Investment Banking vs Investment Management

In the case of investment banking, investment bankers help their clients raise capital from the market. In the case of investment management, investment managers help their clients manage their money most efficiently by performing financial analysis, equity research, etc.

Investment banking and 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-gritty of what they have to offer as a career.

Investment banks are financial institutions engaged in underwriting, helping corporations issue equity and debt securities through IPOs or FPOs, facilitating Mergers & Acquisitions (M&As) both on the buy-side and sell-side of the deal, corporate restructuring, and many other functions. In short, when a corporation needs financing, it seeks the help of investment bankers to execute these major transactions efficiently. It is an intensely competitive field and arguably with some of the best perks in the industry.

Also known as asset management/fund management, or portfolio management involves assisting individuals, or institutional investors find suitable investment avenues to help achieve their growth objectives. Individuals seeking assistance from 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 required to buy investment products in keeping with the wealth creation needs of their clients.

#1 - Investment Banking

Ideally, an individual should have expert finance knowledge, excellent business skills, and networking abilities to succeed in this field. However, as most finance-oriented certifications do not focus on networking, MBAs are naturally the best fit for an investment banking role, given the 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 disciplines can also be considered, given they possess the desired skill set. Typically, investment banking internships are way more competitive than entry-level positions in pure finance positions. However, most investment bankers start as analysts and investment banking associates before graduating as Vice President, 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.

#2 - Investment Management

Undergraduates in finance, economics, business, and investment analysis would be a better fit for the field. Today, a much higher preference for technically proficient candidates and relevant professional certifications can help boost career prospects.

Hold CFA (Chartered Financial Analyst) designation. It can be a distinct advantage in 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

Both of these fields offer some of the finest vocational prospects, with many high-profile openings available yearly as the financial industry continues to grow at a more or less steady pace. In fact, as per an estimate by the U.S. Bureau of Labor Statistics, the financial sector is set to experience 11% job growth between 2012 and 2022.

About a decade ago, investment banking was the undisputed choice 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 not as competitive a field, but things have undergone a sea-change. Today, asset management is on par with investment banking in every sense.

As investment instruments become highly sophisticated and diverse investment options continue to emerge, it has become increasingly difficult for HNIs and institutional investors to identify suitable investment opportunities. As a result, a steep rise in the demand for asset management professionals with the right expertise and technical proficiency required to develop and implement effective investment strategies to meet their client's objectives.

Due to an increasingly competitive market, employers prefer to hire certified and accredited professionals in asset management to gain added credibility and expertise in a given area. On the other hand, the demand for investment banking professionals has also steadily increased in the last few years. As a result, Fortune 500 companies continually look to enhance their expertise in the field.

Nearly a decade ago, investment banking positions offered some of the industry-best compensation packages, and asset management was nowhere near terms of these figures. However, things have changed drastically. As per a study by New Financial, a think-tank, the average pay per employee for investment banks fell by about 25% from 2006 to 2014 to an estimated $288,000. Whereas, for the same period, it grew by about 22% for global asset managers to an estimated $263,000. That sums up the equation for these two fields and shows a distinct pattern of an increasingly competitive pay package for asset managers compared to investment bankers.

Although everything is said and done, the job market for investment banking stays afloat despite a slight downturn in the post-credit crunch era. That is because it 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 rises to anywhere between $115,000 to $130,000, with nearly $30,000 as bonuses. Once they accumulate around three years of experience as a banking associate, their package goes up in the range of $200,000 and more.

We would attempt to study the pros and cons of both these careers to arrive at a better comparison.

#1 - Investment Banking Professional

Pros:

• They are among the best-compensated professionals engaged in brokering complex corporate deals. As a result, a certain glamour quotient is associated with investment banking as a high-profile and exciting career choice.
• They receive hefty pay packages from entry-level associate or analyst positions with major market players, and growth prospects abound. With a few years of hard work, they can rise to the firm's Vice President or Managing Director.
• Most investment banking roles cuts for go-getters. They are supposed to be out there and develop great client relationships, help build a consensus between both sides in any major corporate deals and put their negotiation skills to work wherever needed. But, of course, there are enough perks and bonuses to make all the hard work worth it.

Cons:

• 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 up to it.
• No wonder it is more of a workaholics’ job than an average person's. With nearly 75 to 100 working hours a week, little time is left to manage personal affairs and relax. New entrants to the field might cope with the pressure well, but a few years later, the extraordinary work strain could adversely affect an individual's physical and mental well-being.
• Although major corporations continue looking for competent professionals, investment banking has witnessed a downturn in the post-credit crunch era. However, a major market slump could make things worse for them.

#2 - Investment Management Professional

Pros:

• Although traditionally not considered a very attractive career option, all of that has changed in the past few years, as discussed in this article. As a result, the demand for asset management professionals continues to grow and could outpace investment banking as a career of choice in 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. In addition, since their remuneration is based on the number of funds they work with, there is a greater level of security and less risk.
• Work hours are much better as compared with investment banking professionals. It is one of the advantages of working in an asset management role, making it relatively easier to lead a balanced life.

Cons:

• Despite being a relatively secure career option, these days, professional certifications like CFA and CIMA can do much good in career growth. However, most of these certifications are comprehensive (especially CFA) and require a diligent study on your part. Therefore, not everyone might be able to earn these professional designations.
• It has become an increasingly complex field in recent years. 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. It could be difficult to grow as a professional without being technically proficient.

While choosing a 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

Investment banking roles have a rather poor reputation as far as managing work against personal life is concerned. Work hours are long and intensive, with little time to relax for dedicated professionals. So, while you might consider being called a workaholic more of a compliment, it may not be easy to work nearly 75 to 100 hours a week for years.

It is sure to take a toll on your health, and your personal life could take a backseat in a slightly unhealthy manner. To avoid this uneven work-life existence, you should consider making necessary lifestyle changes to ensure a healthy presence and a prosperous career.

Investment Management

Investment management is more of a blissful choice of career in this sense. The prospects continue to improve, but work hours are also more or less balanced for most relevant job roles. That makes it a better choice than investment banking as far as work-life balance is concerned.

However, there is no guarantee that it will not threaten this delicate balance in the coming years. However, it is unlikely it would be on par with investment banking. Therefore, it continues to remain more of a balanced career option.

Despite their professed advantages and disadvantages, it may not be easy for you to make that all-important career choice. But, of course, an initial analysis of these areas seems to suggest that investment banking is for 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 that 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.

Asset management could be a better choice for individuals with a keen interest and aptitude for finance but not an outgoing approach. 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 a somewhat comfortable choice 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 measuring it more or less of an objective criterion to ensure it works for you in the long run. The most important thing is that you should relate to the kind of job role you aim to succeed in, in the long term. For a reason, the head is above the heart, but what are we without a little emotion?

This article is a guide to Investment Banking vs. Investment Management. We discuss the difference between investment banking and investment management, skills, education, pros, and cons. You may also have a look at the following articles: -

• Diversified Investments
• Offshore Investment
• Portfolio Management vs Investment Banking
• Top 3 Types of Investments