Stocks & bots

Many Wall Street analysts are being replaced with software. What office jobs are next? 

When Mr Daniel Nadler woke on Nov 6, he had just enough time to pour himself a glass of orange juice and open his laptop before the Bureau of Labour Statistics released its monthly report on the US job situation at 8.30am. He sat at the kitchen table in his apartment in Chelsea, nervously refreshing his Web browser as the software of his company, Kensho, scraped the data from the bureau's website. Within two minutes, an automated Kensho analysis popped up on his screen: a brief overview, followed by 13 exhibits predicting the performance of investments based on their past response to similar job reports.

Mr Nadler couldn't have double- checked all this analysis if he wanted to. It was based on thousands of numbers drawn from dozens of databases. He just wanted to make sure that Kensho had pulled the right number - the overall growth in American payrolls - from the report. It was the least he could do, given that within minutes Kensho's analysis would be made available to employees at Goldman Sachs.

Besides being a customer, Goldman is also Kensho's largest investor. Mr Nadler, 32, spent the rest of the morning checking in with some of the bank's most regular Kensho users - a top executive on the options and derivatives trading desk, a fund manager - then took an Uber ride down for a lunch meeting at Goldman's glass tower just off the West Side Highway in Manhattan.

While almost everyone in the building dresses in neatly pressed work attire, Mr Nadler rarely deviates from his standard outfit: Louis Vuitton leather sandals, T-shirt and pants, both by the designer Alexander Wang. His austere aesthetic is informed by the summer vacations he spent in Japan while pursuing a doctoral degree in economics from Harvard, mostly visiting temples and meditating. ("Kensho" is the Japanese term for one of the first states of awareness in the Zen Buddhist progression.)

I met Mr Nadler later that day in his office on the 45th floor of 1 World Trade Center. His dozen or so employees shared a large room decked out in typical start-up style, including an aquarium. Mr Nadler has an office off to the side with little more than a large desk and an upholstered leather chair with matching ottoman. After closing the door, he told me about the day's feedback from Goldman. This included a good dose of amazement at Kensho's speed. "People always tell me, 'I used to spend two out of five days a week doing this sort of thing', or 'I used to have a guy whose job it was to do nothing other than this one thing'," he said.

Mr Nadler was primarily recounting those reactions as a way of explaining his concern about the impact that start-ups like his are likely to have on the financial industry. Within a decade, he said, between a third and a half of the current employees in finance will lose their jobs to Kensho and other automation software. It began with the lower-paid clerks, many of whom became unnecessary when stock tickers and trading tickets went electronic. It has moved on to research and analysis, as software like Kensho has become capable of parsing enormous data sets. The next "tranche", as he called it, will come from the employees who deal with clients: Soon, sophisticated interfaces will mean that clients no longer feel they need to work through a human being.

"I'm assuming that the majority of those people over a five-to- 10-year horizon are not going to be replaced by other people," he said. "In 10 years Goldman Sachs will be significantly smaller by head count than it is today."

Several Goldman managers I spoke to insisted Kensho has not yet caused any layoffs, nor is it likely to soon. Mr Nadler had warned me that I would hear something like that: "When you start talking about automating jobs, everybody all of a sudden gets really quiet."

Goldman employees who lose their jobs to machines are not likely to evoke much pity. But it is exactly Goldman's privileged status that makes the threat to its workers so interesting. If jobs can be displaced at Goldman, they can probably be displaced even more quickly at other, less sophisticated companies.


In late 2013, two Oxford academics released a paper claiming that 47 per cent of current American jobs are at "high risk" of being automated within the next 20 years.

The study looked at 702 occupations, using data from the Department of Labour, and assigned a probability of automation to each one. The conclusions made it clear this was no longer just the familiar story of robots replacing factory and warehouse employees.

Now software is increasingly doing the work that has been the province of educated people sitting in desk chairs.

According to the Oxford paper and subsequent research, employment prospects vary significantly by industry. But finance stood out in particular: Because of the degree to which the industry is built on processing information - the stuff of digitisation - the research suggested that it has more jobs at high risk of automation than any skilled industry, about 54 per cent.

The Oxford study received plenty of criticism. Nevertheless, the financial industry is taking automation very seriously. Investments in what is known as fintech, or financial technology, tripled between 2013 and 2014 to US$12.2 billion (S$17 billion). Decisions about loans are now being made by software that can take into account a variety of finely parsed data about a borrower. So-called robo-advisers create personalised investment portfolios, obviating the need for stock brokers and financial advisers. Banks are trying to fend off the newcomers by making their own investments in start-ups like Kensho, which has raised more than US$25 million so far.

Last autumn, Mr Antony Jenkins, who was dismissed a few months earlier as chief executive of Barclays, the giant British bank, gave a speech in which he said a coming series of "Uber moments" would hit the financial industry.

"I predict that the number of branches and people employed in the financial services sector may decline by as much as 50 per cent," Mr Jenkins told the audience. "Even in a less-harsh scenario, I expect a decline of at least 20 per cent."

This process could be seen as a satisfying blow against the titans of an industry that only recently almost crashed the world economy. But so far the burden of job losses is stopping just short of the executive suites, even as the gains in efficiency are worsening already troubling levels of income inequality.


Kensho's main customers at Goldman so far have been the salespeople who work on the high-ceiling trading floors. In recent months, they have used the software to respond to incoming phone calls from investors who buy and sell energy stocks and commodities, wondering how they should position their portfolios in response to, for instance, flare-ups in the Syrian civil war. In the old days, the salespeople could draw on their own knowledge of recent events and how markets responded. For a particularly valuable client, the sales representative might have called a research analyst within Goldman to run a more complete study.

Now a salesperson can just click an icon and access the Kensho interface, which consists of a simple black search bar. Mr Nadler showed me how the process worked on his laptop. Type in the word "Syria", and several groups of events related to the country's civil war appear. Among the top event groups are "Advances Against ISIS", which includes 25 past events, and "Major ISIS Advances and Brutal Atrocities", with 105 events.

Back on the trading desk, after picking out one group of events - the 27 incidents of "Escalations in the Syrian civil war", say - a sales trader can pick from a series of drop-down menus that narrow the search to a specific time period and a specific set of investments. The broadest set includes the world's 40 or so major assets, including German stocks and a few varieties of crude oil. They can then click on the green Generate Study button, and a few minutes later they'll have a new page full of charts.

Mr Nadler clicked to demonstrate. The top chart showed that prices of natural gas and crude oil have underperformed in the weeks after past escalations in the war, while Asian stocks and the United States and Canadian dollar pair has outperformed. Scrolling down, we could also see how each event in Syria played out, and begin to structure an optimal set of trades based on that history.

Mr Nadler closed his laptop. The whole process had taken just a few minutes. Generating a similar query without automation "would have taken days, probably 40 man- hours, from people who were making an average of US$350,000 to US$500,000 a year", he said.

When I raised the topic of automation with executives at Goldman and beyond, I often heard an optimistic belief that all the new software will free up employees in the financial industry to do other, more valuable things. Several executives argued that when ATMs were widely deployed, you didn't suddenly see bank branches disappearing.

This is a common criticism of the Oxford report on automation: Even if 47 per cent of all current jobs end up being automated, that does not mean that 47 per cent of the working population will not have jobs.

The lead author on the Oxford paper, Mr Carl Benedikt Frey, told me he was aware that new technologies created jobs even as they destroyed them. But, Mr Frey was quick to add, just because the total number of jobs stays the same doesn't mean there are no disruptions along the way. When it comes to those ATMs, there has, in fact, been a recent steady fall in both the number of bank branches and the number of bank tellers, even as the number of low-paid workers in remote call centres has grown.

This points to a disconcerting possibility: Perhaps this time the machines really are reducing overall employment levels. In a recent survey of futurists and technologists, the Pew Research Institute found that about half foresee a future in which jobs continue to disappear at a faster rate than they are created.


Mr Martin Chavez, a boisterous man who runs all of Goldman's technological operations, is unrestrained in his enthusiasm for Kensho: "This thing that we would have done in a very bespoke, almost artisanal way is now something that Kensho has industrialised."

Mr Chavez said Kensho itself was unlikely to displace many employees. The software, he said, was doing something that was previously so time-consuming it was seldom attempted. But Mr Chavez's larger efforts to digitise more of Goldman's operations are already changing the number and the type of employees. Over the past few years, the number of campus recruits coming to Goldman from science and technology majors has gone up 5 per cent each year, while the total headcount has barely budged.

Stock trading provides an interesting precedent for how automation can play out in an institution like Goldman. On the company's trading desks, stocks are now bought and sold by computers instead of people. Mr Chavez said the advent of computerised trading over the past two decades has reduced the number of Goldman employees who buy and sell American stocks the old-fashioned way - over the phone - to four from around 600, but the change in the number of traders tells only part of the story. Some of the traditional traders were replaced by programmers who design and monitor the new trading algorithms. Beyond that, there are now new jobs in the data centres where the high-speed trading takes place.

Goldman does not provide numbers on any of this. But Mr Paul Chou, who worked on the firm's electronic trading desks from 2006 to 2010, said he would guess the firm probably needed one programmer for every 10 of the old-school traders who lost their jobs.

Over the course of my conversations with Mr Nadler, he backed away from the notion that Kensho will destroy jobs at Goldman itself. But he had no doubt that Kensho and other financial start-ups would eliminate jobs as they expanded across the industry and that the pace of the losses would be much faster outside Goldman than inside. After Goldman's period of exclusivity with Kensho ended last year, Mr Nadler signed contracts to roll out the software at JPMorgan Chase and Bank of America.

Mr Frey has done more recent research indicating that innovations are no longer providing as big a boost to the economy and the labour force as they did in the past. In a paper he published last year with Swedish academic Thor Berger, he found that in the 1980s, a large portion of the American workforce was going into job categories that did not exist a decade before; IBM, in other words, was hiring. That movement, though, slowed down in the 1990s and went practically to zero between 2000 and 2010. To the degree that there are new jobs, Mr Frey's data suggests that they are often lower-paying ones that serve the wealthy elite, in roles like personal trainer or barista.

"Technology is becoming more labour-saving and less job-creating," Mr Frey said.

In less than three years, Mr Nadler's company has expanded to serve three of the world's largest banks and has needed only about 50 employees to do so. That growth has made Kensho worth hundreds of millions of dollars and turned Mr Nadler into a millionaire many times over, at least when his stake in the company is taken into account. But it's not clear how beneficial his company will be to the American labour market as a whole.

Back when I first met Mr Nadler last summer, he wasn't too proud to admit this. "The cynical answer that another tech entrepreneur would give you is that we're creating new jobs, we're creating technology jobs," he said. "We've created, on paper at least, more than a dozen millionaires."

"That might help people sleep better at night," he continued, "but we are creating a very small number of high-paying jobs in return for destroying a very large number of fairly high-paying jobs, and the net-net to society, absent some sort of policy intervention or new industry that no one's thought of yet to employ all those people, is a net loss."


• Nathaniel Popper is a financial reporter for The New York Times and the author of Digital Gold: Bitcoin And The Inside Story Of The Misfits And Millionaires Trying To Reinvent Money.

• This is adapted from an article that originally appeared in The New York Times Magazine.

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A version of this article appeared in the print edition of The Sunday Times on February 28, 2016, with the headline Stocks & bots. Subscribe