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CBI PwC Financial Services Survey
Q1 2019
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Executive summary
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.
Brexit
The continuing uncertainty is creating a pessimistic mood. But businesses are reporting that they’re resilient and prepared for Brexit disruption.
People
The number of people employed in financial services has dropped to a three-year low. But headcount has fallen, which has improved overall profitability.
Future investment
We’re seeing increased spending on training, technology and marketing, which indicates a strategic focus on workforce automation and building brand equity.
Looking forward
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.
Banking
What the results say
- An imminent Brexit dominates the mood in banking, and we’re seeing the decline in optimism accelerate to levels we haven’t seen since 2008. But the business story for banking is looking brighter.
- Profitability is up, as is investment in people and technology.
- We’re starting to see a post-Brexit market emerging too, as smaller banks are looking to join forces to diversify or consolidate their offers.
Brexit
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.
People
This quarter’s results show that the headcount cuts we saw taking place last quarter are starting to have a positive impact on profitability.
Future investment
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.
Looking forward
- A new, post-Brexit banking ecosystem will take shape as some of the smaller banks look to form strategic alliances and grow their shares of the domestic market.
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.
Insurance
What the results say
It’s a tale of two halves for insurance this quarter.
- In broking, volume and profitability continues to grow at the fastest pace in five years.
- In contrast, business volumes in life insurance fell for the first time in five years, and at a faster rate of contraction than the rest of financial services.
Brexit
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.
People
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.
Future investment
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.
Looking forward
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
What the results say
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.
Brexit
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.
People
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.
Future investment
To boost business performance, the biggest investment will be in IT. To streamline processes and drive down operating costs.
Looking forward
- The sector is already looking beyond the short-term uncertainty and is planning for growth post Brexit, with firms reporting high confidence in their operational resilience.
- Headcounts will stay stable but investment in employee training will ease off, meaning firms will have to work hard to attract and retain their talent.
- The sector will look to move away from M&A as a growth strategy and focus on growing its share in the domestic market by building up its customer base.
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