Big may be beautiful in today’s business environment of cross-border mergers and acquisitions, but in the realm of European consultancy it is no guarantee of success.
A noticeable trend when taking an overview of the advisory business being won around the continent is that smaller domestic firms are undoubtedly holding their own against the multinational players in a number of markets.
In others they are positively increasing market share while the overseas competition tries, sometimes unsuccessfully, to gain a foothold. The withdrawal of Frank Russell from the Swiss consultant market in recent months underscores the point here.
A prime example of local might is the Swedish market. The bulk of Swedish advisory business is in the hands of domestic boutiques – despite the relatively short amount of time; often only two to three years, they have been in existence.
Certainly the geography and cultural background of the country has helped, as relatively small municipalities continue to outsource money to investment managers and seek advice from local consultants which know both literally and metaphorically where they are coming from.
While William M Mercer is beginning to up the ante amongst the foreign players on the investment consulting side, few of the other international players get a mention from asset managers questioned on the Swedish consultancy landscape.
Nevertheless, asset managers and consultants alike concede that there is still room in Sweden for more consultants and the knock-on competitive element new entrants would bring.
It may well be a question of when, not if, the foreign consultants start to look to their pockets for the key to Swedish market share, as Sverker Lindström, founder of Stockholm-based consultant Lindstrom & Partners, acknowledges: “Once the market is a little more mature they will come in and buy local firms.” He sees a certainly inevitability here. “We need to consolidate the market because most of the firms at the moment are not more than five to 10 people.”
Inadvertently though, the failure of the foreigners to gain significant business early on in the booming Swedish pensions field may lead to greater success in other Scandinavian markets.
The scouts are out. Consultants in Norway and Finland note that the major firms have been sounding out the markets, picking up a small amounts of business from some of the larger, more diversified funds.
At present, though, the time does not seem quite right. The local consultants in these markets, which already have to compete with asset managers and traditional bundled investment practices, are themselves only picking up business gradually.
Market size at present is certainly one barrier to entry for the Anglo-Saxons – particularly in Finland. Norway, on the other hand, looks set to take off in the near future.
Here there are few market participants which believe the locals have the size or strength to stave off the overseas challenge.
Significantly though, there is more than just the whiff of anti Anglo-Saxon sentiment in some markets. The arrival of Belgian consultant Pragma in the Danish market to advise on manager selections has drawn comments from asset managers that this could be the direct result of a ‘European’ backlash to UK/US consultant dominance.
Certainly, the German market has produced enough home-grown business to warrant a proliferation of consultant start-ups in the last two years, despite the presence of the multinationals and their alliances to traditional German firms on the actuarial scene.
Jochen Kleeberg, managing director at Bad Soden-based Alpha Portfolio Managers, in existence since 1998, believes the local groups still have the upper hand going forward.
"Anglo-Saxon consultant companies do have a disadvantage in the German market. On the one hand there are still the issues of language and cultural differences. On the other hand German institutional investors don’t want to be told how they should have done their business over the last 20 years."
The cultural landlines still tend to be drawn despite the majority of multinational consultants hiring local personnel today in direct response to similar criticism in former years.
Could it be the case that there are countries where the foreign investment consultant will never quite cut the mustard?
Swiss institutions still tend for a large part to pass on business to their domestic counterparts, despite the presence of all the foreign competitors and the accountancy firms looking for a slice of the action. Indeed, it is the locals which are banding together to consolidate the market as the recent Coninco/Allvisa tie-up demonstrates.
While some markets such as the Netherlands, Spain and Portugal have seen local consultants swallowed by bigger fish, other countries such as France continue to push business the way of small local firms.
Perhaps the mid-ground can be seen in countries such as the Netherlands and Belgium where there is sufficient work to support a number of niche boutiques alongside their bigger rivals. Certainly there is no room for complacency from either camp. But the dogged determination of local consultants to fight their corner is undoubtedly giving the heavyweights cause to think that little bit harder. Hugh Wheelan

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