Exhibit 7 & 8)1

• Across banking and insurance, major trends will shape the need for new skill sets. For example, digital (internet, mobile, automation of manual processes) has permeated almost every part of the financial services value chain. Starting with digital marketing at the front-end to automating claims and service processes on the back-end, technology plays a critical role in how the sector interacts with its customers. Similarly, customers are more demanding – creating pressure to ramp up 24/7 access, build more customer service tiers to recognize and serve high-value customers, and better train customer service representatives. Finally, the prevalence of big data is leading to the need for highly skilled data analysts and statisticians throughout the financial services industry (Exhibit 9)


SOURCE: Interviews; Team analysis

PERSPECTIVES ON INDUSTRY THOUGHT LEADERS

Growing and shrinking occupations over the next decade

• In banking, primary growth areas are technology, marketing, analytics, credit and risk specialists. Conversely, manual roles will become increasingly automated

• There is also a clear need for a blend of quantitative and leadership skills (employees that have the quant skill but are also able to elevate and extract insights that impact strategy and have people mobilize towards it)

• In insurance, technology will play an increasingly important role as functions within personal and small commercial lines automate

Undergoing initiatives to address the challenge

• Some banks are setting up innovation incubators to test different technologies and distribution formats to address the talent challenge. They are also experimenting with different training systems partnering with industry associations and local organizations to design and deliver industry-specific training

• Many banks feel that they need to get first basics right by making sure that they have a strong value proposition and they are able to meet these expectations when people join

• Banks currently find it difficult to place undergraduate majors with broad/unrelated degrees and no internship experience. In general, they prefer to source talent from vocational schools because it minimizes onboarding time and friction

Factors to capture talent & learnings from other states/ industries

• Banking executives felt that a collaboration between educators, government and industry is required to keep the cost of education low, make it more accessible (e.g., online courses), and to make it available year-round

• Some banks also felt that community colleges, often a good source of vocational talent, are under-funded and therefore resource constrained in terms of being able to partner with banks on talent development

• Most agree that Boston and Massachusetts will need to improve their value proposition for young graduates (e.g. cost of living, infrastructure,…) and offer help to companies that want to recruit locally”

• Ability to create a “Boston hub” for third-party finance services leveraging current capabilities will be an area to explore

Intersection of finance and technology: how to attract talent

• Technology is a major growth area for banking, yet banks are struggling to source technology talent within the state

• Inefficiency of Boston’s public transportation infrastructure and high cost of living are cited as major barriers to attracting top tech talent to the state

Need for collaborative partnerships

• Collaborative partnership between policymakers, educators and industry was cited as a key requisite to improving MA’s ability to retain and develop talent

Massachusetts has many sectors with high output and some employment specialization in Prof. Services, Finance, and healthcare

2013 GDP1

$ Billions

Location

quotient (LQ)

Total employment

Thousands

0.05

0.18

1.06

0.73

0.95

0.70

0.89

1.26

0.93

0.84

0.86

1.32

0.95

2.09

1.15

1.31

0.86

1.39

0.83

0.87

1 LQ refers to location quotient: MA employment concentration vs. U.S. employment concentration for the year 2013

1

122

348

86

123

164

562

250

274

440

42

3,371

13

52

10

76

124

64

281

168

170

0

Agriculture 1

Arts & Entertainment 4

Utilities 6

Transportation & warehousing 7

Other services 8

Holding Companies 11

Accomodation & Food 12

12

Educational services 13

Construction

Administrative, Support, & Waste

Retail trade 19

Information

Total

15

446

Mining, Oil, & Gas

21

Wholesale trade 23

Finance & Insurance 39

Healthcare 42

Manufacturing 45

Professional & Technical Services 51

Government 52

Real Estate 67

Current asset sectors

(>$10B GDP and LQ>1) SOURCE: Moody’s Analytics, US Bureau of Labor Statistics

▪ Finance and insurance is the 6th largest sector in terms of GDP

▪ Massachusetts has double the national level of industry specialization in education

▪ Professional Services has one of the greatest employment specialization in Massachusetts in sectors with more than $10B of GDP

EXHIBIT 1

Massachusetts’ industry employment shows shifts over time and financial services has experienced a small increase over time

SOURCE: Moody’s Analytics, US Bureau of Labor Statistics

Percent (bars); number in thousands (top)

7 7 7

4

34

5 54

5 54

4 45

6 5

6

7 8

7

8 8

11

11 10

14

1313

1510 7

43

13

14 17

2003

2 2

2,857

1993

2 2

3,221

3

Information

Holding Companies

Administrative, Support, & Waste

Transportation & warehousing

Construction

Other1

Educational services

Wholesale trade

Finance & Insurance

Professional & Technical Services

Accomodation & Food

Retail trade

Healthcare

Government

Manufacturing

2013

3,371

2 2

3

BREAKDOWN OF MA EMPLOYMENT BY INDUSTRY

EXHIBIT 2

Economic development depends on where you are in the work specialization matrix

High

Low

Growth in

GDP

Location Quotient (LQ)

4

2 3

1

High Low

Legacy: Low-growth sectors with a high

concentration of labor

▪ Maintain those sectors with low,

steady growth in which Boston

specializes

▪ Negative growth sectors should be

reviewed for opportunities to re-

purpose human capital and assets

Assets: High-growth sectors that with

a high concentration of labor

▪ Grow businesses in these sectors

and their human capital strategies

▪ Leverage these assets by growing

complimentary businesses in their

cluster

Selective bets: High-growth sectors

with a low concentration of labor

▪ Choose specific high, growth sub-

sectors to grow specialization

through attraction and creation of

companies, and human capital

strategies

Low growth, low specialty: Low-

growth sectors with a low


▪ Support these sectors through a

generally supportive business

environment

EXHIBIT 3

Overview of performance outlook for Boston metro area sectors EXHIBIT 4a

2013 LQ

Information

Transportation and warehousing

Retail trade

Wholesale trade

Manufacturing

Construction

Utilities

Projected GDP growth, 2013-2022 Percent

Education

Admin., support and waste

Management

Professional services

Real estate

Finance and insurance

Government

Other services

Accommodation and food

Arts and entertainment Healthcare


Selective bets: High

growth, low concentration

of labor

Assets: High growth,

high concentration of

labor

Low growth, high


Low growth, low


US GDP

Growth

Rate

Size of bubble = 2013 GDP

1 LQ refers to Location Quotient: Boston employment concentration vs. US employment concentration

2 2-digit North American Industrial Classification System (NAICS)

US

financial

industry

GDP

growth

rate

Overview of performance outlook for Massachusetts sectors EXHIBIT 4b

0

0.7

1.4

2.1

2.8

3.5

4.2

4.9

5.6

6.3

0 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25

2013 LQ

Finance and insurance

Information

Education



Selective bets: High

growth, low


Assets: High growth,

high concentration of

labor

Low growth, high


Low growth, low


US GDP

Growth

Rate


1 LQ refers to Location Quotient: Boston employment concentration vs. US employment concentration

2 2-digit North American Industrial Classification System (NAICS)

US

financial

industry

GDP

growth

rate

-1.4

-0.7

0

0.7

1.4

2.1

0.75 1.00 1.25 1.50

Miami

Houston

Atlanta

Philadelphia

San Francisco

Boston


2013 LQ

Los Angeles

Charlotte

Chicago

New York



1 LQ refers to Location Quotient: Metro area employment concentration vs. US employment concentration

2 North American Industrial Classification System (NAICS) code 52, “Finance and insurance”

Boston

financial

industry

GDP

Growth

Rate

US

financial

industry

GDP

growth

rate

Boston metro as compared to peers in Finance and Insurance EXHIBIT 5

SOURCE: Bureau of Labor Statistics; Team analysis

Insurance (4 digit NAICS)

Banking (4 digit NAICS)

US Massachusetts

▪ Depository credit intermediation (banks – commercial banking, savings, institutions & credit unions)

▪ Securities and commodity contracts intermediation and brokerage (investment banking, securities/commodity brokerage)

▪ Other financial investment activities (e.g., portfolio management, investment advice)

▪ Reinsurance carriers

▪ Agencies; brokerages; and other insurance related activities

0.4%

(0.7)%

2.6%

Expected growth 2012-22 (%)

1.9%

0.7%

▪ Direct insurance (except life; health; and medical) carriers

▪ Direct life; health; and medical insurance carriers

Expected growth 2012-22 (%)

1.1%

0.3%

3.7%

0.2%

2.2%

0%

1.8%

No. of employees 2012 (Ths.)

1,707

442

423

28

966

602

833

Annual salary USD.2012

62,452

219,252

170,996

146,027

74,785

78,212

74,302

46

14

28

No. of employees 2012 (Ths.)

23

42

Annual salary USD.2012

86,620

265,192

206,834

N/A

96,272

N/A

N/A

Financial services employment growth by sub-sector EXHIBIT 6

SOURCE: Bureau of Labor Statistics Occupational Outlook handbook 2013-2014; Team analysis

Replacement needs (2012-22)

Replacement rate (2012-22, # of employees)

%

#

1 Projected increase/decrease in the number of employed persons in an occupation over the selected period 2 Projected rate at which workers leaving the occupation need to be replaced over the selected period

Key occupations

Employee growth indicators

Number of employees 2012

Rate of replacement2

2012-22 In

sura

nce

B

anki

ng

▪ Financial managers 31,000 17.0% 5,285

0.4%

Expected growth1 2012-22 (%)

▪ Claims adjusters, appraisers, examiners, and investigators

221,000 23.8% 52,573

0.5%

▪ Accountants and auditors 40,100 26.7% 10,698

0.5%

▪ Insurance underwriters 95,300 27.4% 26,113

(0.7)%

▪ Computer systems analysts 42,300 12.7% 5,383

2.4%

▪ Actuaries 16,800 27.6% 4,629

2.4%

▪ Insurance sales agents 345,900 29.1% 100,816

1.1%

▪ Financial clerks 61,600 19.3% 11,865

0.8%

▪ Customer service representatives 288,700 24.3% 70,106

0.8%

▪ Secretaries and administrative assistants 101,100 11.8% 11,933

0.7%

▪ Sales and related occupations (includes advisory roles)

216,100 32.3% 69,719

0.6%

▪ Office and administrative support occupations 1,479,800 22.6% 334,870

0.3%

▪ Credit counselors and loan officers 254,500 18.9% 48,208

0%

▪ Tellers 533,600 46.7% 249,020

0.7%

Annual salary

USD. 2012

138,890

61,380

70,070

70,530

79,730

109,550

63,780

38,530

35,970

33,220

57,290

34,110

69,670

26,110

Financial services’ occupations growth in the U.S. EXHIBIT 7

The new talent pool will require a:

• Highly specialized skill set (e.g., actuaries, versatility/complexity of products)

• Strong technological background

• Exceptional feel for data and ways to analyze it to extract meaningful insights

• Ability to deliver highly personalized and digital service to the customer (specially for those in customer-facing occupations)

Growing talent gap in key occupations due to aging workforce

A

Insurers entering non-traditional insurance products (e.g., under writing of risk products traditionally sold by banks)

B

Insurance

Payment disruptions opening the door to new players, technologies, and innovations C

Branch optimization efforts calling for less transaction-based employee profiles D

Increasing regulatory pressures and risk optimization needs

E

Banking

Drive-to-digital impacting delivery, marketing and service usage

F

Customer 3.0 raising the bar of engagement with them

G

Simplification in engagement model with customer by removing friction, steps, and inefficiencies

H

SOURCE: Industry reports, Team analysis

There are several trends which will significantly impact financial services labor market in the next decade.

EXHIBIT 8

Table of Contents





• Conclusion

Due to the high concentration of asset management firms, Mass Finance is well positioned to take advantage of the projected growth in the sector. Insurance companies stand to benefit from changing demographics and global trends, and the banking sector while smaller on a relative basis, is not as exposed to some of the broader dynamics as states like NY. However, taking advantage of this market position requires collaboration among the leading financial firms and a collective investment in technology and talent.

Potential disruptors present unique challenges and lead to an increased need for capabilities with new technologies (e.g. social media, data analytics). As a result, the demand for graduates with these skills will continue to rise. The industry has a long history of supporting strong middle income jobs in the State and this is an opportunity to further support employment.

Opportunities for Growth

Opportunities for Growth

The Universities in Massachusetts are among the best in the world and this provides Mass Finance with a unique opportunity to partner with academia on acquiring and developing top talent and keeping the next generation of Finance professionals in the State. Barriers to keeping talent in the State such as high cost of living need to be managed. The Mass Finance sector is unique in that it has a history of being the fiduciaries of assets and was not the focus of the 2007-2008 credit crisis. The sector’s brand needs to reflect its history as it hopes to capitalize on the growth prospects over the next decade.

Prepared with Assistance from PwC and McKinsey

PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms, which has firms in 157 countries with more than 195,000 people. We're committed to delivering quality in assurance, tax and advisory services.

CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

the massachusetts financial services sector talent and

Documents