Investment Banking vs Asset Management

Updated on May 2, 2024
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Investment Banking and Asset Management

The very basis of investment banking, as well as asset management, lies in handling money. Many students find it challenging to make a career choice between the two due to the competitive salary packages both offer. The latest statistics reveal that investment banking and investment management firms offer the highest starting salaries to graduates.

Both are fiercely competitive industries and hire the best talents from the world’s top universities, mostly finance graduates or postgraduates primarily, MBA- Masters of Business Administration or CFAs Chartered Financial Analyst.
Let us understand the basic difference between the two industries.

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What is Investment Banking?

Investment banking is the area of banking that assists in creating financial capital for its clients, be it institutions, companies, governments, or other entities. Investment banking is about providing an exchange market for raising money and making it available to those who need money for financing or expanding their business from those who have excess capital and are looking for lucrative investment options.

Capital is raised through Initial Public Offering (IPO), mergers and acquisitions(M&A), stock purchases, and other techniques.

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An investment bank acts as an underwriting agent, raises capital via debt or equity, and is involved in others via debt or equity, and is involved in other IPO management activities like a consultation, book building process, framing a company’s memorandum of understanding and offer letter, and looking after the legal aspects of an IPO. The investment banking division of the bank also finds clients for public issues, mutual funds, insurance companies, or pension funds. It also assists in mergers and acquisitions by providing additional services to its clients, including securities research, market-making, trading equities, derivatives, fixed income securities, commodities, and currencies.

An investment bank’s activities classify into the “buy-side” and “sell-side.” The “buy-side “the name suggests provides buying advice to its clients: mutual funds, hedge funds,  unit trusts, life insurance companies, and private equity funds. On the other hand, the “sell-side” involves trading securities for cash or other securities by facilitating transactions or market-making along with raising capital through underwriting and research activities. Since both the areas of functioning are conflicting, the information must not cross from one side to the other. Hence, an information barrier is created within investment banks to safeguard insider information to avoid any conflict of interest that may develop in the future.

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What is Asset Management?

Asset management, in the simplest form, can be defined as the business of handling others’ money. Asset management or investment management firms are typically financial services companies that invest their clients’ money in securities, equities, debt, commodities, derivatives, currencies, etc.

Financial asset management firms employ experts at handling other peoples’ money. It involves managing money and making investments for clients. Although different clients have different requirements, a good asset manager looks into his clients’ particular needs and recommends investment products based on the client’s asset allocation.

It is a wide field that involves planning, recommending, and reviewing the clients’ investments, whether individuals or companies. Handling money is tricky and requires you to be on your toes. However, the basic aim of any asset manager is to invest the funds at avenues with minimum risk and maximum returns.

A wealthy individual does not have the time and inclination to manage his investments all by himself; that is where asset managers come into play. An asset manager has the expertise and knowledge to manage the client’s money by diversifying their investments and earning more returns, thus enhancing their overall portfolio.

Asset management firms also called investment management firms, employ analytical skills and can assess which investment products will benefit their clients to achieve the desired financial objective within specified guidelines. The products in which professionals invest clients’ money are mutual funds, hedge funds, pension funds, retirement funds, etc., in various financial vehicles like options, futures, equity, and derivatives.

Asset managers recommend various products and vehicles of investment after doing due diligence and assessing the risk appetite of their clients, understanding their financial goals and the number of returns they expect, and keeping the risk in mind. They aim to maximize the returns and ensure that the economic objective set by the clients achieves.

Asset management firms hire the best talent from the world’s top universities. Certain prerequisites for hiring are a degree in finance, primarily a (CFA) Chartered Financial Analyst or an (MBA) Masters of Business Administration in finance. Though these degrees are not required for entry-level jobs as you work up the corporate ladder in an asset management firm, these degrees are very beneficial. The second most important requirement would be that being an expert at number crunching and good quantitative and analytical skills help you in the job. Finally, strong communication skills since an asset manager’s profile need a lot of interaction with the client at all times.

The job options in an asset management firm are galore. You can be a relationship manager, sales manager, portfolio manager or financial advisor, which are extensive client interactive profiles.

Investment Banking vs Asset Management – Education & Skills

The education, as well as skills required for both fields, are the same. Firms look for candidates with a flair for numbers and know business disciplines: finance, economics, accounting, and investment analysis. Candidates seeking to make a career in investment banking or asset management should be ready for enormously tough competition from graduates from top business schools and universities.

A degree in MBA and relevant work experience are prerequisites for an entry-level position in the firm. It is extremely difficult to get hired by major firms which look for strong references from respected professionals in the field. Hence, networking plays a major role in breaking through large corporate players. Having the right contacts help to give you an advantage over others. Since the competition is stiff, most firms consider internships an extended application process to skim through the right candidates.

The skills sought by companies majorly include: –

  • Financial Modeling Skills
  • Valuation Skills – DCF and Relative Valuations
  • Strong verbal and written communication skills
  • Analytical and problem-solving skills
  • Interpersonal and intrapersonal skills
  • Negotiation and client service skills
  • Time management and attention to detail
  • Advanced mathematical and technical skills
  • Leadership skills and a go-getter attitude
  • Commercial knowledge and in-depth understanding of the subject

Occupational Outlook

The job prospects and occupational outlook for investment banking and asset management have always been positive. More investment opportunities are available in the emerging markets, resulting in the innovation of newer and more complex financial products, making the investment portfolios much more multifaceted than they used to be earlier.

The U.S. Bureau of Labor Statistics has estimated that the entire finance industry would have a growth rate of 12% from 2014 to 2024. The outlook looks positive and competitive, projected to create new positions with huge salaries soon.

Both the industries, investment banking and asset management, have upward trends and great career prospects. It is believed that asset management jobs would experience more growth than investment banking jobs since there is a lot to be explored in the new and emerging markets, which have opened the doors for investment management jobs. However, some still believe that investment banking is not at par with the asset management industry.

The top companies hiring investment banking firms and asset managers are Goldman Sachs, Blackstone, JPMorgan Chase & Co., Merrill Lynch, and Well Fargo, to name a few.

Salary

Investment banking and asset management companies are top-paying companies globally. They quoted the median average wage as $80,310 for financial analysts, which increases manifold after years of experience. The average compensation for an asset management firm employee has grown over the last decade to $263,000 in 2014.

Investment banking analysts at entry-level can expect between $65,000 to $95,000 and bonuses. An experience of three to four years further increases the package to more than $250,000 annually.

The pay gap between investment banking and asset management employees was huge in 2004, nearly half, which amounted to $168,000 and $315,000, respectively. However, the pay structure has changed drastically over the last decade. As a result, the salary gap is narrowed to several hundred thousand dollars, typically $263,000 for asset management employees and $288,000 for investment banking employees.

Career Pros/Cons

Undoubtedly, these careers are some of the most paid professions globally. Their salaries and bonuses are so lucrative that it pulls graduates into these industries. As per the U.S. Bureau of Labor Statistics, median annual wages in May 2015 were $80,310, $67,740, and $36,200 for financial analysts, financial specialists, and all occupations in the U.S. economy, respectively. This figure indicates the huge salary gap between the finance industry and all other fields, indicating the professionals’ workload.

Senior-level investment jobs concentrate in the three financial hubs of London, Tokyo, and New York. With the advent of the century and opportunities in the emerging markets, jobs have shifted to other locations. However, the major top-level positions concentrated are still in these three cities.

Investment banking and asset management professionals have a tough life and put in 65 to 70 hours weekly. The work timings vary for different firms; firms operating in just one market have shorter working hours, whereas those operating from all three financial hubs have demanding timings, often difficult to cope with. Though it is a promising and lucrative career offering lofty salary packages and a high level of commitment and dedication, it is a very emotionally taxing and physically challenging career.

A career in any of these fields needs unflinching dedication to one’s job, often neglecting the needs of your family and friends.

Investment Banking vs Asset Management Video

 

Which one to choose?

It is the most difficult question and cannot have a direct answer. It is like comparing apples with oranges. Both careers are lucrative and offer lots of opportunities for growth and progress. However, the working hours are taxing, and a lot of responsibility and time management skills requires for having a successful career in both fields. However, key differences can make it easier for a prospective candidate to choose between the two jobs depending upon your area of interest.

Investment banking employees travel more and work longer hours than their asset management peers. That is because they have to bring the savers to the borrowers, which is mentally stimulating and requires a lot of responsibility and accountability at the end of the investment banker. Moreover, the most key difference is in the salary package of the two. Investment banking professionals most definitely get higher salaries substantiated with longer working hours.

Asset management professionals manage money for individuals, corporations et al., which implies that they have a set of clients to look after. They have to oversee the individual needs of all their clients and provide them with unbiased investment advice depending upon their requirements. In addition, they need to balance their time and energies between various accounts and work in larger groups with comparatively lesser individual responsibilities than their investment banking peers.

A career choice between investment banking and asset management is personal and individual interests. However, both are lucrative careers, and one should not miss an opportunity if one gets a break in any of them, as the possibilities are less and the aspirants galore.

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