A longtime mainstay of the Boston economy, finance is fading even faster since COVID

It’s a trend that may be linked to the pandemic and the rise of remote working. But it also underscores deeper concerns Boston-area business leaders have long harbored, particularly since the Great Recession hit in 2008.

The city has long been a center of financial services. It is the birthplace of the mutual fund and the banking center of New England. But industry consolidation, automation and the high cost of living have gradually eroded this status. The ranks of people working in financial services in Massachusetts have stagnated, never returning to the peak of 192,000 jobs seen in early 2002 and generally hovering in the 170,000 range for much of the past decade. In September, the number fell below that threshold for the first time since 1996.

The shift has been seismic, even before the pandemic, as tech companies took over large parts of the Financial District. Now, with half-empty office towers across the district, there’s even talk of converting some of those office buildings into laboratory space, to house the region’s rapidly growing life science industry. (One such conversion, of a building near South Station that once housed the largest WeWork site in the country, is underway.)

Eastern Bank CEO Bob Rivers said he believes the heyday of the city’s financial services industry has come and gone.

“I think ‘Financial District’ will turn into something else,” Rivers said, “[although] it could continue to be called that for reasons of inheritance.

Rivers operates the largest traditional bank headquartered in Boston, but is also the headquarters of Eastern on Franklin Street occupies only about 45,000 square feet and plans to reduce even that modest amount, as many employees are working remotely. As with many Boston CEOs, Rivers fears the high cost of housing will turn people away; he says he sees new hires “bulging” out of Florida, something he never would have imagined before the COVID-19 pandemic.

The fact that Eastern is the largest retail bank headquartered in Boston speaks volumes. Gone are the days when Fleet financed IPOs or BankBoston operated branches in South America. The east is proudly local, with a footprint limited primarily to Eastern Massachusetts. Now, the only major independent retail bank headquartered anywhere in New England is the 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 would be surprised if you see net employment growing in financial services [over the next five years]”, said CEO Bruce Van Saun. “I don’t think anyone has a plan that says it’s going to happen.”

Banking is just one of three major components of Greater Boston’s financial services industry, along with insurance and investment management. While State Street and Fidelity Investments remain, they are the only two major independent fund firms headquartered in the city. Massachusetts it’s still home to two large independent insurers: Springfield-based MassMutual, which specializes in life insurance, and property and casualty giant Liberty Mutual, both of which have expanded their footprints here. (Boston also remains a major player in venture capital and private equity, but most of these firms, with a few notable exceptions, tend to operate with relatively lower staffing levels.)

The growing sense that Boston has become a city with branches has weighed on the Greater Boston Chamber of Commerce for years. Unlike other major local industries, finance and insurance do not have a powerful lobbying group on Beacon Hill or its own quasi-public agency to nurture corporate expansion.

A view of windows along Congress Street in the financial district of downtown Boston on September 24, 2020.Staff of David L. Ryan/Globe

For that reason, the House convinced lawmakers eight years ago to establish an Industry Advisory Council, a group that includes representatives from State Street, MassMutual and Fidelity, as well as some smaller companies, among others. The board meets three times a year to advise the governor on policies to strengthen the sector, though it’s unclear how much the low-key board has helped shape law and order.

When he was in the House, Jim Klocke led the push for this council, to put a greater spotlight on financial services. More recently, top financial executives have begun trying to make Boston a hub for fintech 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, fears the prevalence of remote work is straining the financial sector’s presence in Massachusetts.

“I think financial services would be more vulnerable to this syndrome than some of the other leading industries,” Klocke said.

Current House Chief Executive Jim Rooney agrees. It’s much easier today, Rooney said, to hire workers in low-wage locations.

“That speaks to this competitiveness issue,” Rooney said. “The more complacent we are, the more likely these kinds of trends will continue.”

Few, if any, financial services companies have grown at a faster rate in recent years than Fidelity.

In this Oct. 14, 2019 file photo, a Fidelity Investments logo is attached to a building in Boston. Steven Senne/Associated Press

The company has added about 900 jobs in Boston since before the pandemic, bringing the number of employees here to more than 5,500. However, that number is far from the 13,000 employed by Fidelity in Massachusetts about 15 years ago. And Fidelity has significantly increased employment in other locations, including Smithfield, RI and Merrimack, NH, since it launched this hiring surge more than two years ago.

Kirsten Kuykendoll, head of talent acquisition at Fidelity, said the majority of new hires still need to be tied to a physical location, though the company is flexible about the days employees can work from home. While most of Fidelity’s job growth is happening elsewhere, it pointed to the net increase in Boston over the past two years as evidence that “we definitely view the area as a really great place to find talent.”

Other companies have a similar tone.

Even as the industry is slowly moving jobs to less expensive locations and increasing the use of automation and artificial intelligence, many finance industry leaders say Boston is a place they want to be and remain optimistic about the city and on the state. The industry may not be as important as it once was. But it is still crucial to the city’s economic success.

“People still see Boston as a financial services hub, though not in the same way people did 10 years ago,” said Lexie Bishop, a local branch manager for Swiss investment bank UBS. “Healthcare, biotechnology and education obviously come to mind in terms of the industries 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 are here.”


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.

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