PWC's survey found almost a quarter of respondents are expecting to be running five or more offshore centers in three years time. And while nearly 20 percent currently have no offshore head count, within three years only 6 percent of those surveyed expect that would be the case at their companies.

Among the companies surveyed, the top-five areas for outsourcing activity were use of information technology hardware, IT applications and services, customer contact activity such as scripted sales calls, and customer contact such as help desk calls.

Currently, the top-five offshore locations are India, China, Ireland, Malaysia and Singapore. Executives, when asked what countries their companies are considering in the next three years for outsourcing, listed as their top-five China, India, Brazil, the Philippines and Poland.

PWC advised that financial services firms which offshore jobs solely as a cost-saving strategy or do not approach projects with caution will fail to reap the full benefits, such as greater operational efficiency and increased shareholder value.

However, 79 percent in the survey said cost saving was the main reason for offshoring.

According to PWC, while 74 percent of the executives reported an offshore savings in the long term, in the first year of the project nearly a third of survey participants said they experienced no change in costs, while 15 percent reported no change in their cost base even after five years.

Other benefits of offshoring identified by those surveyed were strategic flexibility and improved quality of service.

The survey found that nearly half of financial services firms currently offshore transaction-based IT activities, and only 12 percent of companies do not offshore any IT activities. By 2008, however, a further third of respondents plan to offshore human resource activities such as payroll, while a further 25 percent expect to offshore customer contact activities such as sales calls.

Twenty-two percent of respondents said that by 2008, knowledge-based activities such as financial research and modeling will be offshored.

"Financial services executives who are looking to reap the most rewards need to view offshoring as a long-term process to improve performance in the organization as opposed to a cost-cutting mechanism," said Jeremy Scott, chairman of PricewaterhouseCoopers Global Financial Services Leadership Team in London, in a statement with the report.

He said some companies fall victim to initial over-enthusiasm, but "successful firms will be realistic when drawing up savings targets. They should plan ahead exhaustively when considering offshoring, as there can be hidden risks for the unwary==not least to a company's reputation if there are any offshore security breaches."

Executives surveyed said offshoring created concerns over rising wages caused by the demand for educated staff and rising turnover in the most popular offshore destinations.

Training and career development opportunities were cited by four out of five of executives as the most effective way to retain offshore employees. These staffing pressures will only intensify as the trend to offshore gains ground, PWC predicted.

Despite some of its negative findings, Nigel Vooght, a partner at PricewaterhouseCoopers, said that while "offshoring presents risks to banks, insurance companies and asset managers, by moving jobs abroad companies can reduce costs on a long-term basis and become more profitable, efficient and focused. Ultimately shareholders may receive a better return on investment, which enables growth for the organization as a whole."

The report was produced with the Economist Intelligence Unit, which did in-depth interviews with 20 executives.