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Optimism across financial services has fallen since the last survey, a trend that has seen sentiment deteriorate in eight of the last nine quarters. Taking an industry perspective, optimism appears split, with insurers more upbeat than their banking and investment management colleagues, the latter of whom have reported a decline for the first time in over a year.
Despite this uncertainty and storm clouds on the horizon, respondents paint a favourable picture of overall business conditions. Profitability, volumes and value of business are expected to continue, especially with private individuals, which has picked up following a 6 month decline. This is reinforced by the strong business results reported by large financial institutions and our recent asset & wealth management report revealing record levels of assets under management (AuM).
In line with our recent CEO survey results, the people agenda comes through particularly strong this quarter, marked by increases in training and overall numbers employed. The UK’s ability to attract and retain top talent, adapt to digital skills and attract more a more diverse workforce are cited by respondents as key to the UK’s position as a leading global financial centre. This focus on talent and people is both interesting and a positive sign to see, especially when we consider the consistent pressure for firms to cut costs, automate processes and put in place plans around their Brexit strategies and a testament to the industry’s resilience when faced with disruption.
Looking at the year ahead, regulation remains a key barrier to growth alongside competition from within the sector. In particular, the threat from new entrants has spiked over the past quarter now at a joint survey record. This was felt most strongly within the banking sector, as new challenger banks begin to impact traditional banks’ books to develop their customer base.
Overall, financial services firms remain cautious. Despite consistently favourable business results helping the short term, respondents look to the future with uncertainty.
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At first glance, little appears to have changed within the banking community. Optimism has continued to fall, now marking a full year of uninterrupted decline and supported by improving business conditions. Unpicking the business trends, banks report growth in business volumes, in particular with commercial and private individuals, highlighting a renewed focus on their private wealth customers to drive revenue.
Interestingly, banks expect to increase the profitability of their business, now at its strongest in over a year. This is in spite of the uncertain geo-political uncertainty despite rising costs around their operations and staff. Investment intentions cooled over the last quarter, but remain centred around regulation.
Competition, particularly from new entrants is seen by banks as a key barrier to growth over the next 12 months. In fact, competition from new entrants is now at a joint survey record, suggesting that traditional banks are feeling under threat from challenge banks. This is further supported by banks’ focus on organic growth and in particular activities to retain and cross sell to their existing customer base.
Sentiment in insurance has remained flat over the past quarter, driven by volatile trends in business and uncertainty around Brexit and broader economic landscape. Despite this insurers continue to invest in tech and their people to deliver transformation.
Looking at general insurers, competition both domestically and internationally is on the rise, with increasing pressure from other sectors of financial services and new entrants. To stay ahead, general insurers are continuing to invest in IT to provide new services and reach new markets. As a result, general insurers report rising operating costs in part driven by ongoing regulatory changes, but also a marked increase in headcount and training.
Reading across the broker results, business appears muted. Optimism is down, profitability and volumes are up, but firms can see opportunities to grow, in particular through organic growth activities and investment in IT. Under pressure and threatened by growing disintermediation, firms are looking at technology and new talent to help show and add value to their offerings. This drive to invest and evolve their businesses is leading to increasing operating costs, a trend we’ve seen decrease over the past 6 months.
Tech, talent and the skills appear as strong themes this quarter and nicely support the findings of our recent CEO survey. In fact, more insurance CEOs are concerned about the pace of technological change than any of other industry. Therefore it is reassuring to see insurers maintain focus on their people and technology, looking beyond the uncertainty of today to grow their businesses.
For the first time since 2016 optimism has fallen in the investment management sector. A mix of challenging business conditions, pressure on fees and continued uncertainty around Brexit, including implications for portfolio delegation are clouding investment managers’ ability to plan ahead and generate profit.
People, employment and training come through particularly strong this quarter, with the availability of staff expected to limit firms’ abilities to invest in growth. Investment managers are keen to grow their workforces, with continued investment in headcount and training. This is likley in response to the lack of clarity around immigration following Brexit and changing attitudes toward the outsourcing of services.
Our latest CEO survey revealed great confidence industry, but also acknowledgement that times are changing. Reflecting on this quarter’s results, it is clear that Investment managers are mindful of the the evolving challenge in developing and attracting the talent of tomorrow, alongside the IT needed to increase efficiencies and engage with existing customers.
Join our upcoming live webcast exploring the future of the industry on 19 April. Our panel of industry experts, including Chris Cummings, CEO of the Investment Association will discuss the key themes impacting the industry, the opportunities and threats that lie ahead and offer insights to help you plan for and navigate these uncertain times.