The recent turmoil in the world’s financial markets, which has claimed among its victims such former stalwarts of the financial world as HBOS and Lehman Brothers, will have wide ranging and profound consequences, according to specialist financial recruiters. The impact will be no short-term blip followed by business as usual, but will continue to reverberate through the sector for years to come.

Gareth Davage, managing director Michael Page Finance —Regions, said the impact of the current downturn on recruiters in the sector is profound. “The technical recession is the biggest thing to happen to our industry in the last 12 years,” said Davage. In his view, other developments in the recruitment industry, such as online recruitment, paled into insignificance beside the changes originally induced by problems in the US housing market.

Davage predicted that if the recession turned out to be deep, a distinct possibility given question marks over the US Federal Reserve’s $700bn (£380bn) rescue package to underwrite ‘toxic’ derivatives and bonds, a lot of agencies would go out of business. However, he believed that Michael Page would increase its marketshare.

Jeff Deacon, chief executive of actuarial and pension recruiter The Emerald Group, said it was inevitable that there would be casualties among recruiters supplying finance staff to the sector. “I can see anything up to 25% of recruiters going to the wall,” he said.

However, it depended on their business models, with some recruiters more likely to go under than others, he argued. “If they depend just on investment banking, it would probably be 75% who go out of business as there’s not a lot of money coming out of investment banking.”

This would inevitably mean there were fewer opportunities for recruiters in those areas, he said.

This could lead to a “seismic shift” into “less heavily regulated” areas such as alternative markets and hedge funds, he predicted.

Deacon said that while not everyone who lost their job would find another one in the sector, “the smarter ones” would find jobs in these areas.

Recently established recruiters would be particularly susceptible to the difficult market conditions, according to Deacon. “If you have only been established for two or three years, you won’t survive — clients are moving back to their established relationships again.”

He said it was inevitable there would be fewer consultants working in the sector in 12 months time, he reckoned.

“I don’t think that we will see an improvement before at least 12 months,” Deacon added.

However, it was not all bad news, he said, as with fewer recruiters around this would create opportunities for those that survived to grab more business.

Some recruiters with sufficient capital would also take the opportunity to make acquisitions.

Sheldon Paule, managing director of accountancy and financial services recruiter Cameron Kennedy, told Recruiter that there would be significant fallout from the downturn in the sector.

The larger recruiters will look to cut costs, Paule predicted, though medium and smaller-sized players “will probably do better”.

Paule predicted there would be other fallout from the downturn. “I would imagine that bonus structures and remuneration structures will change as well,” he said. “It’s not cost-effective for someone on a basic salary of £50,000 to be generating fees of only £100,000.”

A high basic salary works in a boom, but it was not appropriate for abnormal normal market conditions such as these, he argued.

There would also be structural changes to the industry within the sector, he said. While the large players in the market would still exist, some recruiters might decide to merge. A lot of new start-up recruiters would find conditions too tough and would “clear out of the sector”. Some recruiters outside London would be “wiped out”, he claimed.

Overall, Paule said that while there would still be positions for recruiters to fill within financial services, these would be fewer in number.

However, Paule said it was “not all gloom and doom”.

One chink of light came from the widely predicted increase in regulation by financial regulators keen to ensure there is no repeat of the events leading up to the credit crunch. “It’s pretty certain there will be an increase in demand for people in regulated areas, in compliance — both finance and internal control aspects and greater employment in the risk areas,” he said.

Paule said he was hopeful that accountancy would prove “more resilient” than in the recession of the early 1990s, though he added that even accountants could no longer expect “a job for life”.

Davage predicted that the recession will “sort out” who is in the industry purely for the cash — who should think of leaving it — and those who are really passionate about what they do.

Paule argued that the type of consultant required to survive and prosper in the sector would change fundamentally as a result of the downturn. The focus would change from “pure account handling” to building, developing and maintaining relationships, he said.

Paule added: “Recruiters who lose an account, or where the account suddenly ceases to recruit, will find themselves with highly paid resources that are not generating the fees.

“You have to have the skills to develop other business,” he explained.

Recession will fundamentally change the way that recruiters operate because clients are now in a position to call the shots, agreed Davage.

The transactional business model on which many recruiters based their business is past its sell-by date, he argued, and will increasingly be replaced by one based on relationships with the client.

“Client expectations are a lot higher now,” he said. They expect recruiters to understand their business and culture. This trend had been going on for the past six months as the finance sector in particular began to falter, but this had been accentuated by recent events, he explained.

According to Davage, there will be many casualties within the industry as individual consultants struggle to transform themselves to meet these changing requirements.

“I think there are thousands of people in recruitment who won’t be able to make that leap,” he said. “And even those who are successful in changing how they operate will only do so with guidance and training.”

Davage added that consultants would also need good listening skills, belief in their own potential and resilience.

For those who can’t make that leap, Davage said there was “no point” in staying in recruitment.

However, he said there would be positive benefits for those consultants who were adaptable enough to ‘up skill’ themselves so as to build relationships with clients. They would be better consultants than before, it would confirm they were in the right career and they would be ready for promotion to director level within two to three years.

However, while the fallout from the current market turbulence undoubtedly means challenging times ahead for recruiters for some time to come, including inevitable casualties, no one is predicting Armageddon.

Deacon, for one, has no doubts that the industry serving the finance and banking sector will come through the current carnage — albeit it will look a lot different. “The recruitment industry will always be here because it is versatile,” he said.