Improving diversity in financial services with skills-based hiring

The financial services sector employs an estimated 2.5 million people and is the engine room powering UK growth. It is also home to some of the highest-paid jobs in the country and represents a pathway to the most influential seats in British boardrooms. 

Yet research indicates that financial services has a diversity issue. 

Nikhil Rathi, Chief Executive of the Financial Conduct Authority (FCA), has noted: "For UK financial services to be competitive and for the companies in it to be well run with healthy work environments, it's vital they attract, retain, and promote the best talent. The data suggests this isn't happening."

• So what is the scale of the DEI issue in financial services? 
• Why is it such a problem?
• And, how can recruiting more diverse talent be improved?

How diverse is the financial services sector?

Multiple studies have demonstrated that financial services firms must become more diverse employers. Indeed, the issue has become so concerning that financial regulators and the UK Government have stepped in.

A damning report published this year by Bain and the Black Talent Charter found:

• Only 2% of finance and insurance employees are black.
• This compares to 4.4% of the UK working-age population that are black.
• In London, home to many financial services firms, 13.5% of the population is black.

The disparity grows even more distinct as seniority rises. Less than 1% of senior leadership-level employees are black, with black representation at senior levels in investment banking as low as 0.5%. 

However, financial services is not only predominantly white, it is also male-dominated. 

The Financial Services Skills Commission's (FSSC's) People + Technology report found that most managerial and professional roles in the industry are resoundingly male, with women only holding a third of highly-skilled roles. In contrast, customer service and admin roles are female-dominated. 

Although there is evidence that the number of women in highly-skilled roles is increasing, the reduction of lower-skilled roles in the industry through automation has meant that there has been an overall decline in the number and share of women employed in financial services over the past 2 decades. 

Again, the disparity is more significant the further up the ladder we look. The Women in Finance Charter Annual Review reported that female representation in senior management among charter signatories averages 35%. 

Other diversity concerns diversity have also been raised concerning the age and socio-economic background of the workforce:

• Only 8% of the financial services workforce is aged under 24, compared to 12% of the general workforce (FSSC). 
• The industry’s employment of younger workers has declined by 33% since 2008  (FSSC). 
• On average, 50% of financial service employees (across all levels of seniority) are from a higher socio-economic background, compared with 37% in the general workforce (Progress Together).

"Diversity and inclusion play an important role in guarding against groupthink within firms. Firms in which a broad range of perspectives is welcomed and encouraged will manage their risks better. Stronger diversity and inclusiveness should also make firms more competitive by enabling them to attract a wider pool of talent." Sam Woods, Chief Executive, PRA.

Why is diversity an issue in financial services?

So why is financial services struggling despite a growing commitment to diversity across industries? 

There are certainly concerns that the industry is a 'boy's club' propagating an 'Alpha-male' culture. In a House of Commons Treasury Report into women in finance, former CEO of Virgin Money Jayne-Anne Gadhia reported witnessing "alpha-male-ness" and "a very male culture" in some organisations where she had previously worked.

However, other issues are at play, particularly relating to recruitment. One major problem, according to Erica Price Burns, Senior Vice President and Co-Director of Research at Whiteboard Advisors, is that while large employers know that a more diverse workforce is more talented, they often need help identifying candidates from diverse social and educational backgrounds. 

This is partly due to degree requirements that immediately screen out people with more diverse backgrounds. 

• University graduates are the main source of junior talent for most financial services firms but only 8% of the UK's university population is black, according to Bain.
• These findings have been replicated across industries and nations. A US study concluded that adding a degree requirement screens out 76% of African Americans.
• The same study concluded that a degree requirement screens out 83% of LatinX workers.

Even when minority candidates have been identified, unconscious bias can negatively influence their applications. For instance, research in the Journal of Leadership Studies found that HR managers looking to fill a position in a male-dominated industry tend to be more skeptical of female candidates and sometimes do not even consider them. Elsewhere, studies in The Journal of Social Issues have demonstrated how people of colour are more likely to be perceived as less skilled or more inefficient. 

The Treasury Committee report addressed this. When asked why there are more women in middle management and senior positions in support functions than in corporate leadership positions, Jayne-Anne Gadhia suggested that "unconscious bias [means] people do recruit in their own image."

Many financial services employers are aware of this issue but are hamstrung by existing processes. Spotted Zebra's conversations with financial services firms indicate that they are eager to foster diversity but feel they are blocked by systems that require manual review of applications and qualification questionnaires, which can introduce bias. 

So what needs to be done?

The Government and financial regulators FSC and PRA have called on financial services firms to take action. 

Various steps can reduce the likelihood of unconscious bias in the recruitment process. These include blind hiring and raising employee awareness of hiring bias. However, these do not solve the issue of identifying more diverse candidates.

Skills-based hiring, though, can offer a solution to both problems. 

Skills-based hiring enables businesses to identify and recruit for the skills required to succeed in roles rather than focus on credentials, experience, and academic achievements. Therefore, any preconceived ideas about the perfect candidate are disregarded to focus on just the skills. 

Furthermore, by removing any job history or education requirements (such as degrees), businesses can access a much broader labour pool, including traditionally underrepresented talent. Research from LinkedIn suggests that 88% of recruiters filter out skilled candidates because they need to possess specific job titles or qualifications. 

Skills-based hiring means all candidates are considered equally if they have the skills or the capability to learn the skills quickly. 

"Studies on job descriptions looking for biased wording have proven in tests to deter people of a certain age, ethnicity, educational attainment, social status, disability and gender," says Perry Timms, Founder of People and Transformational HR (PTHR). "So we rule out potentially the best candidates because of this, and that's something we'd never know or be able to track. Skills-based is a much more likely frame of reference for people to apply without feeling deterred by subtle biases in job specs."

Evidence demonstrates the impact this has on diversity. 

• Skills-based hiring increases the proportion of women in the talent pool by 24% in jobs where they are under-represented (LinkedIn).
• 75% of black employees and 73% of Asian and Arab employees say skills-based hiring enabled them to access new employment opportunities (People Management).
• 75% of organisations believe hiring based on skills can help democratise opportunity and increase access to it (Deloitte). 

Becky Schnauffer, Head of Global Clients at LinkedIn Talent Solutions, notes: "The labour market has historically been inequitable and opaque. A skills-first approach can help level the playing field for workers who may have been overlooked, including women, workers without bachelor's degrees, and younger people."

Bain has also reported how focusing on skills over degrees has enabled organisations to consistently increase the number of diverse and underrepresented talent. It highlights: "While skills-based hiring alone does not guarantee diversity, it is a necessary first step in breaking down potential barriers and creating a more inclusive organisation."

Spotted Zebra is here to help. Our skills-based solution is used by leading financial services brands to improve recruitment outcomes and ensure diversity in both early career hiring and professional hiring. 

Book a demo to learn more about the recruitment results reported by our partners and the dramatic ROI being achieved.

FAQs

1. What specific initiatives or programmes have been implemented by financial services firms to address diversity and inclusion, and what have been the outcomes so far?

Financial services firms have launched several initiatives to address diversity and inclusion. These include:

• Diversity and inclusion training.
• Mentorship and sponsorship programmes to support the career development of underrepresented groups.
• Employee Resource Groups (ERGs) focused on various diversity dimensions (e.g., gender, ethnicity, LGBTQ+) provide support networks for employees and help drive the firm's diversity agenda.
• Diversity targets and reporting.
• Implementing blind recruitment processes.

Outcomes from these initiatives have been mixed but generally positive. Firms report incremental improvements in diversity metrics, such as an increase in female and minority representation at various levels. However, significant gaps still exist, particularly at senior levels, indicating that while progress is being made, there is still much work to be done.

2. How does skills-based hiring work in the recruitment process for financial services, and what are some successful examples of its implementation in the industry?

Skills-based hiring focuses on identifying candidates with the necessary skills for the job rather than relying on traditional credentials such as degrees or job titles. In practice, this involves several steps:

• Defining required skills.
• Creating skills-based assessments.
• Removing degree requirements.

Successful examples include:

• Goldman Sachs: Implemented skills-based assessments for their engineering roles, allowing candidates to demonstrate their technical skills through coding challenges and problem-solving tasks.
• Deloitte: Shifted to skills-based hiring for certain roles, using online assessments to identify potential candidates' skills and capabilities without considering their educational background.
• Accenture: Focused on skills-based hiring through their apprenticeship program, which provides training to individuals from diverse backgrounds, including those without traditional educational qualifications.

These implementations have led to more diverse candidate pools and helped firms hire talented individuals who might have been overlooked using traditional hiring methods.

3. What are the long-term impacts of the current diversity issues on the performance and competitiveness of financial services firms, and how are companies measuring progress towards improving diversity?

Long-term impacts of diversity issues on financial services firms include:

• Risk of groupthink: Lack of diversity can lead to homogenous thinking, increasing the risk of groupthink, where decisions are made without considering diverse perspectives. This can result in poor decision-making and increased risk.
• Reduced innovation: Diverse teams are known to be more innovative and creative. Firms lacking diversity may miss out on innovative solutions and ideas, affecting their competitiveness.
• Talent attraction and retention: Firms that fail to address diversity issues may struggle to attract and retain top talent, particularly from younger generations who prioritize inclusive workplaces.
• Reputation and customer relations: Inadequate diversity can harm a firm's reputation, impacting customer trust and loyalty, especially as consumers become more conscious of corporate values and social responsibility.

Companies measure progress towards improving diversity through:

• Regular reporting and transparency: Firms like HSBC and Barclays publish annual diversity reports detailing the composition of their workforce, progress towards diversity targets, and specific initiatives undertaken.
• Diversity metrics and dashboards.
• Employee surveys and feedback.
• External audits and benchmarks.

These measures help firms monitor their diversity efforts, make data-driven decisions, and ensure accountability in creating a more inclusive workplace.

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