Online Exclusives Logan Wamsley Dec 22, 2022
As financial services companies struggle to find skilled talent, they often overlook a large but easily overlooked section of the talent pool: older workers. Internal audit can highlight for stakeholders the untapped potential of older generations who still want to work.
The hiring market is in a strange place. On one hand, job openings are surging as the global economy slowly recovers from the COVID-19 pandemic. According to the U.S. Bureau of Labor Statistics, the U.S. economy added 263,000 jobs in November alone. On the other hand, U.S. unemployment has remained relatively stable at around 3.7%. Most industries are struggling to fill vacancies and retain current employees.
"Under normal circumstances, a near record number of job openings would be something worth celebrating," Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters. "But no employer is in a celebratory mood. It is difficult to fill orders or meet customer demands if there are not enough people to do the actual work."
The financial services industry is one of the largest examples of this trend. In October, for example, the U.S. finance and insurance sector had more than 70,000 open jobs. These numbers have led the industry to focus on finding skilled workers. According to a 2022 survey from business management consulting firm Cornerstone, 67% of banks and 63% of credit unions consider the ability to attract qualified talent to be a top concern. Just one year ago, only 19% of both groups considered this a top concern, according to the What's Going on in Banking 2022 report.
To overcome these challenges in 2023, financial services internal auditors must determine the primary drivers of talent risk, as well as how to aid management and the board in determining appropriate short- and long-term solutions. However, while recent focus has been on recruiting younger people entering the workforce, there is another variable that internal audit can draw attention to: older workers.
There are myriad reasons staffing risk has been particularly relevant to the financial sector. One of the most significant is the advanced relative age of financial services employees. According to a January 2022 report from American Banker, the average age of a financial advisor is 55, and one-fifth of all advisors are over 65. In less than 10 years, more than 111,500 of those advisors will retire, accounting for over one-third of the industry workforce. In the U.K., the proportion of older employees is even higher, with 33% of the overall workforce being 50 years and older, according to a Deloitte Insights article, "Tapping Into the Aging Workforce in Financial Services."
But as older workers exit the workforce, the younger workers who should be replacing them are preferring other industries they perceive to have higher pay, more opportunities for growth, and greater work/life balance. Financial services ranked 9th in a list of Gen Z's 16 most desired industries behind education, retail, health care, automotive, hospitality, technology, and arts/entertainment, in a 2021 survey from networking platform Tallo.
Beyond hiring, such preconceptions make it difficult for financial firms to retain qualified talent. In a recent IIA Global Knowledge Brief, Internal Audit in a Post-COVID World, Part 1: Talent Management, Paula Tye, Model Audit Rule Compliance Manager at American Fidelity Corp., spoke about the attrition her employer is experiencing, despite it being a well-established company with a history of generous employee benefits.
"We're in Oklahoma, and there's the oil industry, and the oil people will pay more to retain their talent," Tye said. "I had a position open for probably about six to nine months, and I couldn't compete from what we were paying. I thought we were very generous. Obviously not in the current market we're in."
In the current environment, financial services firms face a significant challenge. One solution has to be continuing to transition to a more technology-driven, diverse, culturally inclusive, flexible work environment — all factors younger generations have prioritized when choosing an employer. At the same time, internal audit can highlight for stakeholders the value of older workers, who the U.S. Age Discrimination in Employment Act defines as "people who are age 40 or over," but colloquially encompass late career workers in their 50s and 60s.
In the current economy, some Baby Boomers are considering delaying retirement or even re-entering the workforce following retirement. According to CNBC's recent All-America Workforce Survey, 68% of respondents who retired during the pandemic would now consider returning to work, while a 2022 U.K. survey by over-50s platform Rest Less found that one-third of its retired members had either returned to work or would consider doing so.
There are several reasons for this. For example, Fidelity Investments reports that the average 401(k) balance of its clients for the third quarter of 2022 dropped an average of 23% from a year ago. Additionally, individual retirement account balances dropped nearly 25% year-over-year.
In the short term, financial institutions have much to gain from tapping into this talent pool to resolve staffing challenges. For example, while Millennial and Gen Z employees are often considered the generations that are more adept at learning technology, older generations are more willing to learn new skills necessary to work in a digital business environment. In a digital business executive study by the MIT Sloan Management Review and Deloitte, financial industry respondents over the age of 53 acknowledged the need to continually update their skills (61%), significantly higher than 36-52-year-old respondents (40%) and 22-35-year-old respondents (47%). That willingness to learn is key in an industry that is embracing technologies ranging from automation and artificial intelligence to cryptocurrencies.
"For most people, raw mental horsepower declines after the age of 30, but knowledge and expertise — the main predictors of job performance — keep increasing even beyond the age of 80," write Josh Bersin, founder of Bersin by Deloitte, and Tomas Charmorro-Premuzic, chief innovation officer at ManpowerGroup and professor at University College of London and Columbia University, in a 2019 Harvard Business Review article, "The Case for Hiring Older Workers." They note, "When it comes to learning new things, there is just no age limit, and the more intellectually engaged people remain when they are older, the more they will contribute to the labor market."
Talent management audits today often approach issues of hiring and retention with consideration for the pulse of the current culture. Because so much of culture is driven by the concerns of younger generations, audit recommendations — and by extension, board and management focus — risk skewing toward youth. From a talent management perspective, this could significantly restrict the value internal audit can have for the organization.
Indeed, the inclusion of older generations into talent management strategies should be prioritized alongside other diversity initiatives. A recent white paper from the Internal Audit Foundation, The IIA, and Deloitte, Diversity, Equity, and Inclusion (DEI) 101: Internal Audit's Invaluable Role in Creating a Sense of Belonging at Work, argues that internal audit has not only an opportunity, but an obligation to foster a DEI culture.
While situations will vary depending on the organization, there are some actions that employers — with advice from internal audit — can take to tackle this initiative. A March 2022 research report by the Urban Institute, Skills-based Hiring and Older Workers, recommends ways employers and policymakers can improve hiring models:
Ironically, the future economy may depend on companies retaining older workers, if birth rates continue to decline. Moving forward, companies must emphasize attracting older talent, training them as needed, and keeping them for as long as possible, Bersin and Charmorro-Premuzic conclude. This benefits employers, the older workers, and, through the benefits of diversity, even the younger employees. After all, there is only one way to learn the wisdom gained through years of experience, and that is to work alongside those individuals, and listen.