Profitability among financial services firms picked up more strongly than expected in the three months to December, according to new figures.
Profitability continued to improve at a healthy pace with the overall level of UK business remaining ‘above normal’, according to the quarterly survey from the the Confederation of British Industry (CBI) and Pricewaterhouse Coopers (PwC).
According to the survey, 45 per cent of financial services firms said business volumes were up, while 22 per cent said they were down, an improvement on last quarter’s balance.
Despite this, levels of business with overseas customers fell below normal.
The report, which surveyed 100 financial services firms, cited strong competition as being a key factor in bearing down on incomes, although tight cost control helping to support growth in profitability.
Rain Newton-Smith, CBI director for economics, said: “Despite strong growth in profitability driven by easing cost pressures and increasing business volumes, the financial services industry is alive to downside risks from developments overseas.”
She said the global economic outlook remains uncertain while China rebalances, which is having knock-on effects on emerging markets.
Ms Newton-Smith also said there is a great deal of uncertainty within financial services over the impact of Fintech, and firms in most sectors are looking to upgrade their own platforms over the next five years rather than acquire Fintech firms.
“However, partnerships with Fintech firms are seen as a high priority by companies in some sectors, particularly finance houses, insurance brokers and investment managers.”
Meanwhile, employment prospects remain mixed, with banks reporting falling employment, compared with a solid growth in headcount in the insurance and building society sectors.
Overall, expenditure on training rose strongly in the three months to December, up by 37 per cent compared to the previous quarter.
Kevin Burrowes, UK financial services leader at PwC, said: “We see the emerging trend of firms making more investment in new products. Another positive is that IT investment is moving from regulatory spend to front line systems to help overcome the rise of new competition.
“Also, it is clear that optimism is muted across the whole sector and each sub-sector has its own challenges.”
Paul Lindfield, director of wealth management at Manchester-based Sedulo Wealth Management, said he was not surprised by the figures: “There are a lot more people more financially aware following the pension freedom, and we are seeing a higher quality and frequency of enquiries.
“Many of my peers say they are busier than they’ve ever been, and now IFAs tend to be more focused on the more middle and higher market of clients following RDR.
“Despite rising Financial Services Compensation Scheme fees, which is the only bugbear we have got no control over, I think everything is looking quite good for the financial advice business. There is no pessimism from my side, we expect more of the same really.