The four biggest costs of hiring mistakes in banking and finance

‍As financial services recruitment gallops ahead, HR teams can find themselves under-resourced and over-stretched. If this situation is left unremedied, it risks causing systematic poor hiring decision-making that has an enormous impact on firms’ ability to compete. Here are four specific ways hiring mistakes damage the organisation. 

‍

Financial services recruitment has been soaring for the past year. In London, for example, technology-based financial services vacancies increased by 88% in 2024 compared to 2023’s monthly average. 

‍

Both established and fast-growing financial services firms are racing to keep up in a buoyant and competitive market, and looking to prepare for regulatory developments around AI, crypto, and the UK listing regime. 

‍

It’s a time of huge opportunity for finance. But it’s also a time of risk. 

‍

The organisations that recruit well stand to build a future-facing workforce that’s better equipped to serve customers today and tomorrow. The organisations that struggle face a widening gulf between them and better-resourced competitors.

‍

Facing this mounting pressure, many teams are finding themselves under-resourced, under-valued, and over-stretched. This can cause a proliferation of poor hiring decision-making that can be extremely costly. 

‍

Let’s talk about that. 

‍

Four ways poor hiring decision-making hurts financial services firms

‍

#1 Insufficient working capital and cash flow 

‍

Your people are your biggest operating cost, and recruitment is one of the costliest activities within the people mix.   

‍

That’s true even if your hiring function is perfect: efficient, speedy, and reliable. It’s especially true if your hiring function is like many other finance organisations’: clunky, slow, bureaucratic, and inconsistent.  

‍

Ultimately, these issues cause poor hiring decisions, which then contribute to the banking and finance sector’s notoriously high turnover. For example, Crowe Bank’s 2023 research found non-office turnover in finance was 19.8%. As context, the average turnover rate across industries hovers around 15%. 

‍

Besides the other costs of poor hiring, this has a huge financial implication. Conventional estimates say a bad hire costs three times annual salary, when you consider factors like:

‍

• Replacement recruitment costs
• Unrecoverable salary costs
• Compensation costs
• Training and onboarding costs
• Administrative costs 
• Termination costs
• Wasted management time
• Time lost to training 
• Lost productivity
• Lost team productivity

‍

Say you’re hiring 500 people a year, on an average salary of £50,000. If you’re losing 20% of them, you’re losing 100 people. At three times annual salary, you’d be paying £150,000 per lost hire, to the tune of £15M overall.

‍

That’s directly eating into working capital and cash flow, which has a knock-on impact on the organisation’s ability to operate and innovate. 

‍

Keeping turnover costs down by making better hiring decisions has a concrete, chunky impact on the organisation’s resources to compete. Better recruitment isn’t a people issue: it’s a business issue.  

‍

#2  Long-term mismatch to market needs 

‍

Increased competition and changing consumer attitudes, needs, and behaviours have thrust financial services organisations into a fierce battle for market share. The industry still has its behemoths, but nobody can afford to rest on their laurels in the fight to protect and grow revenue.

‍

Hiring the right people is critical. Having the right people in the right places means the organisation is better positioned to understand and serve evolving customer needs.

‍

An important question within that is whether financial organisations have the right people to capitalise on their entire addressable market. The right people to seize the opportunities that exist out there.  

‍

For example, a study by Kantar suggests financial institutions are missing out on some $800 billion in investable assets because they’re not marketing effectively to women. RecruitingDaily connects this to poor gender diversity: internal underrepresentation driving external underrepresentation.  

‍

To build a successful hiring function that supports growth, HR leaders need a clear, well-defined hiring strategy and the recruitment processes, policies, and people to consistently deliver against it.  While recruitment remains reactive and chaotic, that’s usually an uphill struggle.

‍

#3 Delayed long-term growth 

‍

Consistently hiring the wrong people can cause a long-term inability to meet evolving needs. And the stakes are even higher — and the impact more immediate — the more senior the hire.

‍

This isn’t just about money, although senior hires cost more to recruit, train, terminate, and replace. 

‍

The real cost here is the damage to your long-term trajectory and growth. Exec search firm Bespoke Partners explain the costs of executive hiring mistakes within private equity: 

‍

“Let’s assume a mis-hired C-level executive will be in the role for at least nine months before the need to make a change is clear. During that time, the mis-hired C-Suite leader probably has implemented unsuitable strategies or broken processes. 

‍

It’s a trickle-down effect of detrimental effects before the ability to turnover that executive. Once it is clear a change is needed, those ineffective strategies or processes need to be undone, which leads to staff confusion and lower morale.

‍

In addition to going off course of its investment thesis, tack on the time to hunt for a new executive and you have lost a year or more of precious execution runway.”

‍

Overall, they estimate that a single poor exec hire puts finance organisations at a loss of “several hundred thousand dollars in compensation, as well as tens of millions of dollars in delayed long-term growth”. 

‍

Of course, HR teams know what’s at stake here. But these mistakes still happen, often because HR lacks the bandwidth to invest enough time and attention into these big decisions. 

‍

Chronic under-resourcing of HR teams creates pandemonium and pressure that hurts organisations’ ability to hire well. 

‍

#4 Erosion of customer trust and reputation damage

‍

Customer trust is a major driver of revenue-generating behaviour — so rightfully, trust matters a whole lot to finance organisations. 

‍

Forrester research shows that customers with high levels of trust are more likely to open another account with the same bank, recommend it to friends and family, and prefer that bank over competitors, for instance. All the good stuff.

‍

But despite best efforts, many banks have been slow to strengthen customers’ trust. The trust equation is complex and multi-faceted, and trust is hard-won and easy-lost. 

‍

One of the biggest factors is the people you hire. Your people are your business. Hiring people you can trust to act responsibility, ethically, and effectively is critical to help protect customers’ trust in your organisation. 

‍

At worst, one bad decision from one poor hire can set into motion an entire series of actions (or inactions), behaviours, and a cultural climate that enables scandal. This can carry enormous regulatory penalties, as well as damaging trust wholesale and for years. Credit Suisse is an obvious recent example.

‍

Better hiring isn’t the only factor here, by any means. But making better hiring decisions — to bring the right people into the organisation and build a workforce with integrity — is a crucial chunk. 

‍

Hiring right should be finance’s biggest business priority 

‍

These four costs should definitively prove that people problems aren’t just people problems. They’re fundamental issues that disrupt financial organisations’ ability to compete. 

‍

The financial services organisations that recognise this, and empower their HR function accordingly, are better able to make major commercial waves. The Venn diagram of high-performing organisations and organisations with modern, fast, resourced, credible HR teams is practically a circle. 

‍

But too often, teams are stuck with legacy tools and processes that hamper their ability to deliver. As a result, financial services recruitment is often slow, inefficient, reactive, and pressured, creating hiring mistakes. 

‍

HR teams need modern tools throughout the recruitment process, to make hiring easier, more effective and more efficient — for better hiring that better serves the organisation and its customers. 

‍

Partnering up with an established, reputable background screening is one high-impact, low-effort area for HR to tackle inefficiency and improve hiring confidence. It’s time to banish the dinosaur processes and move with business partners who are as forward thinking as you are!

‍

Talk to Veremark about safe, swift screening that can knock weeks off your time-to-hire and zeros off your recruitment costs. 

‍

Learn more about Veremark for finance and banking.

‍