Capital Markets Corporate

September 27, 2019

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Slow Start to Robust Governance Rules
A new regime for the UK fund industry starts next week, with fund boards required to appoint at least two independent non-executives – but early signs from the recruitment of independent directors suggests the shift to more robust governance has got off to slow start. Some of the biggest asset management firms are being accused of cutting corners by skipping a formal recruitment process and approaching people they already know, perpetuating the “old boys’ club” image that dogs the industry. [From the Financial Times, 23 September 2019]

De-coding Tax
Despite being one of two certainties in life, the UK public has a poor understanding of everyday tax issues, according to research commissioned by accountancy firm Deloitte. Tax codes and income rates are among the issues least understood, with only 19% aware of what the top rate of income tax in the UK is. Young people aged 18-24 have the lowest levels of understanding, but the research found that the more people knew about the UK tax system, the more likely they were to say it is fair. [From economia, 25 September 2019]

World’s Wealthiest Families Stockpile Cash
Money managers for the ultra-wealthy are already preparing for a recession next year, with nearly half already stockpiling cash to help mitigate against a global downturn. UBS’ global family survey shows more than half (55%) of family offices believe a global recession will come in 2020, while nearly two-thirds agree Brexit will be negative for the UK’s investment prospects. With the average return on investments falling, many have been building up cash reserves and deleveraging investments. [From Business Insider, 24 September 2019]

Credit Card Rates Soar
Interest rates may be moving into negative numbers at some European banks, but UK credit card customers are facing a very different trend. Moneyfacts data suggests the average rate (APR) for those making credit card purchases hit 24.7% this month – the highest since the company began tracking the data back in 2006. As a result, credit card borrowers are being advised to take every opportunity to pay more than the minimum repayment. [From Guardian, 21 September 2019]

Netflix-style Nudges for Bank Customers
Banks are using artificial intelligence to target individuals with products and third-party rewards based on their specific needs and tastes, with the Netflix-style nudges being used to strengthen customer relationships. Lenders hope personalised rewards via external partners will appeal to both existing customers and help attract new ones. [From Financial Times, 24 September 2019]

Financial services’ class overhaul
An industry body is calling on investment managers to promote social mobility in their recruitment and retention practices to make the industry more representative of people from different classes and socioeconomic backgrounds. But how much is financial services doing to ensure people from lower income families can make it into the industry?

This week, the Investment Association (IA) called on the investment industry to improve recruitment processes by broadening outreach to schools, colleges and universities that the firms might not otherwise target, and to take more contextual considerations into account when comparing applicants’ academic results.

In part, this self-reflection could be seen as a reaction to a wider national class debate around the ascendancy of Prime Minister Boris Johnson, who became the 20th British PM to have been educated at Eton.

At the same time, financial services’ track record of inclusivity is currently low. A recent KPMG study found that two in five people working in banking have parents who also worked in the sector – more than three times the national average for other types of jobs. Overall, 41% of financial services employees had parents working in the same sector, against a national average of 12% across other sectors.

The City of London in particular has been blamed for propagating an “elitist culture” where accents and family backgrounds have been claimed to be differentiators in interviews. A 2015 report looking at the hiring practices of 13 anonymous top City firms found that 70% of successful applicants attended private school.

Other recent studies also claim that people who did not attend elite universities are systematically “locked out” of the financial services sector.

But, as much as firms are being encouraged to do more to attract a wider variety of talent, the lure of working in finance isn’t high. More than half of young people see finance as “boring” and wouldn’t want a job in the sector, and financial services has a much higher proportion of employees who are predominantly driven by money rather than an interest in finance or work satisfaction.

The need to ensure financial services is more representative of people from different socio-economic backgrounds is acute. Studies have shown that products, services and regulations are biased towards people from more affluent backgrounds, in part because representation of working class people is limited in the sector.

While a slight majority of FTSE 100 CEOs attended private school that margin is levelling out, and there are many financial services leaders who proudly tell their stories of humble backgrounds, and champion schemes that help working class and low income youngsters into the industry. Even the Chancellor, Sajid Javid, often refers to his working class struggles as a call to industries to improve social mobility.

If financial services firms want to ensure they are not missing out on hiring the best talent because of their socio-economic background, the key will be to communicate that to the next generation of business leaders. Effectively encouraging and supporting lower income people into financial services roles – and communicating how fulfilling and dynamic those roles can be – will ensure that the future remains bright for the sector.

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