Consulting or Banking

Consulting vs Banking

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If you are a high achieving undergraduate or MBA student, then you are likely to be considering various highly paid and prestigious career options.

This post provides you with a high level comparison of management consulting and investment banking.

1. Nature of the job

Management consultants assist organisations by providing advice to address specific problems and to improve organisational performance.

Investment banks help companies raise money for various purposes including investment, acquisitions, and provision of working capital. They do this by selling stocks and bonds to public investors. Within an investment bank, the work is split into many roles including investment banking, sales and trading, equity research, risk management, operations, and technology.

People in the “investment banking” or “corporate finance” division typically help large organisations undertake merges and acquisitions. This is a front office role and normally the most prestigious and highest paid role at an investment bank.

People in the “sales and trading” division buy and sell financial products. Sales people communicate with investors to sell financial products. Traders buy and sell securities with the bank’s money with the aim of making money for the bank.

People in “equity research” review listed companies and provide buy/sell recommendations. Investment banks employ “sell-side analysts” while investment funds employ “buy-side analysts”. The research division will provide reports to the sales and trading division to inform trading activity and provide ideas to help sell financial products. The research division may also provide research to clients in the hope that they will execute trades through the bank’s sales and trading division.

Risk management is a middle/front office role which assesses the market or credit risk assumed by the bank or its clients in a particular transaction. Prior to the 2008 financial crisis the views of the risk management division in most banks were overlooked in favor of the short term profit opportunities pursued by the investment banking division (this may or may not still be the case).

Investment banks also employ people in a range of back office roles including operations and technology.

2. Salary

For fresh graduates, the base salary for investment banking is typically similar to the base salary for management consulting. However, in good years bankers typically get an end of year bonus in the range of 50% to 100% of base salary. Consultants may also receive an end of year bonus, but it will be much smaller, around 10% of base salary.

Salaries will vary by country and over time.

Below are some average base salary and bonus figures for new analysts drawn from Glassdoor for 2014/2015.

Consulting or Banking

In general, adjusting for experience level, bankers will earn more than consultants.

While there are many factors to consider when charting your career direction, if money is a deciding factor for you, then banking may be the way to go.

3. Lifestyle

Hours: Banking work hours can average 10 to 18 hours per day, while consulting work hours average around 12 hours per day.

Work hours in both industries will vary depending on various factors including client demands, the eccentricities of your boss, and where you find yourself in the deal/project lifecycle.

Travel: Bankers sometimes do roadshows to drum up support from investors, but will typically spend 90% of their time in the office.

In stark contrast, it is normal for consultants to travel up to 80% of the time.

Work culture: Consulting firms typically have a professional and collegial atmosphere where an intense client focus is combined with networking and professional development opportunities.

In comparison, investment banks are competitive and hierarchical. It is not uncommon for bosses to yell at staff for mistakes, and colleagues are less likely to lend a helping hand since everyone is competing for the same bonus pool.

4. Exit Opportunities

Consulting offers many exit opportunities including industry, academia, government and entrepreneurship. Top consulting firms make a point of keeping current employees in touch with alumni, so there are likely to be many firm sponsored networking events.

Investment banking is an excellent starting point for future careers in the finance industry including private equity and hedge funds, although less helpful if you want to pursue non-finance related exit opportunities.

[For more information on the management consulting industry, download “The HUB’s Guide to Management Consulting“.]

Career choice: consulting versus investment banking

IF YOU”RE in your final or penultimate year of your degree, and you’re interested in pursuing a career in the commercial field, you will probably have started thinking about which career path you want to take. Consulting is an attractive career prospect, but you may also be considering investment banking.

There are many similarities between the two careers. Both career paths will give you an attractive salary, require long hours of work, and involve doing work that is client focused.

There are also some significant differences between consulting and investment banking. This table highlights some of the most obvious differences. If you can think of any differences that I have overlooked, I’d be interested to hear from you.

Management consulting

Investment banking

Short
description

Consulting firms assist companies and governments by providing expert advice and by facilitating the examination of particular problems.

For more information, read the article: What is management consulting?

Investment banks help companies raise money so that these companies can use that money to grow their businesses.

Investment banks sell securities (stocks or bonds) to public investors in order to generate these funds.

Investment banks might also help a company to merge its assets with that of another company, manage and invest the money of wealthy individuals or institutions, or buy and sell securities to make money for itself.

Advantages

High pay: Consultants can make over US$60,000 in their first year (The Vault Guide to Consulting).

More reasonable hours: The hours in investment banking (especially at the junior levels) can be very long. 100 hours per week is a realistic possibility. This equates to working between 15 and 18 hours a day, with frequent all-nighters.

More predictable hours: Investment banking is deal driven. Deals can close or change at the last minute, making it hard to predict workload.

Numbers focussed: Consulting requires a lot of quantitative analysis.

More travel: If you enjoy travel and being put up in expensive hotels, this is an upside.

Very high pay: Investment banking pays graduates more than consulting firms do. Bankers can make over US$150,000 plus bonuses in their first year (The Vault Guide to Consulting).

High profile work: When the deal goes public, the work that your team has done will be reported on in The Wall Street Journal or The Australian Financial Review. This can be very exciting.

Deal driven: Investment banking is deal-driven. This makes it a perfect line of work if you do well working off adrenalin and think you will get a thrill out of chasing and closing a deal.

Very numbers focussed: Banking typically requires more quantitative analysis (that is, looking at the numbers).

Less travel: If you don’t like constant travelling and living out of hotel rooms, this is an upside.