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Over the past three months, optimism has declined at the fastest rate since 2008. But in contrast, the business outlook is far from gloomy.
This quarter we’re seeing three strong themes emerging around Brexit, people, and future investment. We’re starting to see a trend towards companies reinventing themselves to prepare for growth after Brexit, and many firms are investing with confidence to build stronger brand identities and train leaner, more specialised workforces.
The continuing uncertainty is creating a pessimistic mood. But businesses are reporting that they’re resilient and prepared for Brexit disruption.
The number of people employed in financial services has dropped to a three-year low. But headcount has fallen, which has improved overall profitability.
We’re seeing increased spending on training, technology and marketing, which indicates a strategic focus on workforce automation and building brand equity.
Strategic alliances will be the key drivers for growth, with firms pairing up to increase their share of the domestic market.
There’ll be more investment in marketing to consolidate brand positioning, and also in IT, to continue to streamline processes and stay compliant with regulations.
Firms will look to hire talent from outside their sectors and bring together smaller teams of better-skilled employees. The focus will be on building and training a lean workforce, equipping them to lead transformation within the business.
Banks are confident they can continue to provide consistent services to their customers throughout any Brexit disruption. However, they’re less confident in their ability to predict how Brexit might impact their customers’ behaviour.
This quarter’s results show that the headcount cuts we saw taking place last quarter are starting to have a positive impact on profitability.
We’ve seen a big increase in spending on training as banks look to consolidate and enhance their work force’s skills, support people with technology, and continue to meet regulatory standards.
More established banks will also make collaborative efforts to ward off threats from big tech competitors like Amazon.
There’ll be a strong focus on training and retaining smaller numbers of better-skilled employees.
It’s a tale of two halves for insurance this quarter.
Insurance is the most optimistic of all the sectors, which is a reflection of the sector’s confidence in its readiness for Brexit. Its challenges will come from the second-order effects on their customers and the impact of Brexit on the confidence of the wider market.
With much still to do around operational improvement, firms need to keep hold of their headcounts for now to push through their change programmes. This will have an impact on profitability in the short term.
Broking’s focus over the next quarter will be on winning new customers and growing the domestic market. In life insurance, we’ll see heavy investment in IT to try and reduce operating costs and boost profitability.
We can expect to see more investment in IT and marketing, particularly for life insurance.
To address concerns around levels of demand, both broking and life insurance will be looking to form strategic alliances to consolidate and diversify their services and grow domestic market share.
There will be little movement in headcount in the short to medium term, as operational improvements are bedded in.
Investment management is seeing an 18 month decline in profitability, which is the longest period of decline since 2001/02.
With market conditions putting pressure on fees, and the industry having to work harder to prove its value for money, there are short-term challenges to be faced.
But taking a longer-term view and being ready to adapt will help the sector hold fast during any disruption to come.
The decline in optimism is slowing down this quarter. The sector’s long-term approach to planning means that an imminent Brexit is having less of an impact on its mood than in other areas of financial services.
Employment growth in investment management has been weak recently. But in this quarter and the next, we’ll start to see those headcount numbers stabilise.
To boost business performance, the biggest investment will be in IT. To streamline processes and drive down operating costs.