The quarterly survey was conducted by PricewaterhouseCoopers and the Confederation of British Industry for the three months to June.
For investment managers, profitability rallied sharply over the period, rising at the third-fastest pace since the survey began in 1989. Further strong increases are expected.
Fee, commission and premium income increased but a fall is expected in the next quarter. Business volumes grew for the fourth consecutive quarter and total business levels were above normal rates.
Optimism about the business situation rose for the sixth-consecutive quarter and employment increased at an above-average pace with firms unanimous about increasing headcount over the next quarter.
Paula Smith, PwC UK asset management leader, said: "Investment managers are more optimistic due to strong improvement in revenues and profitability, with the latter increasing for the sixth consecutive quarter. Firms continue to benefit from the comparative stability of financial markets, as well as the year-long recovery in equity values."
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Investment management firms said regulation was the biggest barrier to growth.
Ms Smith said: "Despite the gradually improving clarity around supervisory changes, investment managers think regulation is the biggest obstacle to the sector's growth. The proposed EU bonus cap is of particularly concern with investment managers expecting the proposal to make staffing costs less flexible and increase difficulty retaining talent."
Looking at the wider financial services sector, business volumes and optimism increased. The only sector where business volumes and optimism fell was the life insurance sector.
Overall profits dipped slightly as strong business volumes were offset by flat average commission, fees and premiums.

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