Management Consulting vs. Investment Banking: An Overview

For top students at elite universities, management consulting and investment banking represent careers that provide opportunities to earn a lot of money right out of school, often with only a bachelor's degree. Unlike careers in medicine, law or pharmacy, neither management consulting nor investment banking imposes hard-and-fast educational requirements on entrants; the individual firms doing the hiring decide what to require of prospective employees. That said, most of the top firms that pay the biggest salaries generate fierce competition in the application and interview process, with only the brightest students from the most reputable schools being hired. Having an MBA, particularly from a top program, has never hurt anyone's prospects for either career.

Management Consulting

A management consultant must be able to analyze a company's operations and determine where inefficiencies exist and where processes can be streamlined or eliminated. 

While having good people skills confers a significant advantage in either career, it is an absolute must for management consulting. Myriad behind-the-scenes positions exist for lawyers who excel in logic and problem solving but who are introverts or otherwise lack negotiation skills. Management consultants, by contrast, have to solve problems and present their findings persuasively to the client. It is not a career for the timid or for misanthropes.

The first-year salary at most large consulting firms depends on whether the employee enters with a bachelor's degree or an MBA. For undergraduates, the big firms pay between $65,000 and $100,000 the first year. For MBAs, the pay can be as high as $200,000.

When compared to lawyers, management consultants typically work fewer hours to earn their big salaries, frequent travel eats away at their work-life balance. While some are lucky enough to land gigs in which they service local clients exclusively, or at least travel infrequently, most management consultants are road warriors, often flying out on Sunday night to be at work in a city across the country on Monday morning, not to return until Friday afternoon. Firms expect new associates to be flexible with travel, and when local clients become available, senior employees receive first pick.

That said, many recent college and MBA grads who are unencumbered by kids or family obligations consider such work travel to be a bonus, not an imposition. In addition to a generous salary, big consulting firms pay for their employees' airfare, hotel accommodations and food while the employees are on the road.

Investment Banking

Investment banking positions include consultants, banking analysts, capital market analysts, research associates, trading specialists, and many others. Each requires its own education and skills background.

A degree in finance, economics, accounting, or mathematics is a good start for any banking career. In fact, this may be all you need for many entry-level commercial banking positions, such as a personal banker or teller. Those interested in investment banking should strongly consider pursuing a Master of Business Administration (MBA) or other professional qualifications.

Great people skills are a huge positive in any banking position. Even dedicated research analysts spend a lot of time working as part of a team or consulting clients. Some positions require more of a sales touch than others, but comfort in a professional social environment is key. Other important skills include communication skills (explaining concepts to clients or other departments) and a high degree of initiative.

However, it is not uncommon for an investment banking associate to work between 65 and 75 hours a week, and sometimes that does not even cover the enormous amount of research required. Even if a bank does not require junior bankers to come into the office on weekends—Citigroup famously made this change in 2014—it will still expect employees to be accessible via email and phone.

Key Takeaways

  • For a job in finance, both management consulting and investment banking provide lucrative career paths for ambitious individuals.
  • Management consultants often work on a case-to-case basis helping companies become more organized and efficient, entailing a great deal of travel and long hours.
  • Investment bankers also work long hours, but tend to stay in their office and help bring securities to the market or assist in M&A deals.

Skills Needed

Whether seeking a career in management consulting or investment banking, a person needs strong skills in problem solving and diplomacy. Management consulting requires learning the entirety of a client's frequently complex management structure, identifying inefficiencies and areas where improvements can be made, devising solutions to these problems and then breaking everything down into terms the client can understand so that these changes can be implemented. Consultants must have excellent critical thinking skills and they certainly must be good with people.

Investment banking requires many of the same skills. Since investment bankers handle vast sums of money, they need excellent quantitative skills and discipline. Simple mistakes routinely cost firms millions of dollars. The field is broad, with personal interaction more common in some areas than others. Having great people skills expands an investment banker's cachet and makes him more in demand. Often, investment bankers are responsible for brokering huge transactions between companies or moderating mergers and acquisitions (M&As), both duties that necessitate almost preternatural skills in diplomacy.

Salary

One of the biggest draws to management consulting and investment banking is the ability to earn a lot of money. Even better, new associates routinely earn over $100,000 during their first year out of school, often holding only a bachelor's degree.

The average starting salary range for first-year management consultants with bachelor's degrees is between $65,000 to $100,000, depending on the company and the region of the country. While any amount in that range certainly tops the median income in the United States, it pales in comparison to what management consultants earn when they enter the field with MBAs. A new management consultant out of business school can expect to earn between $125,000 and $200,000, once again, depending on the firm and city as well as myriad other factors. For this reason, many aspiring management consultants elect to stay in school an extra two years before embarking on their careers.

Investment banking offers higher pay for new employees with bachelor's degrees. Compensation at most banks is a base salary plus bonus structure. The base pay averages around $80,000 per year, but assuming an employee hits all bonuses, he can expect to make closer to $150,000.

Work-Life balance

Neither career ranks highly for work-life balance, particularly during an employee's first few years. Those seeking a nine-to-five gig, weekends off and four weeks vacation the first year should look elsewhere.

The typical week for a first-year investment banker runs between 70 and 90 hours. Rarely does a new associate get a full weekend off during the first year; if he is lucky, and things are not too hectic at the office, he can have Sunday to himself. Some investment banks even have small rooms with bunks for employees who find themselves still at the office at midnight. Even after pulling a late night, an investment banker is expected to be at his desk when the markets open the following morning.

The number of hours in a management consultant's work week is fewer, but travel time must be added to arrive at an apples-to-apples comparison. Most consultants, particularly during the first few years, spend their work weeks on the road. Wanderlusts without spouses or kids love this aspect of the job, but those with family obligations often consider it an imposition. It usually takes years to establish enough seniority to get reassigned to exclusively local clients.