For 20 years, Greater Boston’s once-storied financial services industry has been slowly fading, losing its luster and clout compared with the region’s high-flying tech and life sciences sectors.
And that has become particularly noticeable as the economy bounces back from the impact of the COVID-19 pandemic.
Of all the major industries in Massachusetts, the finance-and-insurance sector is the only one that hasn’t grown over the past year, amidst a broader employment boom. Even as the state added 131,000 private-sector jobs in the 12 months that ended in October — a 4 percent jump — the number of people working in finance and insurance remained flat at 173,000, according to the newest monthly data released by the state on Friday.
It’s a trend that can be linked to the pandemic and the rise of remote work. But it also underscores deeper concerns that Boston-area business leaders have long held, particularly since the Great Recession hit in 2008.
The city has long been a financial services hub. It’s the birthplace of the mutual fund and the center of banking in New England. But industry consolidation, automation, and the high cost of living have gradually chipped away at that status. The ranks of people working in financial services in Massachusetts have stagnated, never getting back to the peak of 192,000 jobs seen in early 2002, and generally hovering in the 170,000-range for much of the last decade. In September, the number dipped below that threshold for the first time since 1996.
The shift has been seismic, even before the pandemic when tech firms took over much of the Financial District. Now, with half-empty office towers throughout the district, there’s even been talk of converting some of those office buildings to lab space, to accommodate the region’s fast-growing life science industry. (One such conversion, of a building near South Station that once held the country’s largest WeWork site, is underway).
Eastern Bank chief executive Bob Rivers said he believes the financial services sector’s heyday in the city has come and gone.
“I think the ‘Financial District’ is going to turn into something else,” Rivers said, “[although] it might continue to be called that for legacy reasons.”
Rivers runs the largest traditional bank based in Boston, but Eastern’s headquarters on Franklin Street only occupies about 45,000 square feet, and he is planning to cut back even that modest amount, as many office staffers work remotely. As with many Boston CEOs, Rivers worries that the high cost of housing drives people away; he says he sees new hires “Zooming in” from Florida, something he would never have envisioned before the COVID-19 pandemic.
The fact that Eastern is the largest Boston-based retail bank says something in and of itself. Gone are the days when Fleet bankrolled IPOs, or BankBoston managed branches in South America. Eastern is proudly local, with a footprint primarily limited to Eastern Massachusetts. Now, the only major independent retail bank based anywhere in New England is Providence-based Citizens Financial Group, which has kept its workforce stable at about 18,000 for at least a decade and has a major presence in Greater Boston.
“I’d be surprised if you see net employment growing in the financial services [over the next five years],” CEO Bruce Van Saun said. “I don’t think anybody has a plan that says that’s going to happen.”
Banking is just one of three important components of Greater Boston’s financial services sector, along with insurance and investment management. While State Street and Fidelity Investments remain, they’re the only two major independent fund companies based in the city. Massachusetts is still home to two huge independent insurers: Springfield-based MassMutual, which specializes in life insurance, and property-and-casualty giant Liberty Mutual, which have both expanded their office footprints here. (Boston also remains a major player in venture capital and private equity, but most of those firms, with a few notable exceptions, tend to operate with relatively lower staffing levels.)
The growing sense that Boston has become a branch-office town has weighed on the Greater Boston Chamber of Commerce for years. Unlike some other major local industries, finance and insurance doesn’t have a powerful lobbying group to champion it on Beacon Hill or its own quasi-public agency to cultivate corporate expansions.
For this reason, the Chamber persuaded lawmakers eight years ago to establish an advisory council for the industry, a group that includes reps from State Street, MassMutual, and Fidelity, as well as a few smaller companies, among others. The council meets three times a year to advise the governor on policies for strengthening the sector, though it’s not clear how much the low-profile council has helped shape public policy.
When he was at the Chamber, Jim Klocke led the push for this council, to shine more of a spotlight on financial services. More recently, top financial executives started trying to make Boston a hub for financial-technology startups, hoping to capitalize on the region’s tech and innovation economy.
But technology has its downsides. Klocke, who now leads the Massachusetts Nonprofit Network, worries the prevalence of remote work is taking its toll on the financial sector’s presence in Massachusetts.
“I would think that financial services would be more vulnerable to that syndrome than some of the other leading industries,” Klocke said.
Current chamber CEO Jim Rooney agrees. It’s much easier today, Rooney said, to hire workers in lower-cost locations.
“That speaks to this issue of competitiveness,” Rooney said. “The more we are complacent about it, the greater likelihood that these kinds of trends will continue.”
Few, if any, financial service companies have grown at a faster pace in recent years than Fidelity.
The company has added about 900 jobs in Boston since before the pandemic, growing its head count here to more than 5,500. Still, that number is far from the 13,000 that Fidelity employed in Massachusetts roughly 15 years ago. And Fidelity has grown employment significantly in other locations, including Smithfield, R.I., and Merrimack, N.H., since launching this hiring surge more than two years ago.
Kirsten Kuykendoll, Fidelity’s head of talent acquisition, said most new hires still need to be tied to a physical location, though the company is flexible about the days when employees can work from home. While most of Fidelity’s job growth is happening elsewhere, she pointed to the net increase in Boston over the last two years as evidence that “we definitely see the area as a really great place to find talent.”
Other companies strike a similar tone.
Even as the sector slowly sheds jobs to less expensive locales and the increased use of automation and artificial intelligence, many financial industry leaders say Boston is a place they want to be, and remain bullish on the city and the state. The industry may not be as prominent as it once was. But it’s still crucial to the city’s economic success.
“People still view Boston as a financial services hub, although not in the same way people did 10 years ago,” said Lexie Bishop, a local branch manager for Swiss investment bank UBS. “Health care, biotech, and education obviously come to mind in terms of the industries that Boston is known for. One of the things that makes Boston so special is that we have a lot of diversity in terms of the industries that have a presence here.”