The professional services industry is currently navigating a period of significant transition, defined by geopolitical instability, pervasive economic pressures and a transforming labor market against the backdrop of artificial intelligence (AI) development. Macroeconomic uncertainty means that firms are experiencing the confluence of moderated client spending and internal workforce shifts, while new opportunities emerge, such as helping clients navigate the impact of AI on their business and operating model. Meanwhile, political polarization exposes professional services firms to heightened reputation risks.
Consolidation through transactions is an industry characteristic that will likely continue in 2026. IPO and M&A volume recovered in the second half of 2025. As exit conditions improve and as interest rates continue to fall, private equity will see better liquidity that can fuel stronger investments in professional services firms. For strategic acquisitions, professional services firms will likely look for focused opportunities to bolster their capabilities in AI-enabled solutions. Competition for attractive targets will be intense, potentially limiting acquirers’ ability to appropriately conduct due diligence. On the other hand, financial pressure may force companies to more quickly integrate and realize deal synergies, which may expose acquirers to organizational and talent risks.
The cost of sales has been a significant source of financial pressure for professional services firms. While clients continue to invest significantly in AI enablement and business transformation, they are more conservative in discretionary spending on vendor services. For professional services selling teams, the sales cycle has extended and decision making has become more decentralized with a larger network of client stakeholders. Cross-selling and deepening of client relationships have become more challenging than ever.
The job market has faced a challenging year that will likely continue into 2026. Employment has shown signs of weakness in major markets such as the U.S., while there remains a significant shortage in critical skills in professional services. Meanwhile, firms face existential talent risks masked by low attrition. An emerging phenomenon of "job-hugging," where employees are staying put due to a lack of employment opportunities elsewhere, resulting in disengagement and a negative impact on productivity. Meanwhile, professional services firms are navigating foundational shifts in their talent and leverage model, driven by factors like automation, AI and right-shoring. For example, consulting firms are showing signs of conservatism in entry-level hiring and wages. New talent models threaten well-established organization structures of professional services firms, while AI adoption in client service delivery amplify professional liability, data security and reputational risks.
In a disruptive environment, firms must take decisive, strategic actions to set themselves apart from competition and build a resilient and sustainable business for the long term. We recommend five specific areas of focus.
01
Professional services firms are competing to win the race of AI integration in client services, withstand new competition from AI service providers and take advantage of business opportunities related to AI adoption. These new developments expose firms to new risks (e.g., professional liability) and operational complexities. Firms may see their competitive position weakened if their proprietary knowledge and intelligence are commoditized, prompting management to evaluate the firm’s value proposition to clients (e.g., insights vs. analytics, expertise vs. execution, convenience vs. client experience).
Firms must establish a strong governance structure focused both on data management and on client service delivery. Human-in-the-loop protocols must be established to ensure responsible use of AI in client service delivery with appropriate quality and data privacy controls. Comprehensive data management strategy should include access, ingestion, processing, cleaning, and securing storing necessary for AI. Third-party risks must be thoroughly assessed, especially when AI capabilities are enabled by third-party applications handling sensitive client data.
Another dynamic to consider with respect to professional liability risk is increasing societal polarization and politicization. This means that professional advice may be leaked that causes damage to firm reputation, which may also be harmed by association with clients’ actions whether it is related to the professional advice provided. A robust framework should be in place to assess whether to take on certain high-risk engagements, and mitigation strategies should be planned.
Managerial effectiveness will be under spotlight at this critical juncture, as every investment decision can impact the firm’s growth and value creation trajectory in the long term. As industry consolidation continues, deals are becoming more competitive and there is increasing pressure to accelerate the due diligence and negotiation process. We recommend a governance framework that ensures firm management and the board thoroughly assess integration risks before approving transactions. The firm may miss out on a deal or two, but the benefit of prudence far outweighs the cost of rushing into a deal that erodes partner or shareholder value.
02
We expect disruption in conventional business development models in professional services, as clients may be tempted by productized services over client advice. The client-vendor relationship is evolving rapidly, and the value of loyalty is in decline, making cross-business penetration more difficult. Professional services firms have to wrestle with longer sales cycles, more standardized procurement protocols and much more complex stakeholder networks at their client organizations.
Differentiation requires proactive investment in alternative business development models. We recommend that firms conduct rigorous review of sales effectiveness, understanding client and engagement profiles where the firm tends to be the most or least successful, the extent to which relationships played a role in clients’ decision making and the level of resources deployed (e.g., is the deal value proportionate to the number of partners and the amount of time partners dedicated to secure the deal). In an increasingly productized environment, firms should explore use of dedicated sales representatives or specialized business development agents throughout the sales cycle, from generating/qualifying leads, proposal, capture, to new business incubation during client service delivery.
These market changes will force professional services firms to be more aggressive with their client segmentation strategies. The focus on larger deals will intensify, with greater pressure to create standardized solutions to capture mid-market opportunities. We recommend that firms evaluate their rewards models to ensure that sellers and partners are rewarded in a way that aligns with business strategy, and to account for varying degrees of sales resources deployment in their reward formula.
03
The disengagement and productivity crisis is epidemic and can undermine the foundation of a professional services business, which is fundamentally dependent on talent. Many firms will continue to see low attrition, but they should not be complacent because that is a symptom of greater talent risks.
The most successful firms will take frequent pulse of employee engagement, focus on addressing burnout and invest in technological platforms that enable personalized communication of rewards and benefits. In a business where talent is the firm’s most valuable asset, an organizational culture that emphasizes employee wellbeing will translate to superior client experience.
The productivity crisis can be a vicious cycle in light of labor cost pressure, as firms are challenged by allocating funds to invest in their talent. Meanwhile, pay transparency takes center stage as the EU Pay Transparency Directive takes effect in June 2026 and with increasing expectations from employees. Firms will win employees’ hearts by rewarding associates’ efforts and genuinely embracing transparency in setting and communicating pay.
04
Critical skills shortage continues to plague businesses across industries despite a stagnant job market, affecting talent-oriented businesses disproportionately like professional services. Struggles in recruiting talent with critical skills may compel many firms to bolster specific capabilities through strategic acquisitions. In addition to the “buy” option, it will be important for professional services firms to have a clear strategy in building critical skills internally, which may be the cheaper option long-term.
A clear vision on the future of client service delivery, specifically on human-AI collaboration and its impact on the firms leverage and operating models, will be crucial in establishing a firm’s competitive advantage. In turn, the talent strategy will inform optimal investment in the skills infrastructure that balances business needs (i.e., skills demand) and enabling career, rewards and learning pathways for employees (i.e., skills supply). This does not mean boiling the ocean, as WTW’s 2025 Skills Survey found that the most successful companies target specific use cases on their skills journey.
The “build” option is not an easy path because it requires not only strong infrastructure for skills, promoting a culture of learning. And rewards can play an important role in that. For example:
05
The commercial insurance market will likely continue to offer ample capacity in 2026 for transferring key risks faced by professional services firms. The availability of insurance, in addition to an increasingly challenging business environment, makes this a great time to reevaluate risk transfer programs and shore up policy language. For 2026, WTW is closely tracking several critical exposures:
The year 2026 will be one characterized by dynamism and disruption, which can be a great business environment for well-positioned professional services firms. The five strategic actions we propose are ways we believe firms can turn emerging risks into opportunities to get ahead of competition. Resilience is the name of the game when balancing near-term risks and growing a professional services business sustainably in the long run.
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