Investment banking and investment management are two of the most sought-after careers for business and finance undergraduates, promising a high-profile career with great perks and bonuses. However, it would not be possible to make an informed choice without understanding what each of them stands for and the nitty-gritties of what exactly do they have to offer as a career.
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Investment Banking vs Investment Management – Overview
What is Investment Banking?
Investment banks are financial institutions engaged in underwriting, helping corporations issue equity and debt securities through IPOs or FPOs, facilitate Mergers & Acquisitions (M&As) both on buy and sell side of the deal and corporate restructuring along with a wide range of other functions. In short, when a corporation is in need of financing, it seeks help of investment bankers to be able to efficiently execute these major transactions. It is an intensely competitive field and arguably with some of the best perks in the industry.
What is Investment Management?
Also known as asset management, fund management or portfolio management, it involves assisting individual or institutional investors find suitable investment avenues to help achieve their growth objectives. The individuals who seek assistance of investment managers or asset managers are usually High-Networth Individuals (HNIs). The role of an asset manager is to assist with making investments in equities, fixed income securities, real estate and hedge funds among other instruments. Some prefer to call it “buy side” as the asset managers are basically required to buy investment products in keeping with wealth creation needs of their clients.
Investment Banking vs Investment Management – Education & Skills
Ideally, an individual should not only have expert knowledge of finance, but must also possess excellent business skills and exceptional networking abilities to make it a success in this field. As most of the finance-oriented certifications do not focus on networking, MBAs are naturally the best fit for an investment banking role, given the kind of networking opportunities they have at their disposal. Undergraduates in finance and investment related areas might have higher relevance to this domain but those from other disciples can also be considered, given they possess the desired skill set. Typically, investment banking internships are way more competitive than entry-level positions as compared to some entry-level positions in pure finance. Most of the investment bankers do start out as an analyst and investment banking associate before graduating to the positions of VP, Director and Managing Director.
Some of the key skills needed are:
- Excellent analytical abilities and an eye for detail
- Advanced mathematical skills and proficiency in technical aspects
- Client management skills and negotiation abilities par-excellence
- Excel, Financial Modeling, Valuations, PPT and more.
Undergraduates in finance, economics, business and investment analysis would be better fit for the field. Today, there is a much higher preference for technically proficient candidates and relevant professional certifications can certainly help boost career prospects. If you hold CFA (Chartered Financial Analyst) designation, it can be a distinct advantage in terms of acquiring expert knowledge of accounting, portfolio management and security analysis which can be of immense use for an asset manager. CIMA (Certified Investment Management Analyst) Certification can be another highly relevant certification for those looking to make a career in asset management.
Skills essential to the job include:
- Excellent mathematical skills and broad based knowledge of investment instruments
- Ability to take a macro view and make simplified investment decisions
- Ability to plan and meet long-term financial objectives
Investment Banking vs Investment Management – Employment Outlook
Both of these fields offer some of the finest vocational prospects with a number of high-profile openings being made available every year, as financial industry continues to grow at a more or less steady pace. In fact, as per an estimate by the US Bureau of Labor Statistics, financial industry is set to experience 11% job growth between 2012 and 2022.
Till about a decade ago, investment banking was the undisputed choice of career in finance, offering rare growth opportunities and a near-glamorous appeal given the kind of high-end deals brokered by investment bankers. On the other hand, asset management was clearly not as competitive a field, but things have undergone a sea-change since, and today, asset management is considered on par with investment banking in every sense of the word.
As investment instruments become highly sophisticated and a diversity of investment options continue to emerge, it has become increasingly difficult for HNIs and institutional investors to identify suitable investment opportunities. As a result, there has been a steep rise in the demand for asset management professionals with the right kind of expertise and technical proficiency required to develop and implement effective investment strategies to meet the objectives of their clients.
Due to an increasingly competitive market, employers prefer to hire certified and accredited professionals in asset management roles for the benefit of added credibility and expertise in a given area. On the other hand, the demand for investment banking professionals has also steadily gone up in the last few years and Fortune 500 companies continually look to enhance their expertise in the field.
Investment Banking vs Investment Management – Salary
Nearly a decade ago, investment banking positions offered some of the industry-best compensation packages and asset management was nowhere near in terms of these figures. However, things have undergone change drastically and as per a study by New Financial, a think-tank, the average pay per employee for investment banks fell by about 25 percent from 2006 to2014 to an estimated $288,000 whereas, for the same period, it grew by about 22 percent for global asset managers to an estimated $263,000. This not only sums up the equation for these two fields but also shows a distinct pattern of an increasingly competitive pay package for asset managers as compared to investment bankers.
Everything said and done, despite a slight downturn in the post-credit crunch era, the job market for investment banking stays afloat and continues to offer some of the finest pay packages right from entry-level positions. To set things in perspective, even banking interns can easily earn between $70,000 to $80,000 and once they join as an analyst, it goes up to anywhere between $115,000 to $130,000 with nearly $30,000 as bonuses. Once they accumulate around 3 years of experience as a banking associate, their package goes up in the range of $200,000 plus.
Career Pros & Cons
We would attempt to study the pros and cons of both these careers to be able to arrive at a better comparison.
Investment Banking Professional:
- They are among some of the best-compensated professionals engaged in brokering complex corporate deals. There is a certain amount of glamour quotient associated with investment banking as a high-profile and exciting choice of career.
- Right from entry-level associate or analyst positions with major market players, they receive hefty pay packages and the growth prospects abound. With a few years of hard work, they can rise up to the positions of vice president or managing director in a firm.
- Most of the investment banking roles are cut-out for go-getters as they are supposed to be out there and develop great client relationships, help build a consensus between both the sides in any major corporate deals and put their negotiation skills to work wherever needed. Of course, there are enough perks and bonuses to make all the hard work worth it.
- As goes without saying, it is an intensely competitive field with a higher risk-reward component than most other careers in finance. No doubt, the perks are great, but on the downside, brokering major corporate deals is no mean task and few might be upto it.
- It comes as no wonder that it’s more of a workaholics’ job than an average person. With nearly 75 to 100 working hours a week, there is but little time left to manage personal affairs and relax. New entrants to the field might cope up with the pressure well, but a few years down the line, the extraordinary work strain could adversely affect the physical and mental well being of an individual.
- In the post-credit crunch era, investment banking has witnessed kind of a downturn although major corporations continue to be on the lookout for competent professionals. However, a major market slump could make things worse for them.
Investment Management Professional:
- Although traditionally not considered as a very attractive career option, all of that has changed in the past few years as we have discussed in the course of this article. The demand for asset management professionals continue to grow and could very well outpace investment banking as a career of choice both in terms of pay perks and growth opportunities.
- As opposed to investment banking, asset management is viewed as more of a secure option as they are required to manage wealth on behalf of individuals and institutions. Since their remuneration is based on the amount of funds they manage, there is a greater level of security and lesser amount of risk.
- Work hours are definitely much better as compared with investment banking professionals. This is one of the advantages of working in an asset management role which makes it relatively easier to lead a balanced life.
- Despite being a relatively secure career option, these days, professional certifications like CFA and CIMA can do a world of good in terms of career growth. However, most of these certifications are comprehensive in nature (especially CFA), and require diligent study on your part. Not everyone might be able to earn these professional designations.
- It has become an increasingly complex field in the recent years and an asset management professional is supposed to have advanced mathematical skills and technical expertise instead of only an overall knowledge of financial instruments and methods of investment. Without being technically proficient, it could be difficult to grow as a professional.
While making a choice of career, apart from other considerations including perks, bonuses and growth prospects, it is always important to find out whether a specific kind of role would offer you the ideal work-life balance or not.
Investment banking roles have a rather poor reputation as far as being able to manage work against personal life is concerned. Work hours are long and intensive, with little time to relax for dedicated professionals. While you might consider being called workaholic as more of a compliment, it may not be easy to work nearly 75 to 100 hours a week for years on end. It is sure to take a toll on your health and personal life could take a backseat, in a slightly unhealthy manner. To avoid this uneven kind of work-life existence, you should consider making necessary lifestyle changes to ensure a healthy existence along with a prosperous career.
Investment management is more of a blissful choice of career in this sense. Not only the prospects continue to improve, work hours are more or less balanced for most of the relevant job roles. This makes it a clearly better choice as compared to investment banking as far as work-life balance is concerned. However, in the years to come, there is no guarantee that this delicate balance would not be under threat but even then it is unlikely it would be on par with investment banking. Therefore, it continues to remain more of a balanced career option.
What should you choose?
Despite all of their professed advantages and disadvantages, it may not be that easy for you to make that all-important choice of career. Of course, an initial analysis of these areas seems to suggest that investment banking is meant for the dynamic and fast-paced individuals who can be exceptionally good at not only number-crunching, but developing and managing valuable client relationships. It is more of a role which demands you to go out of your way to get the job done, and it certainly pays off if you end up on the right side.
For individuals with a keen interest and aptitude for finance but not so much of an outgoing approach, asset management could emerge as a better choice. Developing short and long-term investment strategies and implementing them to achieve the financial objectives of wealthy clients may not be everyone’s cup of tea, but it certainly doesn’t sound bad. Although some consider it to be a somewhat comfortable choice as compared to investment banking, it is more of a point of view than a fact. Of course, it offers a better work-life balance with on par career prospects and perks, but that’s not all to look for in a career.
You need to identify your calling while trying to measure it with more or less of an objective criterion to make sure it works for you in the long run. The most important thing is that you should be able to relate to the kind of job role you are aiming for to be able to make it a success in the long term. As they say, head is above the heart for a reason but what are we without a little emotion.