Environment Scan Financial Services Industry

Transcription

1 Environment Scan 2013

2 Acknowledgements IBSA s Environment Scan (Escan) 2013 has been produced with funding assistance provided by the Australian Government through the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE). About this report This Escan provides Innovation and Business Skills Australia (IBSA) with an opportunity to combine direct industry intelligence with statistical data on training and workforce participation. Through this process, skill needs and workforce development priorities are identified for Australia s innovation and business industries. The information is used by IBSA to advise government on refinements to training packages to meet the needs of industry and identify investment priorities for Australia s vocational education and training (VET) system. This is the sixth year in which Industry Skills Councils (ISCs) have been required to prepare an Escan. The Escan aims to give readers an understanding of the factors currently shaping and impacting on the IBSA industries and their workforce development. IBSA s industry coverage comprises enabling skills and functions that are relevant across a wide range of industries. The Escan is consequently an important contribution to thinking on skills and workforce development across the board and will be of interest to many readers within government and industry. The development of the Escan has drawn on a range of sources including industry, enterprise and Government research, recent publications and websites, and most importantly on IBSA s ongoing engagement with employers, workers and industry representatives. The department is specifically interested in the accurate targeting of ISCs efforts in developing and maintaining Training Packages. A summary of IBSA s Training Package activity in the twelve months to December 2012 is provided in Appendix A. This Escan was compiled between September and December 2012 and is a product of the available information and prevailing environment of that period. The methodology used for the Escan is described in more detail in Appendix B. Disclaimer IBSA has produced this Environment Scan as a resource for its stakeholders without any form of assurance. While IBSA aims to provide high quality content, it does not guarantee the accuracy of this information and therefore will not be liable in any capacity for damages or losses to the user that may result from the use of this information.

3 Contents Chapter 1 Executive summary 1 The Financial Services industry 1 Emerging workforce issues 2 Chapter 2 Industry intelligence 3 The Financial Services industry 3 Banks, building societies and credit unions 4 Insurance 5 Superannuation and funds management 6 Stock exchange and share registry 8 Financial planning and investment advice 8 Accounting services 10 Workforce characteristics and employment trends 11 Industry and workforce outlook 12 Occupations in demand 19 Chapter 3 Identified workforce development needs 20 Communication and relationship management 20 Regulation and compliance 20 ICT skills 21 Flexible, contextualised learning 21 Articulation into university 22 Chapter 4 Current impact of training packages 24 Update on training packages 24 Focus for the future 24 Uptake of training packages 25 Outlook for training 30 Chapter 5 Future directions Appendix A Methodology and Bibliography Appendix B Financial services occupations in demand Appendix C NCVER data A1 A3 B1 C1 i

4 IBSA Environment Scan 2013 List of figures and tables Figure 1: Financial Services industry revenue ($b) 3 Figure 2: Banks, building societies and credit unions product and services 4 segmentation ( ) Figure 3: Revenue of sectors within the insurance industry ($b) 5 Figure 4: Superannuation funds segmentation Figure 5: Stock exchange and share registry services segmentation Figure 6: Financial planning and investment advice service segmentation Figure 7: Accounting services segmentation Table 1: Financial Services industry occupations: employment 2011 and employment 12 change five years to 2011 Table 2: Australian financial services global footprint 13 Table 3: forecast employment growth Table 4: Enrolments and qualifications issued in Financial Services 26 Figure 8: Enrolments in Financial Services qualifications, Figure 9: Qualifications issued in Financial Services, Table 5: Business services qualifications: highest and lowest enrolments Figure 10: Enrolments by State and Territory in Financial Services qualifications, Figure 11: Enrolments geographic location in Financial Services qualifications, Figure 12: Previous highest education level of participants enrolled in Financial Services 28 qualifications, 2011 Figure 13: Enrolments by age in Financial Services qualifications, Figure 14: Enrolments in Financial Services qualifications by gender, Figure 15: Enrolments in Financial Services qualifications by study and delivery mode Figure 16: Financial Services qualifications apprenticeships and traineeships 30 commencements and completions Table 6: Workforce development challenges Table 7: Financial Services occupations in demand Table 8: Enrolments in Financial Services (FNB/FNS) Qualifications Table 9: Qualifications Issued in Financial Services (FNB/FNS) A1 B1 C1 C2 ii

5 Chapter 1 Executive summary The Financial Services industry The Financial Services industry covers banks, building societies and credit unions, insurers, superannuation providers and other fund managers, accountants and financial planners and advisers. Financial Services is the largest contributor to the Australian economy, eclipsing mining, manufacturing and construction. The Gross Value Added by the industry in June 2012 was higher than any other industry, at nearly $34b. The health of this industry is significantly tied to general economic and financial market conditions. While Australia s economy is in much better shape than most other OECD countries, partly due to the underlying strength of the Financial Services industry, consumer confidence is currently low. This, combined with a fragile non mining economy, will affect lending and growth in the industry in Profitability is expected to decline. However, the steady flow of funds into superannuation and the ageing population, with accumulated wealth, will support demand for financial products and services over time and emerging Asian markets will provide new opportunities for growth. After some hard years, most sectors in this industry appear ready to pick up in , albeit in a more subdued way than in the past. With growth rebounding across the industry, there are a number of trends that will influence the size and shape of the labour market in the next couple of years. Issues that have been evident for the past year or two and continue to have an impact include: the drive for productivity growth, in response to Australia s declining productivity in recent years, and improving oversight of the financial system as a result of the global financial downturn including the ongoing implementation of International Financial Reporting Standards and the global regulatory framework for more resilient banks Basel III This Escan has identified three other industry wide trends that will have a particular impact in They are: the role of the industry in the Asian Century the exponential growth, use of and expenditure on Information and Communication Technologies (ICT) by financial services, and offshoring of jobs. There are also a number of major regulatory changes being rolled out which will impact particular sectors, in particular: the introduction of the carbon tax, which is expected to have a particular impact on accountancy services the introduction of Stronger Super reforms, which will have a particular impact on superannuation funds the introduction of the Future of Financial Advice (FOFA) reforms, including a move by ASIC to introduce an examination for regulated financial advising occupations, which will affect investment managers, accountants and financial planners, and amendments to the Privacy Act that will significantly change data collected by credit agencies and data available about individuals nationally and internationally. Emerging workforce issues The Financial Services industry employs around 432,000 people. Half of these people work in the banking sector. Employment in a number of occupations in the industry contracted in the last five years, due to the ongoing efficiencies created by technology and the impact of the global financial downturn. However, all sectors are expected to increase employment levels over the next five years 1

6 IBSA Environment Scan 2013 with the strongest growth being in stock exchange and share registry services, accounting services and superannuation funds management. The changes occurring in the industry are expected to impact on the workforce in a number of ways, including the following: a greater focus on retention as growth in the industry takes off again, many financial service organisations may need to change current processes and incentives as part of a more sustainable, long term approach to building talent pools and retaining key people the need for sustainability skill sustainability reporting has become mainstream, driven by the potential business value generated through enhanced stakeholder reporting and communication, as well as the introduction of the carbon tax. All financial services, particularly those working with the large mining, manufacturing and construction industries, will need skills and systems to integrate sustainability into mainstream business processes a focus on corporate governance, business ethics and quality assurance the new FOFA reforms, new superannuation regulations, proposed changes to the Privacy Act and ongoing changes in the banking sector will require a stronger focus on corporate governance, business ethics and quality assurance better relationship management and communication these skills will be increasingly important to compete and conduct business internationally with high value customers, particularly in the Asian market ICT impact ICT represents a major investment in the Financial Services industry and is transforming the way the industry operates. Major recent leaps in technology means businesses will continue to require workers with skills to maximise the efficiencies of these platforms Offshoring of jobs recent research shows that the proportion of jobs at risk of being offshored in this industry is almost twice the rate for service industries as a whole. Occupations at the most immediate risk include bank workers, credit and loan officers and financial investment advisers and managers, and Links with higher education there is a complementary relationship between the higher education sector, with its focus on knowledge and analytical skills and the vocational education and training (VET) sector with its focus on vocational, industry based skills. Industry increasingly wants a combination of both skill types and pathways to and from both sectors to ensure the relevance and currency of the workforce. 2

7 Chapter 2 Industry intelligence The Financial Services industry The Financial Services industry covers banks, building societies and credit unions, insurers, superannuation providers and other fund managers, accountants and financial planners and advisers. Like other service industries, the Financial Services industry involves a high degree of professional labour input. It is skill and knowledge intensive in all areas of activity. Financial Services is the largest contributor to the Australian economy, eclipsing mining, manufacturing and construction. 1 It generates almost $400b in revenue a year. Almost half of this comes from superannuation funds which are largely non employing establishments. However it is these consolidated super funds, valued at about $1.8 trillion, which underpin much of Australia s financial services strength. 2 Even excluding the super funds, the sector is the largest contributor to economic output. The Gross Value Added by the industry in June 2012, at nearly $34b, was higher than any other industry. In the financial year the finance and insurance services along with mining were the largest contributors to GDP growth. 3 Despite its dollar value, Financial Services is a relatively small employing industry with only 432,000 workers, or 4 percent of the Australian workforce. Figure 1 below shows the makeup of the industry and the relative size of each sector in terms of revenue. Figure 1: Financial Services industry revenue ($b) Superannuation funds Banks, credit unions, building societies Life insurance General insurance Foreign Banks Health insurance Funds management (incl. super) Securitisation Vehicles Stock exchange Insurance brokerage Investment banking Accounting services Financial planning Source: IBISWorld Industry Reports: K7322, K7322, K7422, K7521, K7522, K7519, K7515, K7515, K7521, K7412, L7842, K7325, K7326, K7323, K7411, K7330 see full sourcing below. 4 The health of this industry is significantly tied to general economic and financial market conditions. While Australia s economy is in much better shape than most other OECD countries, partly due to the underlying strength of the Financial Services industry, consumer confidence is currently low. This, 1 Austrade (2012) Data Alert 19 January 2010 Financial sector the largest contributor to Australia s economy 2 Australian Bureau of Statistics (2012) Managed Funds, Australia. Cat. No , December Australian Bureau of Statistics (2012) Australian National Accounts: National Income, Expenditure and Product. Cat. No June K7322 Building Societies in Australia Jun 2012, K7322 Health Insurance in Australia Aug 2012; K7422 General Insurance in Australia June 2012; K7521 Superannuation Funds Management in Australia Aug 2012; K7522 Insurance Brokerage in Australia June 2012; K7519 Stock Exchange and Share Registry services in Australia Apr 2012; K7515 Financial Planning and Investment Advice in Australia May 2012; K7515 Funds Management (except superannuation funds) Apr 2012; K7521 Superannuation funds management in Australia Apr 2012; K7412 Superannuation Funds in Australia Apr 2012; L7842 Accounting Services in Australia May 2012; K7325 National and Regional Commercial Banks in Australia Apr 2012; K7326 Foreign Banks in Australia May 2012; K7323 Credit Unions in Australia Apr 2012; K7411 Life Insurance in Australia Apr 2012; K7330 Securitisation Vehicles in Australia Mar

8 IBSA Environment Scan 2013 combined with a fragile non mining economy, will affect lending and growth in the industry in Profitability is expected to decline. However the steady flow of funds into superannuation, and the ageing population with accumulated wealth, will support continued demand for a range of financial products and services and, over time, emerging Asian markets will provide new opportunities for growth in this industry. After some hard years, most sectors of the industry look set to pick up in , albeit in a more subdued way than in the past. Over the next five years, all sectors are expected to experience stronger than average growth and average revenue will increase at 4.2 percent per year. Government regulations can have a pronounced effect on an industry s dynamics. Large parts of the industry are currently undergoing significant reform, with a range of new regulations being rolled out in New financial regulations have come into effect in 2012, including new credit laws for lenders and brokers and financial advisory laws aimed at transparency and protecting consumers. Banking reforms aimed at increasing competition in banking, particularly the mortgage lending market, are also being rolled out this year. In the superannuation industry, there will be a compulsory increase in the superannuation levy and the introduction of a low cost superannuation product called MySuper which super providers will be required to offer. More details about the outlook for each sector in the industry are provided below. Data is drawn from the most recent IBISWorld Industry Reports, unless otherwise referenced. Banks, building societies and credit unions The banking sector makes its money primarily by providing housing, business and consumer loans. Banks also offer deposit products which allow them to raise money to fund lending activity as well as transaction accounts which generate some fee revenue. The bigger banks also offer wealth management services such as financial planning, superannuation and funds management. The product and services breakdown is shown at Figure 2 below. Figure 2: Banks, building societies and credit unions product and services segmentation ( ) 15% 4% 41% 15% Home loans Business loans Wealth management Consumer credit Other Total = $188.6b 25% Source: IBISWorld Industry Report: KZ300 Finance Industry in Australia (June 2012) Australia s big four banks collectively account for over 30 percent of this sector s revenue and are increasing their market share in a range of activities. These banks are among the ten top rated banks globally. Increasing concentration within the sector is being driven in part by developments in IT that are requiring greater capital investment but also providing greater economies of scale. Building societies that have survived acquisition or merger proposals appear to be weathering the competition well and most will continue to flourish in niche regional areas. Of the nine existing businesses, IBISWorld expects seven to survive the next five years. Contraction and consolidation has been occurring for some time; there were 139 building societies in

9 The credit union business model has allowed these businesses to face the financial crisis better than other institutions. Because they are owned by members, their lending approach is more prudent. Provided they continue to focus on customer service, this subsector is likely to do well in the coming five years. Both building societies and credit unions will benefit from government reforms rolled out in 2011 to assist smaller lenders access funds at a similar cost to the big four. After years of extraordinary growth, the global financial downturn resulted in a significant contraction in the banking sector between 2008 and Revenue and jobs were lost; employment in the sector went down by 5 percent in In the last year, with the rise in funding costs, banks have been protecting profit margins by continuing to shed jobs and outsource functions. Higher borrowing costs, greater regulation and lower debt levels will mean slower growth in financial markets over the next five years to reach an expected $231b by With growth, employment will pick up, particularly in the year where the sector is forecast to grow by 4 percent. This sector is highly labour intensive and employs highly skilled and experienced staff. The quality of service is an important point of differentiation between firms. Banks have renewed their focus on enhancing customer care levels in a bid to cross sell products from other divisions, such as insurance and investment products. The benefits obtained from cross selling have exceeded the potential productivity gains that could have been made by reducing employment in some areas. Insurance The insurance sector includes general insurers who protect individuals and businesses from losses associated with property, casualty, liability and other risks, as well as health insurers, life insurers and insurance brokers. This is a large sector of the economy with a combined revenue of over $100b. General and life insurance are the largest parts of the industry; see Figure 3. Figure 3: Revenue of sectors within the insurance industry ($b) General insurance Life insurance Health insurance Insurance brokerage Source: IBISWorld Industry Reports: K7322 Health Insurance in Australia Aug 2012; K7422 General Insurance in Australia June 2012; K7521; K7522 Insurance Brokerage in Australia June 2012; K7411 Life Insurance in Australia Apr Insurers earn their income from the sale of insurance policies and the investment of reserves in bonds, stocks and other assets. Insurance brokers provide impartial advice and expertise to consumers about insurance options and earn revenue by retaining a portion of the premium on insurance policies sold. Over the past five years revenue for the industry has declined on average, as deteriorating investment income has offset modest gains in premiums. The insurance industry is subject to a number of unforeseen events that are inherently difficult to forecast, such as natural disasters and the performance of investment markets. A particular challenge for the industry is how to deal with climate change and increasing numbers of natural disasters. 5

10 IBSA Environment Scan 2013 After a terrible few years, the insurance industry is expected to finally return to prosperity in The short term outlook for general insurers is positive due to a strengthening economy and it is expected the sector will expand on average at a similar rate to the overall economy. Life insurers are at a turning point. Their offerings have not resonated adequately with consumers, partly due to similar products being offered by superannuation providers. However, the sector is making a concerted effort to make their products simpler, more accessible and customisable. IBISWorld believes there is growth potential in this subsector because so many Australians are underinsured. The health insurance sector remains relatively healthy with annualised growth of 5.4 percent in the next five years. However, IBISWorld analysis shows the sector will need to reduce costs to cope with the ageing membership base, particularly management expenses. The insurance brokerage sector is also forecast to enter a stronger five year period, with solid profits as demand for general insurance picks up and higher premiums are charged. Many brokerage companies will also consolidate and centralise administrative functions to increase efficiency. This industry has a heavy regulatory burden and success is dependent upon the ability of businesses to comply with regulation. Changes in regulation, particularly taxation, can affect demand for products and services. For example changes in the income thresholds for the Medicare levy have an enormous influence on demand for private health insurance. Insurance sector staff need to be highly skilled negotiators and information analysts. The importance of sales and after sales service will become more important as the range of products on offer become more customised to different consumers. The sector also requires a large amount of administrative work, such as claims processing and maintenance of customer accounts. Labour intensity will be reduced and employment growth will slow in coming years as consolidation brings about scale economies and investment in technology increases automation. However, labour will continue to form a significant component of business investment as technology cannot replace large parts of the operations. The introduction of the National Disability Insurance Scheme and the National Injury Insurance Scheme in the next couple of years may have an impact on the broader insurance sector. These social insurance programs will cover some 400,000 people who have or acquire a disability or incur a catastrophic injury. 5 People may be less inclined to buy private insurance if some level of coverage is publicly available. Furthermore, demand for skilled labour may increase as the Government agency set up to administer these programs is likely to employ thousands of insurance agents and clerks. Superannuation and funds management Superannuation funds provide retirement benefits to members. Their revenue comes from contributions plus investments. Ninety percent of the working population are covered by superannuation. The superannuation guarantee requires employers to contribute 9 percent of their employees income to a super fund of the employees choice. Voluntary contributions are also encouraged. This system has made Australian superannuation funds the fourth largest private pension market in the world. There is a range of different types of super funds. The small funds sector is largest and growing fastest with more people wanting to take control of their finances in their retirement through self-managed funds. See Figure 4 below. 5 Productivity Commission (2011) Inquiry into a national disability long term health and support scheme 6

11 Figure 4: Superannuation funds segmentation % 16% 32% 19% 29% Small funds Retail funds Industry funds Public sector funds Corporate funds Source: IBISWorld Industry Report K7412 Superannuation funds in Australia, April 2012 Like other parts of the Financial Services industry the superannuation sector has been through a tumultuous time with the global financial downturn. However, a number of government decisions, along with improved investment conditions, should bring better results in coming years. Starting in regulatory changes will gradually increase the Superannuation Guarantee to 12 percent. Furthermore, with budget deficits continuing for a few years, the Government is unlikely to increase the public pension, putting pressure on people to maintain voluntary super contributions. This environment will help industry revenue grow by a forecast 11.6 percent per year over the next five years to $332.1b in Growth in will be particularly strong at a forecast 21.2 percent. This level of growth, albeit off a low base after the decimation of funds during the global financial downturn, has led IBISWorld to name superannuation as one of the top five Australian industries expected to fly in The surging number of self-managed funds is expected to do little to increase employment levels as the funds are non employing agencies but adviser numbers may grow as a result of this trend. Overall, the expansion of self-managed funds, combined with continuing mergers and outsourcing of administrative functions, signals that employment in the superannuation sector will probably decline in coming years. A big development in the industry is the introduction in 2012 of the Stronger Super reforms. These reforms aim to streamline administration and enhance fee transparency. All super funds will be required to offer a low fee MySuper product from July The fee revenue for the sector is forecast to decline as a result of these extra requirements and there will be consolidation within the industry, reducing the number of major funds. Funds managers A large number of funds use external administrators, advisers and managers. Management of superannuation funds has become big business and will continue to benefit from strong growth in super assets. The primary threats to fund managers are the Government s focus on super fund fees and the increasing popularity of self-managed funds. Other fund managers, outside the superannuation industry, will also increase revenue in anticipation of improved market conditions. The ageing of the population, growing wealth and new and evolving investment products will underpin continued demand for these services. 6 IBIS World (2012) Industries to fly and fall in

12 IBSA Environment Scan 2013 Stock exchange and share registry The stock exchange and share registry sector provides a wide variety of nominee, trustee, investment management and advisory services or other services to the finance and investment sector. As well as stock exchange and share registry services, the sector includes businesses that provide credit card administration services and non bank money changing services. The Australian Securities Exchange is the major player in the industry accounting for 6 percent of total revenue. The segmentation of services provided by this industry is provided in Figure 5 below. Figure 5: Stock exchange and share registry services segmentation % 40% 6% 6% 6% 15% Custody, administration and investment management services Credit card administration services Share registry Stock exchanges Trustees Other Source: IBISWorld Industry Report K7519 Stock Exchange and Share Registry Services in Australia (April 2012) This sector is largely dependent on the performance of the stock market, the value of shares and how much money people invest in managed funds. The financial crisis, therefore, had a massive impact on the sector. Complex transactions such as mergers and acquisitions create business opportunities for share registry companies. The sector will be buoyed by news that Australia s mergers and acquisitions activity is still strong, ranking fourth in the world after the USA, UK and China. 7 This sector, like the superannuation and funds management sector, will also benefit from the increase in the compulsory superannuation employer levy in 2013 from 9 percent to 12 percent. Superannuation funds hold an estimated 50 percent of Australian funds under management. Due to the increasing wealth in the population and the amount of funds going into superannuation, the stock exchange and share registry sector will continue to grow strongly. However, until the European debt crisis is resolved and the American economy has revived, market volatility will remain and this will dampen growth. Revenue is expected to increase at a more subdued average 9 percent per annum over the next five years, to reach $18.9 billion in Successful operators in this sector must have qualified and experienced employees with good product knowledge and marketing skills. They need highly experienced investment teams, clearly defined strategies and skilled economic researchers. Technology is also important in this sector, making it much more capital intensive than other Financial Services industry. Financial planning and investment advice The financial planning and investment sector comprises a vast number of individual proprietors and a handful of large firms. There are nearly 17,000 financial advisers in the industry. The large firms are the wealth management arms of large financial institutions. The major driver of demand for financial advice over the past five years has been the increasing number of individuals seeking advice on superannuation 7 Austrade (2012) Data Alert 17 January 2012 Australia corporate finance activities remains strong 8

13 matters. A recent ASIC survey suggests over a third of Australians have approached a financial adviser at some stage. 8 See Figure 6 below for segmentation of services provided in this sector. Figure 6: Financial planning and investment advice service segmentation % 8% 34% 21% Superannuation and retirement advice Investment advice and management Self-managed super fund advice Tax advice Other 27% Total = $4.3b Source: IBISWorld Industry Report K7515 Financial Planning and Investment Advice in Australia (May 2012) This sector is facing one of the biggest changes of all sectors in the Financial Services industry. The Government s overhaul of financial advice through its new FOFA reforms addresses issues of conflict of interest, transparency and duty to clients. The most far reaching of the reforms to the industry are the introduction of legal obligations to act in the best interest of clients and the banning of commissions that misalign the interest of advisers and their clients. This has required a shift to fee for service models from 01 July To ensure advisers can comply with these reforms, the Australian Securities and Investments Commission (ASIC) has proposed a new assessment and professional development framework in its Consultation Paper 153. This has a number of implications for financial advisers. In particular, ASIC has proposed a three stage assessment and professional development framework including a Certification Exam for new and existing advisers, one year of full time monitoring for new entrants to the industry and a review of knowledge every three years for all advisers. 9 The skills and performance of advisers therefore will be much more heavily scrutinised; they will need to undertake regular professional development and be involved in ongoing processes for qualification. The next five years will be tumultuous, with many players exiting the sector due to the FOFA reforms. Some industry players have claimed that close to 7,000 adviser jobs will be lost in the next couple of years. But IBISWorld and others 10 expect that in the end, greater transparency, professionalism and client confidence due to regulation changes will benefit the sector. In the five years through , industry revenue is expected to increase 4.5 percent per annum to reach $5.3 billion. This increase will start slowly, however, with low growth anticipated for Despite some uncertainty around the impact of the reforms, larger firms are focussing on recruitment and training of staff in anticipation of a growth period. The characteristics and skill sets required of a pre FOFA adviser will differ from those of a FOFA compliant adviser and new training will need to be undertaken. Good qualifications, in depth experience and product knowledge, access to a strong research base and well developed marketing skills will continue to be invaluable to successful businesses. 8 ASIC (2010) Access to Financial Advice in Australia, Report ASIC (2011) Licensing: Assessment and professional development framework for financial advisers. Consultation paper eg Parliamentary Joint Committee and Corporations and Financial Services February 2012, Corporations Amendment (Future of Financial Advice) Bill 2011 and Corporations Amendment (Further Future of Financial Advice Measures) Bill

14 IBSA Environment Scan 2013 Accounting services This sector includes accounting, auditing and bookkeeping services related to all aspects of taxation, financial reporting and auditing. Auditing and business tax services raise the most revenue. See Figure 7 below. While there are about 10,000 accounting enterprises across Australia, four firms the big four account for a third of the market share. Of late, however, mid tier firms have been closing in on the big four by offering more value for money services, especially in the highly regulated auditing services. Figure 7: Accounting services segmentation % 10% 35% 23% Business tax services Audit services Advisory services Personal tax services Book keeping Total = $15.8b 27% Source: IBISWorld Industry Report L7842 Accounting services in Australia (May 2012) A rebound in revenue growth in the accounting sector is expected in the next year; however profit margins are expected to fall as the entry of more firms offering similar services and capabilities creates an operating environment with stiff price competition. Demand will be low for small businesses due to slower demand for bookkeeping work as more people shift to digitalised tax lodgement and small firms will face increasing difficulties attracting talent at the rate of the big four. The big four are expected to continue to build business with Asia, particularly Chinese companies operating in Australia. A significant factor in revenue growth of larger firms has been in offering value added services, particularly advisory services to businesses such as risk consulting. The sector overall is expected to grow by 6.1 percent in and then by an average of 5.5 percent in the next five years, to be worth $20.7b by A big impact on the industry in the next year will be the carbon tax. Introduced in July 2012, this tax will affect 300 of the country s largest polluters, which collectively emit about 60 percent of Australia s total carbon pollution. Accounting firms able to capitalise on emission auditing and assurance services are expected to benefit as affected companies deal with larger compliance costs. IBISWorld expects those involved in tax and strategy work may also benefit. As the sector diversifies its services, and businesses become more data oriented and analytical, companies are looking to extend their hiring practices beyond the traditional business graduates and have commenced actively hiring engineers and economists. However, finding candidates with the right experience is not easy and those accountants with specialist knowledge will benefit accordingly Robert Walters (2012) Global Salary Survey 10

15 Workforce characteristics and employment trends The Financial Services industry employs about 432,000 people. A relatively small proportion of employees work part time 18 percent versus 30 percent for all industries. Numbers of apprentices and trainees in this industry are also relatively low at 7,700 nationally. 12 The Financial Services industry is younger that average, with only 31 percent of employees over 35, compared to 38 percent in all industries, and population ageing will therefore have less of an immediate impact than it will on other industries. Accounting clerks are an exception. With a median age of 42, they are one of the older occupations in the industry. Many of these workers are due to retire soon which will exacerbate skill shortages in this sector. 13 Financial Services is also more feminised than many other industries, with 53 percent of workers being women, compared to 46 percent in the workforce. A massive eighty percent of people in this industry work in capital cities. This compares with 63 percent in all industries. This is because the majority of large finance and insurance companies are located in capital cities. Sydney has the highest concentration of employment in this industry of any region, with 6 percent of its employment being in financial and insurance services, followed by Melbourne with 5 percent. 14 The largest employing sectors in the industry are banks, building societies and credit unions which, with about 206,000 people, together account for close to half of the employment in the industry. However, employment growth has been slow in this sector, even declining in some years. Technology has had a major impact. With many businesses offering customers the ability to check balances, transact and view information over the internet, the need for labour intensive back office roles has reduced. Accounting services are the next largest segment after banks; 106,000 people are employed in accounting businesses. Half of the businesses are small owner operator tax accountants. The smaller firms are in decline with the introduction of e tax software, but employment and wages will grow in larger accounting firms. Insurers health, general, life and brokers jointly employ about 83,000 people, with life insurance companies employing the most workers at 27,000. There are around 50 people working in each of the 600 odd life insurance companies around Australia. Stock exchange and share registry services also have close to 83,000 workers. 15 Overall, most new jobs in the last five years have been created in auxiliary finance and insurance services; including brokerage, funds management, stock exchange and share registry operation. Employment in this group of businesses is up by 31,100 or 28.4 percent. There has been a smaller rise in insurance and superannuation funds. 16 The major occupations in the Financial Services industry are accountants and accounting clerks, followed by bookkeepers and finance managers. Jobs growth in the last five years has been strongest for economists, accounting clerks and insurance, money market and statistical clerks. Employment in a number of occupations has contracted in the last five years, due to the impact of technology and the global financial downturn. The highest rate of decline was in the occupations of 12 DEEWR (2012) Australian Jobs 13 DEEWR (2012) Australian Jobs 14 DEEWR (2012) Australian Jobs 15 IBIS World (2012) Industry Reports: K7322 Health Insurance in Australia Aug 2012; K7422 General Insurance in Australia June 2012; K752; K7522 Insurance Brokerage in Australia June 2012; K7519 Stock Exchange and Share Registry services in Australia Apr 2012; K7515 Financial Planning and Investment Advice in Australia May 2012; L7842 Accounting Services in Australia May 2012; K7325 National and Regional Commercial Banks in Australia Apr 2012; K7326 Foreign Banks in Australia May 2012; K7323 Credit Unions in Australia Apr 2012; K7411 Life Insurance in Australia Apr 2012; 16 DEEWR (2012) Australian Jobs 11

16 IBSA Environment Scan 2013 financial dealers, credit and loans officers and insurance agents. Employment numbers and change over the last five years is outlined in Table 1 below. Table 1: Financial Services industry occupations: employment 2011 and employment change five years to 2011 Occupation Employment 2011 Change five years to 2011 % change Accountants 158,100 10,300 7% Accounting clerks 147,700 32,300 28% Book keepers 117,500-16,400-12% Managers, finance 55,400 4,200 8% Bank Workers 55,300-1,700-3% Financial investment advisers and managers 45,900 6,600 17% Insurance, money market and statistical clerks 34,600 6,800 25% Financial brokers 25, % Credit and loans officers 23,800-6,000-20% Auditors and company secretaries 17,800 2,700 18% Financial dealers 15,900-9,500-37% Insurance agents 10,600-2,100-17% Actuaries, Mathematicians and Statisticians 6, % Economists 5,200 2,000 62% Insurance investigators and loss adjusters 4, % Source: DEEWR 2012 Australian Jobs Industry and workforce outlook Industry outlook With growth rebounding across the industry, there are a number of trends that will influence the size and shape of the labour market in the next couple of years. Issues that have been evident for the past year or two and continue to have an impact include: the drive for productivity growth, in response to Australia s declining productivity in recent years, and improving oversight of the financial system as a result of the global financial downturn, including the ongoing implementation of International Financial Reporting Standards and the global regulatory framework for more resilient banks, -Basel III. A review of recent commentary and literature indicates there are three other industry wide trends that will have a particular impact in They are: the role of the industry in the Asian Century the exponential growth, use of and expenditure on ICT, and offshoring of jobs recent research shows that the proportion of jobs at risk of being offshored in this industry is almost twice the rate for service industries as a whole. Occupations at most immediate risk include bank workers, credit and loan officers and financial investment advisers and managers. 12

17 In addition, a number of major regulatory changes are being rolled out in 2012 which will impact on particular sectors, including: the carbon tax, with a particular impact on accountancy services the Stronger Super reforms which will have a particular impact on superannuation funds the FOFA reforms, including a move by ASIC to introduce an examination for regulated financial advising occupations, which will affect investment managers, accountants and financial planners, and amendments to the Privacy Act which will significantly change data collected by credit agencies and data available about individuals. These industry impacts are discussed in more detail below. Asian century Australia s role in the Asian Century was a hot topic for politicians and economists during There is general agreement that Australia s success in the future will depend on our ability to integrate more fully with Asian markets. The increasing value of the Asian region to Financial Services is evidenced by the fact that the Asian region recently overtook North America for the first time as being home to the world s largest population of high net worth individuals people with greater than US$1 million in investable assets.18 Furthermore, investment from emerging Asian economies is increasing. China s foreign investment in Australia has grown from $0.6 billion at the end of 2006, to $12.8 billion at the end of Australia in the Asian Century looks at the implications and opportunities for Australia, including opportunities for trade, investment and financial markets. A recent survey of investment and financial services associations members showed that approximately one third of investment managers operating in Australia source funds under management from overseas clients, and Australian financial services companies are expanding into all types of overseas markets, particularly in Asia. Such expansion ranges from straight services exports from Australia to complex outwards investment strategies, such as opening an office/subsidiary in a foreign market, acquiring a foreign operation, setting up a joint venture with foreign partner/s to provide services into a foreign market, or investment in a distribution platform in a foreign market. 20 See Table 2 below. Table 2: Australian financial services global footprint Asia Pacific Europe Americas Africa and Middle East Banking China, Fiji, Hong Kong, India, Indonesia, Japan, NZ, Singapore, Vietnam Malta, UK Canada, Cayman Islands, USA Funds management Fiji, Hong Kong, Japan, Korea, Malaysia, NZ, Singapore, Taiwan, Thailand Germany, Ireland, Luxembourg, Netherlands, Switzerland, UK Canada, USA, Brazil Oman, UAE, South Africa Financial planning Hong Kong, Singapore, Thailand Insurance China, Fiji, Indonesia, NZ, Samoa Investment administration China, Hong Kong, Malaysia, NZ, Singapore, Taiwan France Canada, USA, Brazil 17 See, for example, Treasurer Wayne Swan s speech at The Prime Minister s Economic Forum 12 June 2012 Making this the Australian century in Asia; and Dr Ken Henry s presentation to the AiGroup National Forum 20 August 2012 Australia in the Asian Century 18 Austrade (2012) Data Alert 2 July 2012 Australia remains home to the Asia-Pacific s third largest HNWI population 19 Department of Prime Minister and Cabinet (2011) Australia in the Asian Century issues paper 20 Austrade (2010) Investment Management Industry in Australia 13

18 IBSA Environment Scan 2013 Asia Pacific Europe Americas Africa and Middle East Mortgage brokering China, NZ USA Stock brokering Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand Germany, Switzerland Canada, USA South Africa Source: Austrade 2010 Investment Management Industry in Australia, survey of Investment and Financial Services Association members The Government is actively supporting these developments. In 2008 it set up the Australian Financial Centre Forum (AFCF) to position Australia as a leading financial services centre in the region. The AFCF s report Australia as a Financial Centre: Building on our Strengths also known as the Johnson report was released in January The Johnson report contained a number of tax and regulatory recommendations. One recommendation was the development of an Asia Region Funds Passport to help Australian fund managers access Asian markets. The Funds Passport would take the form of a multilateral framework enabling an investment fund in one country that had signed up to the passport framework to offer the same products in each of the signatory countries; this would enable Australia to export financial expertise more easily to Asia. 21 This initiative has strong support from the Financial Services industry. 22 Asia Pacific Economic Cooperation finance ministers recently endorsed and welcomed the exploration of the Passport and a pilot program involving select countries may be operational by the end of ICT The use of telecommunications services, information technologies and electronic distribution technologies is increasing and will continue to influence how financial services operate. The Financial Services industry spent more than any other industry on information and communications technology (ICT) last year, at $9.6 billion or nearly 22 percent of the entire ICT spend in Australia. This spend is forecast to grow to around $11.1 billion by Over 30 percent of expenditure in the industry is dedicated to ICT. 25 Financial services have been at the forefront of using technology for decades, particularly banks. Across the sector, new forms of technology, such as cloud computing, workspace strategies, virtualisation, mobility and social business are now driving activities to achieve cost savings and productivity improvements. 26 The introduction of the national broadband network (NBN) is set to have a significant impact in this industry. The NBN will deliver further advances in online banking/e banking and the ability to deliver services to customers on demand. Improvements in security and connectivity through high speed broadband will accelerate the personalisation of banking, finance and insurance service delivery, especially to rural and remote customers. 27 Leveraging customer data and technology to understand consumer behaviour has been one of the recurrent themes in financial services for over 20 years. The last twelve months has seen another leap forward in this space, under the name of big data. Technical breakthroughs in the analysis of data have opened up an extraordinary volume and diversity of data which can now be used to shed light on consumers, while enabling this analysis to occur nearly in real time. At the same time, decreases in the cost of data storage have made it feasible to store data which until recently would have been disposed of. There is evidence pointing to a competitive advantage for those organisations that are collecting and 21 Austrade (2010) Investment Management Industry in Australia 22 Price WaterhouseCoopers (2010) Asia Region Funds Passport: the future of the funds management industry in Asia 23 Gushn, M. (2012) The Asia Region Funds Passport pipedream or pipeline? 24 IDC (2012) Australia Banking, Financial Services and Insurance ICT Market Forecast and analysis July Kambhampaty, S. & Konduru S. (2012) Financial Services Innovation in the ICT Engine Room: Innovate or perish 26 IDC (2012) Australia Banking, Financial Services and Insurance ICT Market Forecast and analysis July IBSA (2011) Impact of the Digital Economy and the National Broadband Network on Skills. 14