If employees in the financial services industry thought layoffs the past few years were tough, it was just a warm-up for what is to come, according to a recent study.

Recent Bureau of Labor statistics indicate the securities industry lost approximately 80,400 jobs nationally in the past 22 months. A report by the Securities Industry Association states "peak employment reached 786,100 in April 2001, as compared with February's preliminary number of 705,700. Using the new North American Industry Classification System, New York State and City have lost 18% and 19%, respectively, of total industry jobs since the December 2000 peak." The SIA report stated that the number of layoffs set a new record, overshadowing the period following the 1987 stock market crash.

"Expect job losses to continue in the near term, namely because of consolidation occurring within the industry," said George R. Monahan, vice president and director of industry studies at the SIA. "European and other banking institutions, with troubles at home that bought into the U.S. system as it was generating enormous profits, are now looking to sell off portions or all of their U.S. securities businesses to generate cash to fix their domestic balance sheets."

However, Monahan later asserted "expect this [job losses] to be a gradual thing and given the second half recovery, as predicted by Mr. Greenspan, we expect job growth to slowly begin in the second half of this year and in 2004 when the retail investor returns."

This optimism may hold true for the short term, yet long-term prospects appear to be a bit drearier for the U.S. on the whole. Outsourcing labor costs, a hotly contested topic in all sectors, is an area that has tremendous implications for the financial services sector.

According to a study by A.T. Kearney, over the next five years 500,000 jobs at American financial services firms will move overseas. A whopping 8% of the workforce will lose their jobs to offshore locations at mutual funds, banks, brokerages and insurers. Companies anticipate saving $30 billion annually as job relocations begin to involve increasingly sophisticated positions within companies.

"Any function that does not require face-to-face contact is now perceived as a candidate for offshore relocation. The debate at major financial services companies today is no longer whether to relocate some business functions, but rather which ones and where," said Andrea Bierce, managing director at A.T. Kearney.

Executive recruiter Charles O'Neill, principal of the Web site MutualFundCareers.com, shares this sentiment. "More and more, asset management firms will be forced for pure reasons of economics, to determine what businesses are actually in their core competency," he said. "As they face that major question, there are certain sections of businesses that will be outsourced -- shareholder service calls and customer service inquires are already being sent to countries such as India and will certainly continue to be, due to lower labor costs."

India is the major location for the outsourcing of labor. Companies are also exporting jobs to Canada, Brazil, Mexico, Philippines, Hungary, Ireland, The Czech Republic, Australia and Russia. Some are looking to China to improve their intellectual property laws and potentially develop as a center for outsourcing.

Many are arguing that the model of the traditional mutual fund complex, where everything is handled at the domestic level is no longer a cost-effective way of doing business, especially in the recent harsh economic climate. This will undoubtedly have long-reaching implications for the loss of jobs in the financial service sector, both on Wall Street and in U.S. as a whole.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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