High basic / low bonuses for Bankers? Greatest threat to London from Shanghai?

The financial services sector has gone through some of the most tumultuous times in its history over the past few years. The sector itself has undertaken root and branch change, some of it voluntarily and some of it in the form of mandatory change at the behest of a regulator with a much more assertive stance. We recently conducted a survey of our interim managers who are specialists in the financial services sector and gained some insight into their views on the state of the FS market and how it would affect the demand for interim management.

I would like to start by thanking all those who responded to the survey, it was completed by 170 interim managers from within the Interim Partners network. They are professional interim managers who operate via limited companies and all work at daily rates in excess of £500 per day.

Our interims clearly feel that resources need to be focussed on increasing the strength of risk and compliance functions; Out of a choice of 9 business functions 39% of respondents thought that risk and compliance will received the largest increase in investment by retail and commercial banks in 2011. This is clearly due to a more aggressive regulatory environment within the banking sector.

I thought the results were interesting for questions relating to the changes to the regulator. 59% of respondents thought that the forthcoming replacement of the FSA by new regulatory bodies will lead to better regulatory oversight. Also, 64% thought that the FSA’s tighter regulatory control since the credit crunch will not harm the UK’s international competitiveness. Given 4 options of different regulatory regimes for the FS sector 45% preferred the reforms proposed by the Conservative Party which will put the Bank of England in charge of most aspects of financial regulation with a new agency overseeing consumer protection and financial markets. On these results I would suggest that the reforms in the regulatory space within financial services are largely supported by our interim managers.

The issue of bonuses for bankers always tends to provoke strong reaction. On overwhelming 81% of respondents think that high base salaries and low bonuses for bankers are likely to increase the overall stability of the UK’s economy. 64% disagreed that a reduction in the bonus pool for bank staff would have a material impact on the competitiveness of the UK financial services sector. This would imply that interim managers are largely in support of the popular opinion that bankers remuneration in its current form is at odds with the best interests of the UK economy and that reducing the bonus pools would have little impact on the sector as a whole.

Over the next 20 years our interim managers believe that the greatest threat to London as a global financial services centre is coming from the Far East. Out of a choice of 8 locations, 37% thought Shanghai was the greatest threat followed by Hong Kong with 22%. It’s interesting that Dubai, despite much hype about the growth of its financial services sector over the last 10 years only polled 5% of the vote. Clearly confidence in Dubai’s competitiveness has fallen in recent times due to the financial difficulties it is experiencing.

Survey results with regard to the new Solvency II regulations show that most interims believe it will have significant implications for the insurance sector; 73% think that the proposed Solvency II agreement will lead to consolidation in the insurance sector, 90% think that Solvency II will lead to the exit of some insurers from particular markets and 88% think that Solvency II will lead to increased insurance costs for customers. However, when asked about the benefits of Solvency II compared to the costs of additional capital requirements, results were much less clear cut. 42% thought the benefits would outweigh the costs versus 58% against.

Regarding the forecast for interim management in the financial services sector, our interims believe that in 2011 retail & commercial banking and insurance will receive the highest growth in demand for interims. Other results show a good degree of confidence in the sector for interim managers. 48% believe their number of chargeable days in 2011 will be higher than 2010 and 37% thinking they will stay the same, only 15% thought they would be lower. 44% of interims believe their average daily rate in 2011 will be better than in 2010, 45% think it will remain the same and only 15% think it will be worse.

The catalyst for our clients engaging the services of interim managers within the Interim Partners network has always been change. Levels of change within the financial services sector remain at record highs and I predict will remain so for a number of years to come, I share the positive outlook for the interim management sector within financial services evidenced by our interim managers.

Andrew McIntee is a Director and Head of Financial Services at Interim Partners