WIREDGOV

With businesses across the economy struggling to access people and skills, the majority of FS firms are putting upskilling and retraining staff (73%) at the forefront of future business strategy and transformation plans, according to the latest CBI/PwC Financial Services Survey.

Advances in technology & business transformation (69%) and achieving operational resilience (68%) were second and third most common priorities, respectively, for future strategy and transformation plans.

The survey of 78 financial services firms – conducted between 30 May and 17 June – found that 74% of firms are looking to upskill their existing workforce in response to disruption.

Regulation (71%), changes in customer preferences and behaviours (62%), acceleration in digital technologies (55%), and skills shortages (52%) were the top four trends said to be driving disruption in the year ahead.

Meanwhile, sentiment across the sector remained poor in the quarter to June – falling at broadly the same quick pace as the previous three months – despite business conditions remaining relatively positive and profitability growth accelerating (although business volumes were flat). Furthermore, headcount grew at its fastest rate since December 2019.

Looking ahead to the next quarter, FS firms expect business volumes to return to modest growth, while profitability growth is expected to slow. Numbers employed are expected to be broadly unchanged in the three months to September.

There was a modest improvement in investment intentions for the next 12 months (compared to the previous 12). Land & buildings and vehicles, plant & machinery investment intentions both firmed on the previous three months, while IT capital expenditure plans remain strong. Uncertainty about demand was the most common factor cited as likely to limit future investment.

Nearly half (48%) of all FS firms have initiatives to support consumer and/or commercial clients with the cost of living / cost of doing business. A further fifth (21%) of businesses said they were planning to set up initiatives in the future.

Rain Newton-Smith, CBI Chief Economist, yesterday said: 

“The erosion of business confidence seen in the last financial services survey has pulled through to this quarter, likely reflecting concerns about the impact of high inflation on the economy. With pressure expected to persist throughout the year, there’s a real need for government to press ahead with confidence-boosting measures now.

“Implementing a permanent successor to the highly successful super-deduction would help to crank-up investment levels and set the country on a path back to higher growth. “One of the bright spots from the survey was FS firms’ commitment to upskilling and retraining. It’s encouraging to see so many firms put staff development at the heart of their business strategies, and that is sure to reap rewards in terms of recruitment and retention later down the line.

“It’s also welcome to see so many firms taking steps to support customers and business clients through the cost-of-living crisis. From improving access to finance and better financial education, FS firms have a range of tools to help households cope with rising costs.”

Isabelle Jenkins, Leader of Financial Services at PwC UK, yesterday said:

"With a fierce war for talent impacting the financial services sector, it makes sense that firms are putting retaining experienced staff at the top of their to-do list.

"That plus the 12 percent growth in employment, the fastest uptick since December 2019, proves that for CEO's, building and maintaining their workforce is critical.

"In fact, our research with the Financial Services Skills Council from earlier this year showed that, reskilling, once seen as perhaps a nice to have, can create cost savings of up to £49,100 per employee compared to recruiting or making a role redundant, a significant sum, especially in light of the increasing headwinds due to inflation.

"So the business case is clear, however with half of the firms we spoke to admitting that time remains a barrier in delivering training, there remains a crucial shift that some businesses will need to embark on.

"What we are seeing through today's results show that financial services firms are aware that the fundamentals have been reset, and the breadth of competition for well trained staff means that firms will need to ensure that they can offer the kind of culture, environment and purpose that will attract and keep the very best."

Key findings (all figures are weighted balances, unless otherwise specified):

Sentiment in the quarter to June fell at a similarly quick rate to last quarter (-43% from -42% in March).

Business volumes were flat in the quarter to June (0% from +17% in March). FS firms expect business volumes to grow modestly next quarter (+6%).

Average spreads in the quarter to June declined at a slower pace compared to last quarter (-10% from -20% in March) and are expected to fall at a broadly similar rate in the next three months (-7%).

The value of non-performing loans in the quarter to June declined at a slower pace than last quarter (-7% from -15% in March) but is expected to increase in the next three months (+15%).

Profitability growth sped up considerably in the quarter to June (+30% from +10% in March) but is expected to slow again next quarter (+16%)

Employment growth in the quarter to June (+12% from +2% in March) picked up to its fastest rate since December 2019. Numbers employed are expected to be broadly unchanged next quarter (-1%).

Investment intentions for the next 12 months (compared to the last 12) remained strong for IT (+33% from +35% in March) and saw some improvement for land & buildings (-6% from -40% in March) and vehicles, plant & machinery (-13% from -19% in March).

• The most common factor likely to limit investment in the next 12 months was uncertainty about demand (43% from 37% in March).

Technology  

When it comes to technology investment, 43% of FS firms said they are in the “transition” stage of realising the benefits made from investment in IT and tech (i.e., in the process of modernising tech and IT architecture). Making operations more efficient (35%) was the most commonly cited value from advancements in AI and analytics. FS firms cited customer experience (72%) as the area of business most likely to be impacted by automation, standardisation, and FinTech.

Cyber security

Firms continue to expect to invest more in cyber security over the next twelve months (compared to the past twelve), albeit to a lesser extent than in the previous quarter (+40% from +45%). Placing a greater focus on how to respond to new threats (69%) and improving detection of cyber breaches (65%) were the most common priorities for improving cyber resilience and reducing tech risk.

Upskilling and retraining

The most common workforce priority for the year ahead is retaining talent (65%). While 47% of firms report no barriers to training staff, half of respondents (50%) reported lack of time as a key barrier to delivering training needs. The most common objective from reskilling is improved workforce agility (59%).

ESG

Accelerating green financing options and products to support wider societal transition to net zero was identified as the most common climate change priority for FS firms (47%). In order to deliver the social aspect of firms’ ESG agenda, 28% of respondents said they needed a better understanding on how to create an achievable roadmap, while 24% said they needed a standardised governance and reporting framework to improve their ability to track and compare progress against set criteria.

D&I 

The most common priority for D&I over the next 6-12 months is supporting health and wellbeing (54%).

Net zero

The most common net zero target dates for FS firms are 2030 (36%). The most widely cited challenge when establishing a net zero target was devising a plan on how to reach it (45%), followed closely by measuring carbon footprint – scope 3 (43%) and scope 1,2,3 (39%). 

Cost of living

A combined 48% of FS firms have initiatives to support consumer and/or commercial clients with cost of living / doing business. 21% of firms said that they intend to implement some cost-of-living support initiatives in the future despite not having them currently. The most common actions that FS firms think that organisations in their sector can do to support consumers are improving access to financial products (63%) and financial wellbeing assessments & financial education on products (56%).