An observation which I keep making to myself regarding the recruiting practices of finance services organisations abroad, particularly asset management companies, is that they often appear to be engaged in a big scramble to hire mathematicians and engineers, and not necessarily graduates from banking, finance, accounting and economics faculties.

Why is this so?

Nobody will deny that there is a big difference between ideas about finance as thought and evolved on the factory floor, and those evolved in the “mental labs” (for want of a better description) in universities which teach finance. The important periodicals Journal of Portfolio Management and Institutional Investor have long been showing critical concern at how universities are teaching finance. Their main worry has been expressed as being that finance education and academic research are operating in a vacuum outside the pragmatic world of industry.

Academics who have no applied experience often end up complicating this problem of the right formative structures for future financial services staff

Lopez de Prado, fixed-income specialist at Guggenheim Partners, (double Ph.D, both summa cum laude, in financial economics and mathematical finance), believes that the discipline of finance, and its practitioners, face irrelevancy if major changes are not implemented.

And asset managers are responding by increasingly recruiting engineers, scholars of physics and statistics, and mathematicians.

“Ten years ago,” Lopez wrote, “it was unthinkable that the presence of financial academia would be fading. The edge is not yet another reincarnation of the CAPM (capital asset pricing model). It lies in analysing untapped data sources, such as satellite images of crops and tunnel traffic, via techniques learnt outside of the classroom. FinTech, big data, machine learning, and even quantum computing, will render formal finance education even more irrelevant.”  

So that is the problem. The answer to it? Lopez’s solution is that universities should institute and be actively involved in apprenticeships. Some years ago in Malta an innovative and very socially inspired concept was very cleverly lauded loud and high: Ħadd ma hu għar-rimi (nobody is for throwing away).

 And its concomitant was that every single young person (16 to 25) in this dear country of ours should be (and seriously controlled to so be!) in either continuing education, or fully active and committed in a job, or in specific training for a job/career. And institutionalised apprenticeships (into the formulation of whose structures employers and academics must be, if so needed, press-ganged) are the answer that can give the real life practice which is needed.

Students pursuing finance degrees at the University of Chicago, or the Wharton School of Business, often have to dirty their hands in the Wall Street weeds to compete with the graduates which MIT, Harvard, or Princeton churn out. Indeed very early on many of them start building, and excellently running, their own hedge funds.

There is a strong analogy here even to the particular pedagogy that produces so many skilled engineers in Germany. There engineers are often educated at local colleges – some even with that low-brow word techniche in their names, and which on the much maligned annual comparative tables of universities and other institutions would rank far behind lofty US and UK and French institutions – but where yearly tuition costs are well within median household income.

Yes, technical universities’ curricula will include much messy factory work during a student’s tenure (his apprenticeship). But such apprenticeships will save very costly finance education later on. To quote one example of a route with which now, I am happy to see, quite a number of Maltese have chosen to become familiar, that of the CFA (the Chartered Financial Analyst), well this designation needs four years of solid financial work experience, including the dirtier parts of it.

Finance is not a rigorous science at par with biology or with physics, where experiments can and must be repeated and independently verified. Markets change with regulations, investors’ behaviour, and demographics, and the research often tends to be substandard.

I feel and touch this locally particularly at this time of the year when students rush to “finish their thesis”, or when asked to examine many of such. Indeed part of the solution is not necessarily in more insistence on “research” on the part of both tertiary education students and their teaching academics.

Indeed, many journals in finance are often merely tenure-track vehicles, in which aspiring professors publish articles not in the hope of having their theories tested (which, if we want to be objective, would need an investment firm) but to simply check the mandatory boxes in their job or promotion applications.

Academics who have no applied experience often end up complicating this problem of the right formative structures for our future financial services staffs. Often through no fault of their own they find themselves in conservative never-changing structures churning out from one year to the next students with “degrees” and/or “good career prospects”.

The reality is that when these young people start “dirtying” their hands in their early jobs they often go through some big shocks. Does this mean that universities, even abroad, are failing finance students? In a way yes.

Much serious rethinking, debate, and bold and courageous new action (some would indeed term it revolutionary) are very badly needed.

John Consiglio had a 42-year career as a professional banker and is a university lecturer and researcher in banking and finance. He chairs the Education Consultative Council of the MFSA.

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