A Report on Employment Trends in the Financial Services Sector:
London, Middlesex, Elgin, Oxford, Huron and Lambton

INDUSTRY OVERVIEW

• The financial services industry is a leading player in the Canadian economy. The sector encompasses a wide array of businesses from banking, trust companies and credit unions to insurance firms, securities and investment dealers. In Canada, the sector directly employs more than a half a million people (550,000) and pays out $425 million dollars a week in wages (Ministry of Finance.1999. Reforming Canada's Financial Services Sector: A Framework for the Future.). The financial services sector contributes to indirect employment within the economy as well. A 1997 study completed by the University of Toronto’s Institute for Policy Analysis for the Canadian Bankers Association concluded that the sector supported approximately 380,000 additional jobs in Canada (Canadian Bankers Association.1999.Fast Facts.).

• Today, there are more than 3,000 organizations providing financial services in Canada (Canadian Bankers Association. 1999. Canadian Bank Facts 1998/1999 Edition. Pickering: Canadian Bankers Association). By international standards, our financial services system is considered to be highly efficient and reliable. According to the 1998 World Economic Forum Survey, Canada’s financial services sector ranks sixth among 53 countries in terms of overall international competitiveness. The same survey determined Canada’s banks to be the most stable in the world (Ibid). This sector typically provides employment with above average salaries and high levels of skill and qualifications. Recent recruitment into the industry indicates a for well educated employees. Approximately 75% of those newly hired by banks have a post secondary education (Boston Consulting Group.1997. Financial Services at the Crossroads:The Current and Potential Role of Financial Services in the Greater Toronto Area). Growth in the financial planning and investment areas of the financial services industry has translated into an increasing number of high paying jobs (Ibid).. However, according to the Ministry of Finance (1999), the number of people employed in the sector remained relatively constant between 1991 and 1997 as decreases in some areas of the sector, namely in insurance and trusts were offset somewhat by growth securities and investments. Table 1.0 provides an overview of the numbers of people employed in various parts of the financial services sector between 1991 and 1997.

  Numbers of Financial Services Employees in Canada: 1991 and 1997
  Industry Sub-sector	Employees 1991	Employees 1997
  Banks	191, 596	194,800
  Trusts	36,000	22,900
  Credit Unions	n.a.	61,600
  Insurance	182,789	141,326
  Securities	19,324	32,900
  Investment Funds	26,641	35,000

  *chart adapted from Task Force on the Future of the Canadian Financial Services Sector: Report #12. 1998.

• The financial services sector comprises a number of different types of businesses all dealing with some aspect or aspects of money and finance. In terms of number of employees, assets and revenues, banks lead the way. Six major banks, Royal Bank of Canada, Canadian Imperial Bank of Commerce (CIBC), Bank of Montreal, Scotiabank, TD Canada Trust and National Bank (largely focused in the Quebec market) make up the core of Canada’s banking system, holding about 90% of bank assets. They are second only to the manufacturing sector in their contribution to the GDP (London Economic Development Corportation. 2000.Market Reviews 1999 Third Quarter). In Ontario alone, banks operated 3,541 branches and employed 112,455 people in 1998 (Canadian Bankers Association.1999 Canadian Bank Facts 1998/1999 Edition. Pickering: Canadian Bankers Association p.17). Insurance companies also play a large role in the financial services sector. These companies provide life, health, property and casualty insurance to individuals and groups. More and more they are also offering a broad range of financial products to clients. As of 1997, there were 348 insurance companies operating in Canada (Task Force on the Future of the Canadian financial Services Sector: Report#12.1998). Although increasingly susceptible to mergers and consolidations, trust companies are also participants in this sector. Trust companies operate similarly to banks and may specialize in fiduciary services such as estate planning and setting up trusts. Credit unions are also included in the financial services sector. They distinguish themselves from banks and trust companies in that they are member owned and the members have some say in the direction of the company. Also involved in the sector are finance companies. These companies specialize in lending and extending financing to individuals and businesses. Security dealers or brokers and financial planning organizations are a fast growing portion of this sector. These businesses revolve around the trading of securities and providing financial plans to clients. Each of these areas of the financial services sector will be explored in this report with respect to demand for employment. Although not traditionally contained in the definition of financial services providers, accounting firms will also be included in our study due to the prospect of demand within this occupation.

• The past few years have seen many dramatic changes in the world of financial services, as the industry continues to evolve. Still further transformations are on the horizon. These changes have been driven by four main forces. First, government legislation is responsible for many of the significant reforms we have seen in the structure of the financial services sector. Before 1992, the financial services sector was distinctly divided into four parts or "pillars": banks, insurance companies, trust companies, and securities firms. Each pillar operated independently, restricted to offering only the goods and services in its own core business. In 1992, the federal government introduced legislation that virtually eliminated the four pillar design of the financial services (The desire for the four pillared system stemmed from the financial despair of the depression.Legislators worried that integration of the pillars would make the system vulnerable to breakdown if one institution were to fail {London Business Magazine.Oct.1998.Pulling Punches}) system. The legislation allowed any federally chartered financial institution to provide almost any type of financial service. As a result, financial services providers can no longer be distinguished by the types of services they deliver.

• Removal of these barriers to service has allowed for increased competition and has contributed to the push toward mergers and consolidations we are now witnessing in the industry. In order to maintain profitability and increase productivity margins more and more financial services companies are being reorganized through mergers and acquisitions. Others have responded to these changes by attempting to position themselves in niche markets. The insurance industry has experienced a significant amount of consolidation, most notably in our area through the acquisition of London Life by Great West Life in 1997. The 1992 legislation also permitted banks to merge with trust companies. Since then, trust companies have been all but eliminated in the Canadian market place. The recent take over of Canada Trust by Toronto Dominion signifies the extinction of the last major Canadian trust company that was not owned by a bank (details of the effect of these mergers on area employment are discussed below). Under the current legislation, banks have not yet been allowed to merge with one another (Mergers among banks with more than five billion dollars in equity are subject to federal merger review and approval) however, many of our interviewees suggested that future mergers are inevitable.

• The second force influencing the industry is the pressure of globalization. Many nations are opening up their borders to foreign institutions hoping that other countries will do the same. This has created a globalized financial market, increasing local competition and creating opportunities abroad. Thus, Canadian financial services providers are feeling the need to compete on a global scale. In order to keep pace, companies are seeking new ways to market their products and are looking to create greater efficiency through consolidations. A number of our interviewees commented on the ferocity of international competition and the constraining effect on the Canadian financial services sector of the alleged rigidity of our regulatory environment. They interpret this environment as prohibiting them from truly being able to compete on a grand scale, against competitors who are relatively immune to governmental regulations.

• The Task Force on the Future of the Canadian Financial Services Sector Report, released in 1998, recommended reforms to Canada’s regulatory environment in order that all financial service providers be able to function effectively and remain competitive in the years to come. Recent legislation brought down by Finance Minister Paul Martin on June 13, 2000 speaks to this need to be globally competitive. The new legislation amends Canada’s banking and insurance laws and is aimed at giving financial services providers greater structural flexibility and latitude for raising capital and creating strategic alliances (Howlett,Karen.2000.Holding firms face a New World. The Globe and Mail.Tues.June,13:B14). The changes established new holding company rules. Banks and insurance companies will now be allowed to locate certain activities, previously done within the company, to an outside affiliate, which will be subject to lighter regulations. The new legislation is also designed to allow credit unions to expand nationally and give life insurance and securities dealers access to the payments system (Cordon, Sandra.2000 Bank Balance Aim of Law,The London Free Press,Wed.June 14:D1). One of the goals of this legislation is to allow financial services providers to grow and compete in the global market.

• Given these trends towards competitiveness, efficiency and consolidation, it is unlikely that we will see a significant increase in employment in this sector in the near future. As financial institutions continue to merge, some jobs are in jeopardy of being moved, changed or lost. Some industry insiders admit that jobs may be lost in the short run, but are encouraged by the idea that the efficiency gains brought about by mergers will eventually lead to higher employment levels as financial services companies become more competitive and increase their share of the global market (Toronto Economic Development Committee {Sept.15 1998}).

• Third, technological innovations have dramatically altered the financial services industry. New technologies, especially the advent of information technology, have increased the speed, volume and quality of financial transactions. Products and services, like automated banking machines, direct payment, telephone and Internet transactions are now widely employed. These services can now also be delivered at low cost, to remote locations, involving less labour.

• Canadians have quickly embraced these new financial services technologies. Many of our interviewees mentioned that technological innovations have redrawn the way in which financial services providers interact with clients. Today there is less face to face interaction with customers. Eighty-five percent of transactions are now automated(Ibid). Between 1988 and 1995, our use of paperless transactions in Canada grew at an average annual rate of 13.9 percent, while at the same time, chequing transactions decreased by an average of 1.49 percent per year (Ministry of Finance.1999.reforming Canada's Financial Services Sector: A Framework for the future,p.15). The Canadian Bankers Association (1999) reports that telephone banking has grown by 50 percent each year since 1994, Internet banking has grown by 10 percent annually and the use of debit cards has increased by 91 percent a year. It is interesting to note that Canadians are actually the largest users of ABMs in the world, logging 52.7 transactions per Canadian in 1997 (Canadian Bankers Association.1999.Canadian Bank Facts 1998/1999 Edition.Pickering: Canadian Bankers Association p.22). One of our interviewees suggested that ABM use has reached a mature stage, and its use will likely level off as more clients adopt other points of access like PC/Internet banking.

• Most of our respondents indicated that we are likely to see more of these types of innovation in the future. The financial services institution of tomorrow is expected to look dramatically different than it does today. The effect of these advancements in technology on employment in this sector will be discussed later in the report.

• Finally, shifting demographics have been a catalyst to the changing structure of the financial services sector. The aging of the "baby boomer" generation is having a visible impact on the types of services offered by financial institutions. As this generation moves from its borrowing into its saving and retirement years, a large emphasis is being placed on wealth management and financial planning. Many Canadians are looking for financial services that are very different from the ones they were purchasing just a few years ago. Deposits have stopped growing and will soon be exceeded by the growth in Mutual Funds (Task Force on the Future of the Canadian Financial Services Sector:Report#12.1998). A number of our interviewees noted this shift towards wealth management, retirement planning and estate planning within their businesses. Just about all of our interviewees mentioned wealth management and financial planning as areas of growth within the industry (the impact of demographic trends on employment will be discussed later in the report).

• Being the largest commercial centre in the five county area and given the importance of changes experienced recently, the future of financial services in the City of London assumes an important role in this report. Table 1.1 gives a detailed overview of the number of people employed in various occupations in the sector, in Ontario and in the London CMA for the years 1991 and 1996. The financial services sector has been a significant source of wealth, employment and pride in the London area for many decades. It is second only to Toronto as a centre for finance and insurance. Part of the city’s identity was tied to the head offices located downtown, such as London Life, Canada Trust and AVCO (now, The Associates).

Table 1.1 Number of People Employed in Financial Services for Ontario and London CMA