The approach of the annual group consulting project (GCP) on the MFin prompts me to think what the differences are between financial analysts who work in investment banks and those who work in consulting firms. There are many shared skills and qualities and in the past quite a few consultants would go to work in equity research (during the boom years of the 1990s in any case). But only a minority were successful, in my experience, even though on paper they should have fitted in well.
I also have friends who work in consulting. So what is the difference?
To outsiders there may be little difference. Both can seem rather over-confident and too inclined to offer an opinion on the basis of limited information. Junior analysts are probably doing similar work in both industries, and working similarly long hours.
At the more senior level, client contact becomes more important in both jobs, as it does in most industries. But I think it is particularly important in finance jobs in areas such as M&A and equity research. Senior equity analysts are more like sales people than analysts, spending a great deal of time “marketing” their ideas to portfolio managers. This is not obvious from the job title and is, I think, the main reason why some consultants didn’t enjoy or flourish in equity research.
I may be wrong but I think finance, even more than consulting, is about putting plausible descriptions and stories together to get clients comfortable with particular courses of action. “Stories” here means narrative – a satisfying context in which a problem and its solution or mitigation can be described and understood. It doesn’t mean fiction i.e. we’re not talking of mis-selling, but of (mostly forgivable) simplification in the face of a daily avalanche of information. People must use simplified stories to make sense of this data. Simplified doesn’t mean simple. I think it was Einstein who said that everything should be made as simple as possible, but no simpler.
Consulting must be partly about this but usually consultants have access to much more information than investment bankers, so there is scope for a more detailed story to be told. That presumably appeals to people who would find the relative lack of hard information in the financial world too difficult to deal with. The fact that so much financial advice goes wrong makes for a relatively forgiving environment because there is always the excuse of inadequate data (this would not apply to due diligence on a takeover though). Perhaps consultants are more perfectionist – I mean this in a positive way. It is remarkable to outsiders how so mnay investment bankers – and equity analysts in particular – can come up with strong views and advice on the basis of seriously incomplete information. But that is what they are paid to do.
The GCP is an exercise in applying students’ learning to an actual client project where they should have more or less enough information (though maybe not enough time) to meet the goal. It contrasts with the equity research project done earlier in the year when students have very little time and information on which to form a view – just like real analysts do. Hopefully, the two projects capture different aspects of applying finance and different commercially useful skills. They also allow students to consider which was more satisfying and where their skills or inclinations fit best, which is a very useful lesson.