Business optimism among investment managers was broadly flat - the first time it has failed to improve in three years - according to the 101st CBI/PwC Financial Services Survey. 

Business volumes failed to expand in the final quarter of 2014, and total costs have risen rapidly. Despite this, profitability is expected to improve in the coming three months and investment management firms continue to expand their headcount with further investment anticipated.

“Optimism among investment managers in the final three months of 2014 may well be linked to global volatility in the equity markets and recent disruptive geopolitical events may well have meant investment managers ended 2014 on a cautious note. We expect optimism to return to the sector in 2015," said Mark Pugh, PwC’s UK asset management leader.

“Total costs rose rapidly and are expected to continue to do so with IT, numbers employed, employee training and marketing expenditure all increasing. Following a pick-up in the market in 2014, firms will now be focusing on spending with direct interaction with the customer front of mind for investment managers. Return on investment is expected in the coming year."

He added that the acquisition of domestic customers stands out as the key driver for growth in the next year and, as a result, PwC expects an increase in M&A activity. Mid-size firms are most vulnerable, with big houses looking to consolidate their customer base through acquisitions. 

“Availability of professional staff is by far the most commonly cited barrier to expansion in 2015 and, coupled with pay regulation and strong markets, talent management could indeed become more difficult over the coming year," added Pugh.