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The latest research from US firm JP Morgan forecasts that a total of 40,000 jobs will be axed in the sectors of corporate finance, investment banking and its derivatives, this is double the amount predicted by the Centre for Economics and Business Research only a short time ago. Citigroup alone has recently announced their intention to shed over 22,000 jobs.

As an increasingly unstable climate embraces the financial services industry, cost effective strategies for business survival are paramount. While talent management may not be top of the industry's priorities at present, its contribution to keeping the most valuable employees cannot be underestimated.

Employers should resist the temptation to reduce headcount as a reaction to the current downturn, lessons were learnt from the 1980's recession which should not be ignored. Growth will inevitably follow the squeeze and when that happens, businesses need to have the right people with the right skills in place.

As the story unfolds, the industry will need people with differing, evolving skill sets, for example, IT specialists who can drive business growth.

Retaining and capitalising on existing talent pools is fundamental in surviving the downturn. In order to do this to best effect, businesses must ensure that their top performers are in the critical roles. And as belts tighten across the industry, if the sourcing of external resource is necessary, it is critical for human resources professionals to be sure that they are making the most worthwhile people investment. This will allow them to reduce the risks associated with poor hiring decisions and ensure return on investment.

The use of psychometric and ability assessments for recruitment and development is now widely endorsed in the people management process, with 85 per cent of FTSE 100 companies using such approaches. Assessments have come a long way since the days of paper and pencil testing, and can now be completed online, saving valuable time and money. Invaluable output reports can now be produced for managers, providing interview planning and structured interview questions relevant to each candidate and the role.

Such reports can also now highlight the candidates' preferred ways of working, indications on team fit and ability scores. HR and line managers can undertake training courses designed to coach them on interpreting and administering the feedback from these tests, through a mix of e-learning and face to face training.

Psychometrics are intrinsic to talent management, allowing for behavioural style, motivation, ability and potential to be evaluated against the skills needed for specific jobs. Once employees have been assessed on any number of these factors, organisations have the means to ensure that existing resources are being deployed in the most effective way.

When used at the recruitment stage, psychometrics can reliably provide scientifically robust results predicting whether a candidate possesses the competencies required for the role in hand. The financial services industry is undergoing a transformation which means that in the future they may be looking to hire people with new and different capabilities. For example, financial institutions may start to delay discretionary projects and new product spending to rein in costs. They will also look to outsource more, reducing the fixed cost attributed to headcount. Individuals in many departments such as marketing and IT will therefore need additional skills to manage outsourced work relationships along with their day jobs. Employees and new recruits will need sourcing and relationship skills, not previously required.

It is likely that the industry will have a low appetite for risk, given the repercussions of recent US sub-prime borrowing. Mergers and acquisitions will slow, so growth will need to come from within. Hiring managers will be looking for people who are innovators and can manage corporate performance alongside the more traditional skills. As the downturn takes hold, legislation and compliance will feature more prominently, as will the need to manage customer relationships more effectively.

Psychometrics can slot in alongside existing recruitment practices, such as the face to face interview, to form part of a well-rounded candidate assessment process. The objective assessment process that psychometrics provides, allows managers to re-assess skills needed for specific roles and test candidates for these skills, particularly relevant when hiring managers will be looking for less traditional skills.

Psychometric assessments are currently being used in a wide variety of ways in the financial services industry. Tests and output reports exist for different job levels, from entry level administrators to very senior hires - these include clerical tests to assess a person's ability to check information, and numeracy tests that evaluate how quickly candidates can solve short numerical problems, as well as how they interpret and use business-related numerical data.

Personality questionnaires are also applied to measure behavioural traits such as leadership, communication and motivation, while inductive reasoning tests determine a candidate's ability to innovate and 'think outside the box' in terms of creative problem-solving, data analysis and formulating new strategies and concepts.

Such questionnaires and their associated outputs have now been developed across multiple languages, thus delivering an important means for global organisations to ensure consistency of recruitment and development processes across territories.

Understanding individual employee capabilities is essential for HR, and the broader business, to identify where current skill sets lie, and whether there is in-house talent readily available to plug any skill gaps that may already exist or arise in the future.

The credit crunch will lead to increasing pressure on businesses to maintain profitability, while being shrewd with the volume of bodies deployed on the ground, and ensuring that top performers are engaged and developed continually, to fend off attrition and loss of key talent to competitors.

But despite the fact that reams of literature and research on the topic exists, many organisations are unaware of how to implement a successful talent management programme, or are reluctant to implement all-encompassing talent management systems that may not be wholly appropriate for their business.

The first step HR professionals can take is to identify the critical positions which exist in every company across the financial services sector. These positions are not necessarily the ones with the most seniority, but those most involved in the execution and delivery of services imperative to the momentum and ultimately the survival of the business.

Following competency profiling of these roles, relevant psychometric assessments can then be used to measure employees on the basis of potential job-fit for these key positions. Establishing their motivations, strengths and weaknesses will help to form the backbone of a customised training and development plan, picking up on skills which may need to be nurtured as well as indicating areas of untapped potential that may have been lying dormant.

It is also important when rolling out such a talent management programme, to review its progress on a regular basis and whether or not it has been of benefit to the employee. All employees go through 'danger zones' during the course of their employment lifecycle. These typically occur around six to seven months into a role, once the 'novelty' of the induction period wares off and the day-to-day reality of the job sinks in.

The second danger zone occurs a further 12 months or so down the line, once they feel settled enough to know what they are doing, and may begin to look for a new challenge. These periods should be used as an opportunity, not just to assess an individual's performance, but to obtain feedback from the employee to establish if they are satisfied with their role and the training and development being offered to them.

Without doubt, once a successful talent management programme has been implemented, businesses will benefit from increased productivity, leading to greater retention of top performers, all of which impact favourably on the bottom line and ensure the smooth transition from a difficult period across the sector.

The phrase 'people are your biggest asset' is often used and this could not be more true right now for the financial services sector, where keeping hold of your most valuable employees has to be a top priority. Businesses cannot afford to lose those people who can potentially help them to ride the storm, and those companies continuing without a talent management strategy in place are putting themselves at real risk of being left behind.

The challenge of simultaneously rationalising the existing workforce, to keep costs down, while recruiting new talent, for the inevitable upturn, is a tall order. Understanding how psychometrics fit the City will be vital in meeting that challenge.

David Valentine is global sales director at SHL