FORTUNE — Independent advisory firms are often called boutiques. But lately there has been nothing small about them. So far this year, M&A shops have scooped up nearly a fifth of U.S. advisory revenues, or fees bankers take when they advise deals, up from 13% in 2011 and 9% in 2006, according to Dealogic.
Even more impressive is the fact that these figures don’t include several large announced (but not yet closed) deals where independent advisors played a prominent role, including Paul Taubman and Alan Schwartz’s advisory roles for Verizon (VZ) in its bid to buy all of Verizon Wireless, and Byron Trott’s role on Koch Industries recent $7 billion bid for Molex (MOLX). Omnicom (OMC) and Publicis each had sole independent advisors, Moelis and Rothschild, respectively, on their recent merger in what one bulge bracket banker calls a “watershed moment” for the industry.
“The aberration isn’t the boutique. The aberration is the belief that it could all be conducted more effectively under one roof.” says Ken Moelis, former UBS banker and CEO of Moelis & Company. “The world developed with advisory and investment banks and commercial banks separate for a reason. It was only a short time ago that everything was put together.”
Moelis is talking about the late 1990s, when many investment banks were rapidly rolled up into large banks (think Salomon Brothers, Dillon Read, Alex. Brown & Sons, or S.G. Warburg, to name a few). Since then, there’s been a slow brain drain back to the likes of Moelis. Now, many of the independent shops have grown to resemble the legacy investment banks before they were gobbled up by bigger firms. Perella Weinberg has over 415 bankers. Moelis, which opened its doors in 2007, has grown to 600 employees. They pay better, and bankers have less hassle.
“Some of that is regulatory but also numerous bureaucratic internal committee processes,” Moelis says. “If I hire that same person, 97.8% of their time will be external. We don’t have derivatives or a complex regulatory framework.”
Some people also say deals are becoming more litigated and scrutinized. Icahn’s agitation of the Dell (DELL) takeover shows how complicated transactions can be. Independent advisors may be nudging themselves onto deals where a second advisor is needed.
But another reason for boutiques’ success may be that larger, unwieldy banks are conflicted. Critics say secrets are traded around the bank, and sometimes to other clients, in order to be on several sides of a deal.
“You get a call from a client in the morning that they want to sell themselves, and by the afternoon, 40 voicemails have shipped around the world,” says an ex-bulge bracket banker who spoke on the condition of anonymity.
A Delaware judge criticized Barclays (BCS) for its conflicted role on Del Monte’s 2011 buyout. Goldman Sachs’s (GS) role on advising El Paso on its merger with Kinder Morgan and El Paso played out in court last year. Delaware chancellor Leo Strine said about the deal, “Although Goldman’s conflict was known, inadequate efforts to cabin its role were made.” He continued: “The record thus persuades me that the plaintiffs have a reasonable likelihood of success in proving that the Merger was tainted by disloyalty.” Goldman wasn’t paid as an investment bank advisor for Kinder Morgan, but owned 19% of the shares and had two board seats. Both Goldman and Kinder Morgan made financial concessions to settle the case, but did not admit to wrongdoing.
Yet Barclays has lost only a small amount of market share over the past year. Goldman continues to top the charts and has gained market share since that judgment.
“Sometimes big banks have relationships with several companies within an industry,” says Joseph Perella, co-founder, chairman and CEO of Perella Weinberg Partners and former Morgan Stanley Vice Chairman. “This isn’t necessarily a bad thing. It’s often necessitated by their business model, which is costly. They can’t rely on having one client in the industry.”
He adds, “There are a lot of good people who have very good insights. I think the clients’ problem is not with the individuals but the institution.”
Though some other big banks have been losing share over the past year, bulge bracket bankers are quick to point out that they aren’t the only ones conflicted. The idea that a boutique investment bank is independent is “hogwash,” says one bulge bracket M&A banker who spoke on the condition of anonymity. “The difference between getting or not getting a deal can make that banker’s year or quarter. If I’m giving advice to a $1.5 billion client, it’s going to be honest advice.”
Moreover, as these independent shops grow beyond M&A alone, as many of them are doing, it is hard to see how other conflicts won’t creep in.