Financial services and the Big Four

The Big Four firms’ consulting practices have always been closely intertwined with the fortunes of the financial services industry.

Most recently, they’ve been able to take advantage of successive waves of regulatory change and the growing importance of risk management on many fronts.  Strong relationships with national regulators have helped create barriers to entry, containing the threat from smaller, more specialised competitors.  Audit-based brands play well in the compliance and governance space.  Above all else, above average growth in demand for consulting services in the financial services sector has been mirrored by above average growth in the Big Four firms’ consulting practices, allowing them to diversify and invest at a time when many other firms have had to cut back.

But financial institutions’ apparently voracious appetite for consultants shows signs of being sated.  More than a year and a half ago, we heard rumblings from clients, frustrated that the cost of regulatory compliance curtailed their ability to invest in revenue-generating areas.  In 2012, the market, which we estimate to have been worth almost $22bn, grew by just 5%, substantially lower than the rate in the preceding couple of years.  Our new report on consulting in the financial services sector reveals that 50% of companies have a formal or informal rule which says that expenditure on consultants should be reduced (the comparable figure elsewhere is 40%), and 22% expect their expenditure to fall in practice (16% in other sectors).  Compounding the problem, clients in this sector are more price sensitive than their counterparts elsewhere.

It’s by no means all bad news: while the proportion of clients saying they expect to spend more on consultants in 2013 than they did in 2012 is lower than in other sectors and than in the last two years, 46% of financial institutions do say they’ll spend more. But it does suggest that now may be a good time to rethink this special relationship.

Fortunately, it appears that there’s plenty of opportunity for individual firms to seize an advantage.  Only a quarter of clients think the best firms they work with are excellent when it comes to transferring to internal staff, helping help with implementation and fitting in, in cultural terms.  The Big Four need to change tack: their expertise in the financial services sector is important, but it’s not sufficient.  Demonstrating a superior ability to work alongside a clients’ own staff in order to get things done may not sound revolutionary, but it will go a long way to making up the shortfall in overall growth.