Are Boutiques Disrupting Traditional Investment Banking?

The biggest banks on Wall Street are increasingly shut out of the biggest deals.

Case in point: the merger of Kraft and H.J. Heinz. Centerview Partners, a small advisory firm, served as the sole advisers to Kraft. Lazard, a publicly traded firm – but hardly a Wall Street behemoth – was the exclusive advisor to Heinz. The big banks also missed out on another mega-deal announced recently, the proposed $40 billion acquisition of Mylan N.V by Teva Pharmaceuticals.

According to Dealogic, boutiques have gained market share in each of the last six years; in 2014, they handled 18% of advisory business, up from 8% in 2008.

Many of the boutiques poaching the traditional turf of the giants were founded and are still run by banking luminaries whose advice and discretion are highly valued by clients and prospects. This perception of higher quality is a big reason why boutiques are grabbing market share. And the brand implications are profound. Smaller banking firms are essentially disruptors, like Apple in the 1980s, Southwest Airlines or Uber, with a new business model supported by a new value proposition.

In any market, disruptors only succeed when they are able communicate passion for what they do. With smaller marketing budgets than their larger counterparts, they need to convert their clients into advocates. Centerview Partners has essentially made Warren Buffett its advocate – it was Buffett, who had worked with the firm on an earlier deal, who anointed Centerview as his advisor for the Kraft-Heinz merger. Disruptors also need to define where they can be different – and better. They can’t compete on the range of services provided by their giant competitors, so their brand must communicate exactly what they do, and do particularly well.

Being a disruptor has its advantages, but boutique investment banks also face a significant challenge: creating a brand that is stronger and more durable than the reputation of its founders. Boutique brands must reflect the spirit and ethos of their founders but “institutionalize” it so that it extends across the firm … and into the next generation.

For the large banks, the “boutiquization” of investment banking poses its own branding challenges. They need to communicate a value proposition beyond the strength of their balance sheets. Just as boutiques must create a brand that doesn’t rely on the reputation of a handful of people, the behemoths may need to demonstrate a personality or spirit very much connected to their people. Their brands must convert their size and global reach into benefits that resonate more deeply than metrics. Perhaps their strength empowers them to find innovative solutions for their clients, or focus more resources on client needs. Above all, they need to defend what has traditionally been their territory without seeming defensive; this requires finding a way to communicate value beyond chest thumping about size and scope.

For the disruptor and the disrupted alike, a powerful brand can be instrumental, even critical, in gaining, retaining – or retaking – market share. We look forward to seeing how this dynamic shakes out in today’s disruptive investment banking arena.