Consulting firm EY plans to turn ANZ into one of the firm’s biggest advisory clients in the Asia Pacific with target billings of $US50 million ($70 million) a year by 2020.
The Australian Financial Review has learned the details of EY’s forecast of work for ANZ, referred to internally as a “prize” worth up to $US100 million to the firm over the next two years, and that the firm’s profit margin on the work now is about 45 per cent.
The big four firm, which sold about $US30 million worth of work to ANZ last financial year, is looking to boost billings in a broad range of areas including its technology systems and its response to the Hayne royal commission and the related remediation.
Details of the firm’s plan are an unprecedented look into business development within the big firms and the internal targets all consulting firms put around winning client work.
The level of targeted growth demonstrates a nationwide need for businesses to digitise operations and, particularly for the finance industry, how the impact of increased regulatory obligations are driving demand for consulting services.
Such ambitious targets also highlight the challenges the big consulting firms face when they are appointed to provide independent reports required by regulators but must also juggle a larger and ongoing commercial relationship with the client, a potential conflict raised multiple times during the Hayne royal commission.
The Financial Review highlighted an example of this potential conflict on Wednesday after revealing that EY had been reappointed as a secondary member of the bank’s internal audit panel while also carrying out extensive work for the bank.
The level of income that EY is targeting from the bank also demonstrates the level of growth available to the big firms when it comes to advisory work compared to the slower growth in traditional audit work.
This is ‘business 101’
An EY spokeswoman said the firm would not comment on client matters and played down the relevance and currency of the information.
“We don’t comment on client matters. Of course we have a plan on how to best look after our clients. All good businesses do. That’s just business 101,” she said.
A spokesman for ANZ said the bank did not comment on its spend with individual firms.
“Consulting firms usually work with our internal teams on short-term projects where we do not have the necessary skills available in-house or where we are required to use external providers,” he said.
The ANZ spokesman also noted the independence of the co-source providers is regularly reported to the bank’s audit committee and that “processes are in place to ensure they are not involved in oversighting work completed by their firm”.
Margins from 35pc to 50pc
The potential “pipeline” provides an insight into the sheer level of transformation going on at ANZ and the wide swathe of work that is now done by external providers within the banks.
An increase in demand for consultants across the big banks, who are all going through similar transformations and are under the same regulatory compliance pressure, is also happening amid swingeing job cuts that have seen financial institutions look to reduce overall staff numbers while bringing in employees with digital skills.
The level of income that EY has earned from ANZ has grown from more than $US10 million in the 2016 financial year to about $US30 million in the 2018 financial year. The 2017-18 result was well ahead of initial plans to win about $US20 million in work.
EY’s margins for the work varied by service line, ranging from about 35 per cent for assurance work through to almost 50 per cent for consulting and cyber-security work.
It won between 40 and 50 projects in 2017-18, including the lead role in the separation of ANZ Wealth, known as Project Edison, which was worth more than $US10 million, cyber-security and other related work worth millions, and process industrialisation work worth more than $US3 million.
The firm has also done regulatory reports for the prudential regulator for ANZ and an examination of the impact of the Banking Executive Accountability Regime on the bank’s executive compensation scheme.
EY’s people consulting arm, called People Advisory Services, has been a standout performer, winning a range of work including developing a new job classification scheme, running a country leader conference for $US100,000 and a human resources conference for $US50,000, as well as designing and deploying an equity plan for the bank for $US50,000.
From Hayne to executive coaching
The plan is for EY to increase the level of work to $US40 million in 2019 and $US50 million in 2020. Future work the firm is looking to win includes remediation work coming out of the banking royal commission, which it estimates could be worth up to $US10 million.
At the other end of the scale, the firm plans to pitch executive coaching services for $US15,000 an ANZ executive to the bank. The firm is also assisting ANZ with its response to a review by the Tax Office over research and development tax grants.
The potential growth in advisory work is an example of how the advisory arms of the big four firms, which also includes Deloitte, KPMG and PwC, are growing so much faster than their advisory practices. This trend has seen the percentage of revenue that the big four accounting and consulting firms receive from their core service of auditing financial statements fall to an all-time low.
EY earned almost $23 million from its audit and non-audit work at Westpac in the 2017 financial year, the latest available period. This compares to KPMG earning $22 million from its audit of ANZ’s accounts in 2017-18.
Regulations brought in after the collapse of US energy giant Enron limit the level of non-audit work a firm can do for an audit client, although KPMG UK has said it will stop doing all non-audit work for large listed audit clients.
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