Morning Coffee: Goldman's radical vision for Wall Street. The dark side of the CFA

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If you work as a salesman in investment banking, you might want to listen to what's happening at Goldman Sachs. Marty Chavez, Goldman's former chief information officer turned chief financial officer, isn't just a fan of automation - he's making to whole sales process data-driven and means big changes for a lot of people on the trading floor. But this is just the beginning.

Goldman has, according to a speech by Chavez at the Harvard Institute for Applied Computational Science in January, reported by Business Insider, developed a way to interact with its clients without the need for human intervention. Called Data Lake, it pulls information on transactions, markets and investment research - as well as information from other communication tools - and overlays it with machine learning.

This data allows employees to track client behaviour and know when to call which client and how to service their needs. This is already one driving force changing investment banks' sales jobs, but Goldman is going one step further. Instead of simply using it for its own staff, Chavez wants to make it available to all, creating a "data services hub" which draws information from Goldman's transactions, as well as exchanges and vendors and makes it allows both external clients and those working at the bank to access it.

"Imagine if Google had gone a slightly different route and they said, 'Every time somebody wants to do a search, they pick up the phone, call their Google salesperson, read the search terms to the Google salesperson, who types them into the internal Google search engine, gets the results, and then reads them back over the phone.'

"That is not the route Google took. Unfortunately, that is a pretty good description of how Wall Street works," Chavez said.

Chavez talks in terms of APIs (application programme interfaces), which allows software to interact on one platform. In this case, Goldman's digital platform would allow clients to connect directly with the bank.

"Historically, the API has been human beings talking to other human beings over the telephone, and all the tools, the content, the analytics is on the internal platform only," Chavez said. "We are shifting this radically and shifting this fast, and we're packaging everything we do, and actually, we're redesigning the whole company, around APIs."

In other words, jobs are changing across investment banking, and you don't want to be one of those "human beings talking to other human beings on the phone".

Separately, the CFA requires at least 900 hours of study to pass all three levels and this, together with the low pass rate, means its something of a 'badge of honour' as well as career aid. But there are over 140,000 people with a CFA charter now, and it's one of the reasons that active asset management is struggling.

At least that's according to Vanguard CEO, Bill McNabb, who said a recent Wharton presentation (picked up by Bloomberg) that the "professionalisation" of the industry has made it harder for active fund managers to gain an edge over the competition. 68% of investor funds are now professionally managed - compared to 20% in 1963 when the CFA was launched. At that time, there were just 284 CFA charterholders, whereas the number holding the qualification has risen by 76% in the past ten years, and students are kicking off level one alongside their degrees. In other words, active asset managers are competing against one another, and failing, so investors are embracing passive investment strategies instead.


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Photo: Getty Images

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