BY Fraser Tennant
Optimism returned to the UK asset and wealth arena in Q1 2017 following a period of intense pessimism throughout 2016, according to the latest CBI/PwC Financial Services Survey published this week.
The survey, a quarterly snapshot of the views of 98 UK firms, found that business volumes grew in the three months to March, although this growth is expected to slow over Q2. However, despite the expected slowdown, spreads and average fees and commissions are expected to rise, with profitability continuing to improve strongly.
Among the survey’s key findings were: (i) optimism in the financial services sector was broadly stable, following four consecutive quarters of declining sentiment (the longest period of falling sentiment since the global financial crisis of 2008); (ii) 33 percent of firms said they were more optimistic about the overall business situation compared with three months ago, while 29 percent were less optimistic; (iii) 34 percent of firms said that business volumes were up, while 17 percent said they were down; and (iv) looking ahead to Q2, growth in business volumes is expected to slow somewhat, with 23 percent of firms expecting volumes to rise next quarter, while 14 percent expect them to fall.
In terms of the overall business situation, optimism varied across sectors, with building societies, life insurers, insurance brokers and investment managers feeling more optimistic and finance houses and general insurers less so. In the banking sector sentiment was unchanged.
“The industry has picked itself up and feels in a stronger position than it did six months ago,” said Mark Pugh, UK asset and wealth management leader at PwC. “Nonetheless, the sector remains sensitive to uncertainty and potential market volatility.” Among the uncertainties are rising costs, technology spend and regulatory hurdles, with regulation and legislation also cited as constraints on business expansion for asset and wealth managers over the next 12 months.
Mr Pugh continued: “A slight reduction in the pace of technology spend could represent asset and wealth managers delaying large scale investment until they have more certainty on upcoming regulation such as MiFID II, PRIIPS and the FCA Market Study.”
Despite the potential delay in investment, the ability to implement innovation quickly is driving consolidation in the sector – a trend which is expected to continue. “Anticipation of future consolidation seems to be a factor in the industry’s swing back towards optimism,” concluded Mr Pugh.