Consulting Vs Investment Banking – Which One Has Better Career Prospect

September 12, 2023 Abhishek Yadav Financial Modeling, Knowledge

Investment banking (IB) is a type of financial service that helps people and businesses raise money. Investment bankers advise clients on market approaches that might reduce risks and increase returns. They help in restructuring, mergers, and acquisitions. An important aspect of the i-banker job is risk management. A management consultant (MC) offers organizations professional guidance on operations, reorganization, and cost reductions. They are asked to develop plans to assist businesses in turning around. Many recent graduates ask if consulting vs investment banking is the better job option. The majority of graduates are already aware of the top pay rates of these two professionals. Some of them are also aware of how challenging it can be to juggle work and personal obligations.

Consulting vs investment banking are jobs that offer chances to earn a lot of money directly out of school, frequently with only a bachelor’s degree, for top students at premium colleges. Unlike jobs in medicine, law, or pharmacy, management consulting, and investment banking do not have strict educational prerequisites for entry; instead, the specific employing businesses determine what is expected of candidates.

Despite this, only the best candidates from the most prestigious universities are hired by the majority of the top companies that offer the highest wages due to the intense competition during the application and interview processes. Anyone’s chances of success in either career have never been harmed by holding a Master of Business Administration (MBA), especially one from a prestigious program.

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Consulting Vs Investment Banking: Definition

Management Consulting:

A management consultant needs to be able to examine a company’s operations, identify inefficiencies, and identify areas where processes could be reduced or eliminated.

Even if it gives you a big edge in either career, having strong people skills is crucial for management consulting. For lawyers who excel at logic and problem-solving but lack negotiation skills or are introverted, there are a variety of behind-the-scenes professions available. Contrarily, management consultants must address issues and persuade clients of their conclusions. It is not a profession for those who are shy or misanthropic.

Whether an applicant has a bachelor’s degree or an MBA depends on the first-year wage at the majority of big consulting companies.

While management consultants often put in fewer hours to achieve their high pay than lawyers do, frequent travel disrupts their ability to maintain a healthy work-life balance. Many management consultants are still road warriors; they frequently fly out on Sunday night to be at work in a city across the country on Monday morning, not to return until Friday afternoon. While this dynamic has changed somewhat since the COVID-19 pandemic and some consultants also service local clients exclusively, many management consultants are still located abroad. Firms anticipate that new associates will be willing to travel, and senior staff is given preference when local clients become available.

However, many recent college and MBA graduates who are unburdened by children or family responsibilities view such job travel as a perk rather than a necessity.

Investment Banking:

Consultants, banking analysts, capital market analysts, research associates, trading specialists, and many other individuals work in investment banking. Each call for a specific level of education and experience.

For any financial career, a degree in finance, economics, accounting, or mathematics is a solid place to start. In fact, for many entry-level commercial banking jobs like teller or personal banker, this can be all you need. The pursuit of an MBA or other professional credentials is strongly advised for those with an interest in investment banking.

Strong social skills are extremely beneficial for any financial career. Even devoted research analysts spend a lot of time working in teams or offering advice to clients. Being comfortable in a professional social setting is vital since some occupations require more of a sales touch than others. Additional essential traits are the ability to communicate effectively (explain topics to clients or other departments) and a high level of initiative.

However, an associate in investment banking usually works between 75 and 100 hours per week, and sometimes even that is insufficient to complete the massive amount of research required. Even if junior bankers are not required to report to work on weekends, banks nevertheless want workers to be approachable via email.

Consulting Vs Investment Banking: Skills Required

No matter if one wants to work in investment banking or management consulting, one needs to be adept at problem-solving and diplomatic communication. Learning every aspect of a client’s frequently complex management structure is necessary for management consulting. This is followed by the identification of inefficiencies and areas for improvement, the development of solutions to these issues, and finally the breakdown of all of this information into terms the client can comprehend so that these changes can be put into place. Strong critical thinking abilities are a requirement for consultants, and they must also be excellent communicators.

A variety of skills are shared by the two positions, including an analytical, problem-solving focus on numbers and nearly supernatural diplomatic abilities. The management structures of their client organizations must be understood by Management consultants to detect problems and explain what must be done to fix them. This entails communication abilities, interpersonal skills, the capacity to focus on corporate operations, and proficiency with PowerPoint. I-bankers must be proficient in Excel, have a solid understanding of financial modeling, and be willing to work long hours.

People with the best quantitative capabilities should work in investment banking. These skills are also necessary for consultants, but not to the same degree. Senior i-bankers are given more opportunities to pitch to clients than young bankers.

You can view business from a wider angle via consulting. A Management consultant is likely to be conceptually thorough and have strengths in various areas.

Some commonalities between entry-level positions in the two industries are provided by financeresult.net. Both jobs have broad candidate pools, extensive training, top pay, fantastic exposure to corporate clients, and significant turnover rates. After two or three years, many employees quit to enroll in an MBA school or to pursue other positions in finance or strategy.

Many of the same skills are necessary for investment banking. Investment bankers need to have great quantitative skills and discipline because they deal with enormous amounts of money. Businesses often lose millions of dollars due to simple mistakes. The discipline is wide, and certain subfields include interpersonal communication more frequently than others. Excellent people skills raise an investment banker’s profile and increase his demand.

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Consulting Vs Investment Banking: Salary

The potential to make a lot of money is one of the main draws of management consulting and investment banking. But the question is consulting vs investment banking which of them pays more? Even better, despite frequently having only a bachelor’s degree, new associates frequently make over $100,000 in their first year out of college.

Depending on the organization and the region of the country, the beginning wage for first-year management consultants with bachelor’s degrees is from $65,000 to $100,000.

Although any number in that range is undoubtedly higher than the typical wage in the US, it is still a pittance compared to what management consultants make when they first enter the business after earning an MBA.

A new management consultant straight out of business school may expect to make between $165,000 and $200,000 per year, depending on the company, the city, and many other factors.

Due to this, many aspiring management consultants opt to finish an additional two years of schooling before starting their careers.

For new workers with bachelor’s degrees in investment banking, higher pay is offered. For remuneration, the majority of banks use a base salary and bonus scheme. The base salary is often in the range of $100,000, but if a person receives all of their bonuses, their yearly income will be more in the neighborhood of $180,000.

The two professions’ main draw is certainly their pay. I-bankers outperformed consultants in terms of take-home pay, at least in the first ten years. Beginning earnings for bankers with a bachelor’s degree range from $80,000 to $150,000, while those for consultants range from $65,000 to $100,000.

As per the research, entry-level consultants with an MBA from a prestigious university may expect to make between $125,000 and $200,000. But they frequently are unaware of the significant bonuses given to e-bankers. According to wayup.com, when bankers and consultants reach partner/managing director positions, their incomes may be equal at the $500,000 mark.

Several factors affect pay, and according to a managementconsulted.com article, I-banker wages occasionally range from 50% to 100% greater than consultant salaries. The disparity widens dramatically as you move up the ladder. However, the report also mentions that the benefits of consulting include a travel allowance. Additionally, retirement and health benefits should be improved. Bonuses make up about half of the bankers’ yearly remuneration at the end of the year. The first year’s compensation differential between bankers and consultants often ranges from $30,000 to $60,000.

Consulting Vs Investment Banking: Difference in the Work environment

Management Consultants frequently prefer a more relaxed work environment. Compared to banking, there is less conflict between managers and employees, and employees are more willing to support one another when things get tough. Social gatherings strengthen interoffice ties and provide Management Consultants with networking opportunities.

The Management Consultant position is extremely demanding, though. After all, troubled businesses approach them for help and look to them for solutions. A consultant must be able to work under pressure and put in extra hours. Although Management consultants do change employment to become analysts or entrepreneurs, roles for which they are well-suited, the turnover rate in the consultancy sector is minimal.

According to what may be a slightly skewed perception of Investment Banking and i-bankers, they work in a hierarchical organizational structure and bosses may not be as pleasant as they are in consultant businesses. Coworkers view one another as competitors and are less willing to lend a helping hand because everyone is aiming to obtain the highest bonus.

More negative press for Investment Banking Speaking of the caliber of coworkers, a visitor claims that consultants come across as more knowledgeable than bankers in the workplace. They typically have a deeper awareness of the many industries, and they almost seem to be consumed by their reputation in the industry. As for bankers, as long as they can execute a deal, they don’t need to know much about diverse sectors.

Though they may be missing the alpha-male aspect, consultants tend to be less cunning, less arrogant, and exceptionally knowledgeable about their industry. Become a consultant if you desire in-depth knowledge, flexible hours, and a high income. However, a guest post advises becoming a banker if you want large bonuses, high praise, and alpha partners.

The opposite argument is that while people tend to be focused on credentials in consulting, the work environment at investment bankers is excellent despite the lack of transferable skills and the monotonous nature of the work. In banking, the pay is better when it is “the perfect time in life.

Consulting Vs Investment Banking: Work/Life Balance and Life Style

No career ranks highly for work/life balance, especially in the early years of employment. People looking for a job with a nine-to-five schedule, free weekends, and four weeks off the first year should go elsewhere.

A first-year investment banker works between 75 and 100 hours a week on average. During their first year, new associates are rarely given a full weekend off; if they’re lucky and things aren’t too busy at work, they could receive a Sunday to themselves. Some investment banks even have modest rooms with bunk beds for staff who are still at work after midnight. An investment banker is expected to be at their desk the following morning when the markets open, even after a long day at work.

A management consultant works fewer hours per week, but to make an apples-to-apples comparison, travel time must be taken into account. Even though more consultants may be working remotely, especially in the beginning, many still travel for much of their workweeks. This part of the profession is beloved by wanderlust without husbands or children, but it is frequently disliked by individuals who have responsibilities to their families. To gain enough seniority to be allocated to only local clients typically take years of experience.

Even though both an i-banker and a management consultant have demanding, challenging lives, it is well known that i-bankers often have longer workdays and weeks than consultants. According to Investopedia, first-year bankers put work 70–90 hours every week, with a rare free Sunday and even fewer complete weekends. At 60 hours, consultants work fewer hours. However, compared to banking, there can be a lot of travel required.

The banker returned to the apartment at 2 am, much later than the consultant, and left at 7 am, a bit ahead of the consultant. According to one scenario provided by Managementconsulted.com, the banker and consultant were flatmates who had not seen each other for weeks. However, while bankers spent 90% of their time at work, consultants may spend 25% to 75% of their time traveling.

A former i-banker who switched to consultancy claims to have worked very few weekends at his current position as a guest on efinancialcareers.com. Even if a customer deadline was present, certain tasks might be postponed until the following day or, if a weekend fell between, until Monday.

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Consulting Vs Investment Banking: Switching Careers

A sizable portion of consultants stays in consulting even after completing a top-notch MBA degree. After receiving an MBA, 40% of consultants and corporate finance professionals transition to investment banking.

Thegatewayonline.com tells the tale of an executive director in consulting vs investment banking, who transitioned from consulting to investment banking at a prominent firm. His driving force was a passion for banking and finance that he developed while enrolled in the London Business School’s Master of Finance program. He claims that the drawback of advising is that it often takes years for clients to follow your recommendations, delaying the satisfaction of your work.

Results are shown more quickly and visibly in IB. For instance, a proposed takeover or market listing has immediate results. Access to key business decision-makers and involvement in significant transactions that make front-page news are further benefits.

According to Quoran, a consultant looking to break into the banking industry should concentrate on telling the recruiter the correct personal and professional story. You must demonstrate excitement for IB and persuade recruiters of your capacity for extended hours of effort if you want them to take an interest in you. Another Quoran claims that attending a reputable university where bankers recruit is the easiest method to transition from consulting to banking.

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Consulting Vs Investment Banking: Career Paths

According to a wayup.com article, the career pathways for IB and management consulting are comparable. I-bankers begin their careers with a summer internship, then move on to entry-level positions as financial analysts for two years, associates for two to three years, and finally managing directors or vice presidents. Before becoming associate or senior consultants, MCs begin their careers as business analysts and accumulate experience for two to three years.

Since banks hire the majority of their interns, MCs may not begin their careers with an internship as frequently as i-bankers. However, internships are an excellent way for MC hopefuls to learn about the field.

Both sectors offer a lucrative and well-defined career path, albeit the exact path depends on the size of the company. In general, you can anticipate that smaller businesses would offer less structure and possibly lower pay than larger businesses.

You can anticipate greater work security in consulting, which is a significant distinction between that industry and investment banking. Since their clients will stop fundraising or M&A activities in a recession but may still hire consultants to help with cost-cutting, consulting businesses are less affected by downturns than investment banks.

So how do you advance in these professions? Both businesses are quite hierarchical, with a comparable set of rungs: Directors handle client relationships, Managers oversee the work, and Analysts/Associates conduct the analysis.

The time required to advance to the top level is comparable. You can anticipate spending 10 to 15 years working your way up from an analyst post to a senior one. You can’t cruise in a position for too long in any industry because of the “up or out” culture. Either you need to acquire the abilities necessary for the next level, or you need to hunt for another career.

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Frequently Asked Questions

Q1. Which One is Right for Me: Consulting vs Investment Banking?

I would structure this discussion a little differently, similar to the discussions around the different types of banks. Consider your realistic possibilities, as well as the advantages and disadvantages of each career opportunity. The options are clear if you have to choose between a McKinsey offer and one from 2-Person Boutique Bank X or a Goldman Sachs offer and one from 2-Person Boutique Consultancy Y. However, it is far more difficult to choose between a McKinsey consulting offer and a Goldman Sachs IB offer.

Q2. In Consulting vs Investment banking, Why investment banking is beaten by consulting?

When looking for employment alternatives after graduation for top students and exceptional people, investment banking is always a suggestion. You can do amazing financial things there, make a lot of money, and gain the respect of practically everyone by simply being. Having said that, management consulting is superior. In this post, we’ll examine a desired career option from a variety of angles and see how the two can work together to win this epic battle.

Q3. Exit Opportunities: Consulting vs Investment Banking: What Are They?

Management consulting offers you broader exit prospects than investment banking, including those in strategy, operations, non-profits, startups, and more! Investment banking gives you better access to finance exit opportunities in private equity, hedge funds, and corporate growth!

The majority of them concur that consulting is the superior choice if you want to work in an operational or strategy function for any business or organization.

Conclusions:

According to a healthcare consultant, it is simpler to go from IB to consultancy than the other way around. In Consulting vs Investment banking, According to him, there are three main reasons why individuals switch over. Consultancies hire more people with experience and MBAs than IB, where a background in finance is required. IB requires professionals to work long hours, whereas consultants, despite the business trips, can manage work-life balance better. Consultancies also hire more people with experience than IB.

Financial experts, graduates, and postgraduates with a business mindset and strong analytical abilities can pick between consultancy and IB. In reality, the only way to know which is better is via experience in both these businesses.

Consulting Vs Investment Banking – Which One Has Better Career Prospect

Consulting Vs Investment Banking: Definition