Financial services sector boosts growth prospects

Financial services sector boosts growth prospects

Ian Bailey Chartered MCSI President of the CISI Birmingham and West Midlands branch looks at the sectors power to increase wealth and employment .

The West Midlands is rightly famous around the globe for its quality engineering but the past few years have also seen a dramatic increase in the importance of the financial services sector within the region.

The move into Birmingham by well-established City names is now creating career opportunities in the region with enhanced potential for further growth over the coming decade. In a recent paper prepared for the House of Commons (26 February 2015) the sector was identified as contributing nationally  £126.9bn to the UK Economy in 201314, with the banking sector alone providing £21.4 bn in UK tax receipts over the fiscal year. Recent estimates suggest that approximately 50% of this is produced within the ‘Square Mile’.

The West Midlands remains an attractive place to relocate business units, particularly with the spiralling labour costs in London. Deutsche Bank’s recent re-location to Brindley Place is estimated to have created circa 1,000 jobs and the recent announcement by HSBC is conservatively estimated to ultimately create a similar number of opportunities.

A combination of significantly lower housing costs and cheap and effective public transport (compared to the London commute!) are seen as being attractive to the large financial institutions. In addition they see in the West Midlands a young and vibrant work force looking for quality employment. This growth and vibrancy is further encouraged by the proposed HS2 project.

The region’s attractions could further be enhanced by developments in the financial markets over the coming few years. Serious economic forecasting is always a perilous exercise, attempted only by the foolish or the brave it seems, but the significant falls we have seen in commodity prices indicate that the global investment markets perceive a noticeable drop in demand over the next few years.

If this is correct then whilst it may mean that we avoid any further significant recessions it also, potentially, indicates that we could be entering a period of relatively slow economic growth. In this scenario it would be realistic to expect both inflation and interest rates to remain subdued, not far from current levels. It could also mean lower overall investment returns of circa 5% a year, rather less than the 7-10% investors have been encouraged to anticipate over the last three decades.

If (a big “if”!) this situation develops then the financial services sector is likely to come under renewed pressure. Most organisations have priced their services around a base figure of 1% per annum of the funds managed. When investments were growing at 10% per annum this was competitive and acceptable to the market place but at 5% this becomes a very big slice of the overall return. The pressure will be on the institutions to reduce their charges and they, correspondingly, will seek to reduce their costs to maintain their margins.

Legal and insurance costs are unlikely to reduce (not least because the financial services sector has still got a long way to go to win back the trust lost during the excesses before the 20089 credit crunch) so reduced operational costs are one of the only viable ways of achieving this. In this scenario relocating as many functions as possible away from the expensive Square Mile looks increasingly attractive and offers a huge opportunity to our region we must be ready to grasp.

Underlying this is the need within the Financial Services sector for increased integrity to regain the trust of the general public.  A move into the regions may be a useful part of this process helping the sector to seem less ‘South East’ orientated and more relevant to the wider country. In this respect practitioner membership of financial services sector bodies, such as the Chartered Institute for Securities & Investment (CISI), is an important mark of professionalism. The CISI believes integrity is a key component of professionalism, defined as the effective combination of knowledge, skills and behaviour. None of this will alter the basic fact that London will remain a global, international financial services centre.

However, the West Midlands has huge potential to increase its importance in this vital sector to the UK economy bringing wealth and employment to our region. This is not an occasion where we can be found wanting.

The potential is exciting!