London's financial services sector believes its reputation as a global financial centre has fallen significantly

Survey reveals that London's financial services sector believes its reputation as a global financial centre has fallen significantly.

Business confidence among the City's investment management houses and other FSA regulated business reveals a fall in business confidence with 56% of respondents reporting a drop in profit margins and one in four businesses expecting to make redundancies. However, even more startling is the news that 62% of participants believe that London's reputation as a financial centre has fallen since last year.

The survey was carried out by Smith & Williamson, the accountancy and financial advisory group, into FSA regulated businesses in the City of London.

Business confidence

44% of respondents said that confidence in their business prospects decreased over the last year, in contrast to 2007, when 49% were reasonably confident and only 18% were not. The survey last year showed the first decrease in business confidence in five years.

This year, 62% of the respondents reported that London's reputation as a major financial centre had decreased over the past 12 months. This demonstrates a massive shift from 2007, when 88% of respondents agreed that London had strengthened its position as a key financial centre in the previous five years. New York and Dubai are the cities most expected to take over the mantle as the world's financial centre.

While 56% report decreased profit margins and 38% report decreased turnover, 39% of respondents are expecting stable turnover and 26% are expecting increased turnover in 2009. This shows a stark contrast with the 2007 survey where 54% expected turnover to increase and only 4% expected a decrease.

"Given the above, unsurprisingly, respondents are generally not expecting an increase in their headcount, with nearly a quarter forecasting redundancies. For some firms this will be a new experience that will give rise to tax and legal issues which will need to be addressed. The overall message from respondents in respect of headcount is consistent with a low level of anticipated growth." said Natasha Lee, Head of Financial Services & Markets Group at Smith & Williamson.

In terms of capital expenditure, 43% are expecting a decrease, while 41% expect it to remain the same and 16% expect it to increase over the next year. However, 95% of the respondents anticipate that expenditure on regulatory compliance to remain the same or increase. This appears to reflect a lack of growth making firms more conscious of their expenditure. As a result, only necessary, rather than discretionary or investment type expenditure will be made.

"With the expectations for financial services businesses appearing to remain on an even keel through 2009, businesses in the sector must be planning on making cuts elsewhere. The survey shows that more than half of the respondents expect a cut in discretionary spending in 2009. This means that spending on ‘optional' services are likely to be downsized over the next 12 months. Marketing budgets could well feel the pinch," warned Natasha.

About the survey

The 11th annual Financial Services survey was carried out in December 2008. There were 60 respondents from a variety of FSA regulated businesses in London including banking, fund management, securities trading and IFAs. Their turnover ranges from less than £10m (30%) to more than £250m (14%), with 49% of respondents coming from businesses in the £10-50m range.

For further information contact:

Natasha Lee, Head of Financial Services & Markets Group

Tel: 0207 131 4407
Email: natasha.lee@smith.williamson.co.uk

PR enquiries

• Kate Harrison, 0207 131 4228 or kate.harrison@smith.williamson.co.uk
• Jess Koslow, 0207 131 4264 or jess.koslow@smith.williamson.co.uk

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Note to editors

Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Maidstone, North London, Salisbury, Southampton and Worcester.

Smith & Williamson Limited Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.

Smith & Williamson Financial Services Limited

Authorised and regulated by the Financial Services Authority