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Advisory Boards in the Financial Sector

Part 4: What’s the difference between Advisors and Consultants?

In previous articles we have explained what an Advisory Board (AB) is (Part 1); outlined the differences between an Advisory Board and the conventional Board of Directors (Part 2); and indicated what an ideal AB might look like (Part 3). In this article we answer why do companies engage advisors and set up ABs, when they could just hire a consultant? There are actually very good reasons.

There are many ways that advisors or ABs differ from consultants, even if there are no unique, regulation-driven, limiting definitions of what advisors and consultant are. There are areas of overlap, but it’s enlightening to consider the big-picture differences.

The first difference is the executive versus non-executive function of the two - In other words, advisors should ‘advise’; whereas consultants are employed ‘to do’. If a company is aware of what the problem and ideal solution are (but they lack the resources), the company might then bring in consultants to implement the chosen solution. In contrast, an advisor might help the company identify and understand the problem better, discuss solutions, and help select the best remedy.

The second difference is the solution vs. prevention stance. Again we are generalising, but it’s useful to say that when a company has a problem, consultants may be brought in for a limited period of time to solve it. On the other hand, for a company that runs an Advisory Board that meets on a monthly or quarterly basis, for example, the AB could serve various functions. It helps review how the business is running, anticipates future bottlenecks, spots metrics that are in the early stages of deviating, and more. A fit-for-purpose AB is well suited to preventing problems, rather than paying to solve them after they’ve happened.

As a result of the above, the time horizon (and thus nature of commitment) of consultants vs ABs, can be very different. While consultants might come in to provide tactical support to solve a specific problem, an ongoing AB would consider longer-term issues and thus also provide strategic support, with a stronger eye on the long-term.

To provide clarity on the above points:

· The line between advisors and consultants isn’t always obvious

· ABs should not always be chosen over consultants.

The two groups are different, and companies should always get clarity on what they want, and then engage with the right party. The problem is that companies know (and have probably used) consultants, but are not always familiar with Advisory Boards. Therefore, the risk is that consultants are brought in when an Advisory Board would have been a better option. Given the above, it should be increasingly obvious why many companies are establishing Advisory Boards as a way of providing strategic and technical support to management and to the Board of Directors. If each party does what they do best, a company can only benefit.

You are welcome to get in touch to discuss what might be valuable for you and your company.

Written by Jonathan Watkin & Greg Solomon


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