Institutional consulting firms, in their collective bid to stay competitive and boost their bottom lines, are gradually morphing the business.
By and large, consulting firms still concentrate on providing investment advice to institutional investors, but more of them are either slightly tweaking their business models or launching entirely new lines of business.
"The typical revenue structure makes it difficult for consulting firms to compete, not just with one another, but with investment management firms that can pay these same professionals multiples of what they earn as a consultant," said Kevin Quirk, partner at strategic consulting firm Casey, Quirk & Associates LLC, Darien, Conn. "In many ways, this makes consulting a less than stable business."
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An employee at the typical investment consulting firm generates an average $150,000 in revenue in a given year, compared with more than $650,000 per employee at a money management firm, according to David Eager, partner at Eager, Davis & Holmes LLC, a Louisville, Ky.-based strategic consulting firm to the money management industry.
"The economics of the consulting industry have forced consultants to alter and extend their core business," said Mr. Eager.
Some consultants have entered the business of money management recently, creating fund-of-funds strategies or multimanager products that can be plugged directly into institutional investors' portfolios. And some have gone from providing arm's-length advice on manager searches and asset allocation to a more involved relationship where the consultant makes, rather than just suggests, investment decisions.
Whatever the method, consulting firms all appear to have a similar goal: make more by taking on more.
"We're not necessarily in the business of investment consulting anymore," said Roger Urwin, global head of investment consulting at Watson Wyatt Worldwide in London. "We are part of the investment management business, and we provide investment consulting advice."