CONSULTANTS studiously avoid taking credit for their clients’ successes in order not to be blamed when things go awry. They have not been able to avoid the spotlight during the financial crisis. In a 2008 shareholder report explaining a huge write-down, UBS blamed “external consultants” for recommending that it go into areas like subprime mortgages. An ex-head of Citigroup’s investment bank told investigators he had relied on “a careful study from outside consultants” when moving into collateralised-debt obligations.
Yet although many Wall Street titans failed during the crisis, the advisers whispering in their ears have emerged even stronger (see chart). According to Kennedy Information, a research firm, the global financial-services consulting business posted record revenues of $49 billion in 2012, a fifth of the consulting industry’s total.
Three main factors account for the consultants’ resilience. Perhaps the most powerful is the business’s each-way bet on boom and slump. When the economy is flourishing, banks, insurers and asset managers are eager for counsel on mergers, marketing and expansion. When it crashes, they are desperate for guidance on cutting costs and divesting dud assets. “The Firm”, a new history of McKinsey, recounts how the company’s consultants joked that they would first tell banks to close underperforming branches. Once they cut too far, McKinsey would then recommend ambitious expansion. When the banks grew too large, the cycle would start anew.
A second boost comes from the rise of “Big Data”. Regardless of the business cycle, banks and investors are constantly improving statistical models and trading platforms. All six of the biggest financial consultants—the consulting arms of the “Big Four” accounting firms of Deloitte, PwC, Ernst & Young and KPMG, plus IBM and Accenture—have large information-technology practices. A handful of boutiques, such as Britain’s Holley Holland, specialise in integrating the data systems of sprawling financial conglomerates.
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