In a dramatic reversal from earlier projections, the financial services industry is now bracing for broadly positive year-end bonuses across most sectors in 2025, according to Johnson Associates’ latest report released November 5, 2025. This marks a significant shift from the May projections that anticipated widespread declines of 10-15% across the industry.
After navigating early-year volatility triggered by tariff concerns, the industry has found its footing with strong equity markets, robust trading activity, and a resurgent advisory business. The updated projections show compensation trending higher across nearly all sectors, with investment banking functions seeing particularly strong gains.
This comprehensive analysis breaks down the dramatic shift in compensation trends, explores the factors driving the recovery, and examines what this means for professionals across various financial sectors heading into year-end conversations.
The Great Reversal: From Pessimism to Optimism
The contrast between Johnson Associates’ May and November projections could not be starker. Where the May report projected declines of 5% to 10% across most banking and asset management functions, the November update now shows increases ranging from flat performance to gains exceeding 25% in some areas.
The turnaround reflects how quickly market conditions evolved following the tariff-induced volatility of early 2025. What began as widespread concern about trade wars and geopolitical tensions has given way to market resilience, with the S&P 500 gaining 18% year-to-date through early November. Technology-led gains have driven concentrated returns, while banks and asset managers have emerged as clear winners with rising revenues.
Perhaps most remarkably, major investment banks have seen their stock prices surge 31% year-to-date, significantly outperforming both the broader market and other financial sectors. This equity performance reflects underlying business strength that is now flowing through to compensation pools.
Broad Compensation Trends
Johnson Associates now projects year-end incentives to be broadly positive across financial services sectors, a complete reversal from the earlier forecast. The firm notes that while geopolitical uncertainties and tariffs continue to linger into year-end 2025 and beyond, the industry has adapted successfully to this environment.
Several key factors are driving the improved outlook. Strong equity markets have persisted despite first-half volatility, with concentrated technology-led returns offsetting concerns about elevated valuations. Trading desks continue to benefit from volatility and increased client activity. The advisory business has rebounded strongly in the second half of 2025, marking the strongest year for M&A activity since 2021.
Scale advantages continue to accelerate across the industry, with the largest firms benefiting from distribution strength and product diversification. This bifurcation is particularly pronounced in traditional asset management, where passive products continue to capture the majority of flows while active ETFs show emerging strength.
Hiring activity remains generally muted across the industry as firms focus on expense control and efficiency initiatives. However, select pockets of talent war persist for key roles, with strong demand continuing for high-end investment professionals, technology specialists, fundraisers, and transformation experts. Looking forward, Johnson Associates projects that AI and technology-led reductions will result in aggregate headcount declining 10% to 20% over the next three to five years, with remaining staff capturing a larger share of compensation pools.
Sector-by-Sector Analysis
Investment Banking: The Clear Winner
Investment and commercial banking shows strong results across all business units, with dramatic improvements from the May projections. The November report projects increases ranging from flat to 25%, with most functions showing double-digit gains.
Equity sales and trading leads all financial services functions with projected increases of 15% to 25%, continuing to benefit from volatility-driven trading volumes and strong client activity. This represents a modest improvement even from the already strong May projection of 15% to 25%.
The advisory business has staged a remarkable comeback, with projections now showing gains of 10% to 15% compared to the May forecast of declines of 5% to 10%. The November report notes that advisory has rebounded strongly in the second half of 2025, marking the strongest year since 2021. This reversal reflects deals that were delayed during the period of economic uncertainty finally moving forward.
Fixed income sales and trading is projected to increase 5% to 15%, down slightly from the May projection of 10% to 20% but still representing strong performance. Debt underwriting shows similar trends with gains of 5% to 15%.
Perhaps most dramatically, equity underwriting has reversed from projected declines of 10% to 20% in May to gains of 5% to 8% in November. While equity underwriting remains up from weak 2024 levels, the report notes that Q4 government shutdown effects may temper the gains somewhat.
Firm management and corporate staff functions are projected to see increases of 10% to 15% and 5% to 8% respectively, with executive pay outpacing broader corporate pools. This represents a significant reversal from the May projections of declines of 5% to 10% for both categories.
The only banking function showing modest performance is retail and commercial banking, projected at flat to 5% increases. This continues to reflect lower lending volumes and higher credit provisions affecting the consumer banking business.
Traditional Asset Management: A Dramatic Recovery
Traditional asset management shows the most dramatic reversal of any sector, with November projections of 7% to 12% increases compared to May forecasts of 5% to 10% declines. This 17-percentage-point swing reflects the powerful impact of strong equity market performance on asset-based revenues.
The recovery has been driven by strong equity markets despite first-half volatility, with concentrated technology-led returns powering asset appreciation. Passive products continue to capture the majority of flows, but the growth of active ETFs provides a bright spot for managers who have successfully pivoted to this structure.
The scale bifurcation in traditional asset management continues to accelerate, with the largest firms benefiting from distribution strength and the ability to offer a comprehensive product suite. Smaller managers continue to face headwinds, but the rising tide of market appreciation has lifted all boats to some degree.
Within traditional asset management, equity-focused managers are seeing the strongest compensation gains of 9% to 12%, reflecting both market appreciation and the concentration of returns in equity markets. Fixed income asset managers are projected to see increases of 6% to 9%, benefiting from their role as a diversification tool in portfolios even as equity markets dominated performance.
Hiring in traditional asset management remains subdued overall, though there are select focus areas including technology roles and expansion into India as firms seek to capitalize on emerging market opportunities and build out technology infrastructure.
Wealth Management and Family Offices: Strong Momentum
Wealth management is projected to see increases of 8% to 10%, a significant improvement from the May projection of declines of 2.5% to 7.5%. This 15-percentage-point positive swing reflects strong investor demand and an ongoing talent war for top advisors.
The wealth management sector continues to benefit from its relationship-driven business model and recurring revenue streams. The November report notes strong investor demand persisting throughout 2025, with clients maintaining engagement despite earlier concerns about market volatility.
Alternative product expansion with cross-selling opportunities has provided an additional revenue driver for wealth managers who can offer sophisticated clients access to private markets and other alternative strategies. This capability has become increasingly important as wealth managers compete with family offices and direct indexing platforms.
Family offices are projected to see increases of 5% to 8%, described as moderately positive with a diversified asset allocation mix. The report notes that stronger governance and infrastructure initiatives underpin an ongoing institutionalization process in the family office space, with sophisticated families increasingly demanding institutional-quality operations and oversight.
Hedge Funds: Wide Performance Dispersion
Hedge funds show projected increases of 2.5% to 10%+, with the report emphasizing wide variations across strategies. The performance dispersion among hedge funds has widened considerably in 2025, creating a bifurcated compensation environment.
Long-biased funds are clearly outperforming, benefiting from the strong equity market rally and concentrated technology returns. These funds have dominated performance in 2025, with managers who maintained high net long exposure capturing substantial gains.
Proprietary trading firms lead the pack among all hedge fund strategies, with the report indicating outperformance across this category. Event-driven strategies are also outperforming, benefiting from the renewed M&A activity and corporate action that accelerated in the second half of 2025.
At the other end of the spectrum, multi-strategy funds show subdued performance after a strong 2024, with the report indicating under-to-market performing results. This represents a reversal from recent years when multi-strategy funds dominated hedge fund performance. Quantitative strategies are underperforming in 2025, possibly reflecting challenges in a market characterized by concentrated returns and momentum-driven price action.
Macro, arbitrage, and credit strategies are market-performing, described as showing results in line with broader hedge fund benchmarks. The flows resurgence and stronger demand noted in the report suggest that investor appetite for hedge funds has returned after a challenging period, though capital is flowing disproportionately to winning strategies and established managers.
Aggressive recruitment continues for top portfolio managers, fundraisers, and technology professionals, reflecting the ongoing talent war in areas that directly drive performance and asset-gathering.
Illiquid Alternatives: Stabilization with Persistent Challenges
Illiquid alternatives are projected to see results ranging from flat to 10%, with significant variation by strategy and firm size. The report notes that muted exits continue as interest rates stress valuations, while aggressive and subpar underwriting from 2021-2022 remains a persistent headwind for the sector.
Within illiquid alternatives, secondaries lead with projected increases exceeding 10%, reflecting continued strong demand for liquidity solutions as limited partners seek to rebalance portfolios and exit older vintage funds. The secondaries market has become increasingly important as a release valve for the broader alternatives ecosystem.
Private credit is projected to increase 5% to 10%, though the report notes that while private credit remains hot, cracks are showing with examples like First Brands and Tricolor raising concerns about credit quality in an extended cycle. Despite these emerging concerns, private credit continues to attract strong institutional and retail interest.
Infrastructure is also projected to increase 5% to 10%, benefiting from long-term secular themes around energy transition, digital infrastructure, and the reshoring of manufacturing capacity.
Large private equity firms are projected to see flat to 5% increases, while mid and small private equity firms, along with real estate and venture capital, are all projected flat. This divergence reflects the scale advantages that have emerged in alternatives, with mega funds and multi-strategy firms benefiting from product diversification while small and mid-sized firms with single strategies face challenges around exits, fundraising, and staffing levels.
The report emphasizes that retail has become a key growth driver as the institutional channel reaches saturation. Alternative managers are increasingly focused on accessing retail wealth through interval funds, evergreen structures, and partnerships with wealth management platforms.
Insurance: Modest but Positive
Insurance sector compensation is projected to increase 2.5% to 5%, with meaningful differences between property and casualty versus life and annuities businesses.
Property and casualty insurance is projected to increase 3% to 5%, reflecting recovery and tailwinds after outsized early-year losses from catastrophic events. The P&C sector has benefited from firming pricing and improved terms and conditions in many lines of business.
Life and annuities are projected to increase 2% to 4%, facing margin compression in a falling rate environment even as annuities sales remain strong. Fixed annuities have seen particularly strong demand from investors seeking yield and principal protection, though lower interest rates have compressed margins for carriers.
The report notes that cost discipline and efficiency are increasingly key performance drivers across insurance, with the sector focusing on expense management even as revenues grow. Additionally, asset management bifurcation continues, with some insurers building in-house asset management capabilities while others outsource to third-party managers.
Firm-by-Firm Variations
The November report reveals that firm-by-firm incentive pools are trending higher across both asset management and investment and commercial banking, though with notable dispersion suggesting that business mix and execution quality matter significantly.
Among the 20 traditional asset managers tracked, the projected increases range from 2.5% at the low end to 15% at the high end. The distribution shows several firms clustered at each increment, with the majority projecting increases of 7.5% to 10%. This suggests that while the sector as a whole is benefiting from market appreciation, specific firms have captured outsized gains through successful product strategies or distribution advantages.
For major investment and commercial banks, the 15 institutions tracked show projected increases ranging from 5% at the low end to 15% at the high end. The distribution is more tightly clustered than in asset management, with most banks projecting increases of 10% to 12.5%. The relative consistency suggests that while business mix matters, the broad strength across investment banking functions has lifted most major institutions.
Historical Context and Long-Term Trends
The Johnson Associates data tracking cumulative incentive trends since 2021 provides crucial context for understanding the 2025 projections. When indexed to 2021 levels, most sectors are nearing or exceeding 2021 compensation levels, though still lagging inflation over the period.
Private equity maintains the strongest cumulative performance since 2021, now projected at 10% above 2021 levels. This represents continued strength in a sector that has maintained positive performance throughout the period despite challenges around exits and fundraising.
Major banks are projected at 8% above 2021 levels, reflecting the strong recovery in investment banking revenues. This marks a significant comeback from the trough of 2022-2023 when banks were 15% below 2021 levels.
Hedge funds are projected at 5% above 2021 levels, showing recovery from the challenges of 2022-2023. Wealth management stands at 1% above 2021 levels, while insurance is essentially flat with 2021.
Asset management, despite the strong 2025 projections, remains 8% below 2021 levels on a cumulative basis. This reflects the severe decline of 2022-2023 when the sector dropped to 24% below 2021 levels. While 2024 and 2025 have brought substantial recovery, traditional asset managers have not yet fully recouped the ground lost during the challenging 2022-2023 period.
Market Performance and Stock Prices
The year-to-date stock performance across financial services sectors helps explain the improved compensation outlook. Major banks have been the clear winners, with stock prices up 31% through early November. This significantly outpaces both the S&P 500’s 18% gain and asset managers’ 16% increase.
The tariff-induced early Q2 volatility that dominated headlines and the May compensation projections has largely abated, with market resilience characterizing the remainder of 2025. The report notes that rate cuts are on the horizon, providing an additional tailwind for financial stocks.
Asset managers have benefited from rising revenues driven by both market appreciation and modest net inflows, translating to a solid 16% stock price gain. Regional banks have shown more modest performance with a 2% gain, while the insurance sector has tracked the broader market relatively closely.
Alternatives managers have been the notable laggard, with stock prices down 12% year-to-date. This reflects the difficult environment for private equity, venture capital, and real estate despite the modest positive compensation projections. The disconnect between stock performance and compensation suggests that while these firms continue to pay employees, public market investors remain concerned about future prospects given exit challenges and valuation pressures.
The report notes that elevated valuations relative to historical norms and concentrated technology-driven gains characterize the current market environment. This suggests some caution may be warranted despite the strong year-to-date performance.
The Tariff Wildcard
While the November report projects broadly positive results, it continues to emphasize that geopolitical uncertainties and tariffs linger into year-end 2025 and beyond. The tariff concerns that dominated the May projections have not disappeared but rather have been absorbed by markets that proved more resilient than feared.
The fact that compensation has shifted from broadly negative to broadly positive despite ongoing tariff uncertainty suggests that either the tariff concerns were overestimated in May, or that financial services firms have proven more adaptable to the new trade environment than initially expected.
The report does not provide the three scenario analysis (upside, base, downside) that was featured in the May projections, suggesting that reduced uncertainty has made such scenario planning less critical at this stage of the year. However, the continued mention of geopolitical uncertainties and tariffs indicates these remain relevant considerations for 2026 and beyond.
Looking Ahead: Headcount and the Future of Work
One of the most significant long-term insights in the November report relates to headcount evolution across the financial services industry. Johnson Associates’ proprietary analysis of SEC filings for 20+ financial services firms from 2008 to 2025 reveals that aggregate headcount has increased 77% since the financial crisis, creating what they term the “2025 precipice.”
The report notes that firms became bloated amid intense competition and talent wars, especially during the 2017-2021 hiring surge. Layoffs and reduced hiring activity began with the 2022 struggles and have continued through 2024-2025, with firms focusing on expense control and efficiency.
Looking forward to 2026 and beyond, Johnson Associates projects that aggregate headcount will decline 10% to 20% over the next three to five years, driven primarily by AI and technology-led reduction. The impact will be felt most acutely in operational and entry-level roles, though the report emphasizes that most individuals and firms must evolve to adapt to these changes.
Critically, the report notes that as headcount declines, pay pools will accrue more to remaining staff. This suggests that even if overall compensation pools remain flat or grow modestly, individual compensation for those who remain employed could see meaningful increases. This dynamic could partially offset the career concerns created by technology-driven displacement.
Strategic Implications for Financial Services Professionals
The dramatic shift from the May to November projections carries several important implications for financial services professionals heading into year-end conversations and 2026 planning.
First, the reversal demonstrates the extreme sensitivity of financial services compensation to market conditions and the difficulty of forecasting even six months ahead in volatile environments. Professionals should be cautious about making major career decisions based on mid-year projections, particularly in years characterized by significant uncertainty.
Second, the divergence in performance across sectors and strategies has widened considerably. The spread between the best-performing functions (equity sales and trading at 15-25%) and worst-performing (retail/commercial banking at flat to 5%) approaches 20 percentage points. This suggests that strategic positioning within financial services matters more than ever.
Third, the scale advantages that Johnson Associates consistently emphasizes continue to grow more pronounced. Whether in traditional asset management, alternatives, or banking, larger and more diversified platforms are generally outperforming smaller, specialized firms. Professionals at smaller institutions may need to consider whether their platforms provide sufficient resources to compete effectively.
Fourth, the technology-driven headcount reductions projected for 2026 and beyond should factor into longer-term career planning. While compensation for remaining employees may increase, professionals should be developing skills and relationships that provide resilience in an environment of increasing automation and efficiency pressure.
Finally, the return of the advisory business and equity underwriting from their May lows suggests that professionals who maintained focus and capabilities during challenging periods are now being rewarded. The firms and individuals who used the quiet period to prepare for an eventual recovery appear to be capturing outsized gains as activity has rebounded.
Conclusion
The financial services compensation outlook for 2025 has undergone a remarkable transformation from the bleak projections of May to the broadly positive expectations of November. After navigating tariff-induced volatility and economic uncertainty, the industry has found its footing with strong equity markets, robust trading activity, and a resurgent advisory business.
The projected increases across most sectors range from flat to double-digit gains, with investment banking functions seeing particularly strong performance. Trading desks continue to thrive on volatility, while the advisory and underwriting businesses have rebounded more strongly than expected. Traditional asset management has benefited enormously from market appreciation, while alternatives face a more mixed picture with significant variation by strategy and firm size.
The firm-by-firm data reveals that while broad sector trends are positive, execution and business mix continue to matter. The most successful firms have leveraged scale advantages, maintained discipline during uncertain periods, and positioned themselves to capture opportunities as markets stabilized.
Looking beyond 2025, the industry faces a period of significant technological disruption with projected headcount declines of 10-20% over the next three to five years. However, remaining professionals may see compensation benefits as pay pools concentrate among fewer individuals.
As professionals enter year-end conversations, they do so with fundamentally better news than seemed likely just six months ago. The reversal serves as a reminder of both the volatility inherent in financial services compensation and the industry’s resilience in adapting to challenging environments. Understanding these trends and how one’s specific role and firm fit within the broader landscape will be crucial for navigating what promises to be a strong year-end bonus season and planning for the technological transformation ahead.
This analysis is based on Johnson Associates Financial Services Compensation Third Quarter Trends and Year-End Projections as of November 5, 2025. Actual results may vary based on market developments and firm-specific circumstances in the final weeks of the year.