Investment banking versus private banking careers

Individuals aspiring toward a career in high finance often consider either private banking or investment banking. Students, as well as individuals already employed in the financial sector, may have difficulty deciding which path is the best choice for them.

A thorough understanding of the nature of each job is very helpful in making the right choice.

Careers in Private Banking

Private banking involves providing a broad range of personalized, individually-tailored financial and banking services, most commonly to high-net-worth individuals. Private banking is focused on providing financial services to wealthy clients, and it takes the concept of being a personal banker to the next level. Among the many services that a private banker may provide for clients are general investment advice, asset and portfolio management, currency exchange or currency hedging services, tax planning and estate planning. Although mergers and acquisitions (M&As) are more in the realm of investment banking, private bankers may have to occasionally handle simple, small-scale acquisitions for a client.

Private banking is the more personal of the two careers. A private banker acts as a trusted personal financial advisor. To acquire and maintain a client base, a private banker has to be outstanding at establishing relationships and trust. A financial analyst who prefers to spend all day alone in a back office, poring over technical charts, is probably not the best candidate for becoming a private banker.

Being a good private banker requires a certain level of expertise across the whole spectrum of investing, from buying individual stocks to trading exchange-traded funds (ETFs), futures, options and currencies. It also requires skill in financial planning, portfolio management, and tax and retirement planning. A private banker serves to assist his clients in all aspects of managing and investing their money, so he needs to be familiar with a broad scope of services and investments. They also need to be able to clearly determine their clients' individual financial goals, preferences, risk tolerances and any other personal aspects that can assist them in giving out appropriate, personal financial advice.

Private banking is an area specifically targeted for growth at a number of firms trying to establish more stable revenues in lieu of the less consistent income available from investment banking services.

The broad skill set in financial services that private banking requires can often make it easier for individuals with private banking experience to move into other banking or financial service areas. For those individuals considering eventually moving into another division or segment of banking services, a transition from private banking may be easier to make than a transition from investment banking.

Careers in Investment Banking

An investment banker acts primarily in the role of offering advice and services to corporations. Investment banking typically involves putting together debt and equity financing deals, handling M&As, managing stock splits and share buybacks, restructuring debt and conducting initial public offerings (IPOs).

While private bankers may excel at relationships and personal advice, an investment banker's strong suit is more commonly focused on business financial management and negotiation skills. Another notable difference between investment banking and private banking is that private banking doesn't typically offer the high-adrenaline experience of completing a large merger deal or a successful IPO. However, aspiring investment bankers should keep in mind that there can be long periods of relative downtime between exciting, multi-billion dollar business deals.

Private banking requires excellent analytical skills regarding various possible investments. Investment banking requires strong fundamental analysis of businesses and the industries in which they operate. The two skill sets may sound similar, but they are significantly different. There's a substantial difference between being able to select investments for an individual client versus being able to carefully consider two companies and evaluate how they might (or might not) fit together, and determine a proper valuation of one company in relation to the other.

Investment banking may hold a slight edge over private banking in terms of the opportunity to obtain recognition as a star and secure rapid advancement in position and compensation. However, major investment banking deals are usually done by a team. It's important for investment bankers to be comfortable working as part of a team, with the possibility that on one deal or another, they may not occupy the chair that directs how the deal gets done.

What Type of Education and Experience Is Needed?

The best educational path for someone seeking a career in either private or investment banking is similar for either occupation. Both investment banking and private banking firms prefer to see a candidate with an MBA or an accounting degree, ideally earned from a prestigious business school such as Wharton or Harvard. A person aiming for either of these careers should have demonstrated academic achievement and leadership skills. Excellent communication skills are also a must for either position. Investment bankers often conduct negotiations for large amounts of money, and private bankers must be personable to help develop good relationships with individual clients.

For individuals who have already completed their university education and entered the workforce, any relevant training and/or experience acquired at other financial services firms is a plus. Aspiring private bankers will do well to have already taken and passed the basic Series 7 exam required for selling securities products. Obtaining Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP) credentials is also helpful.

Since so much business is conducted on a global scale these days, being fluent in a second language is a bonus credential, especially if it is Chinese (Mandarin), Spanish or another language used in important emerging market regions.

Any specific experience in the chosen field, either through an internship or through having worked as an assistant to a private or investment banker, is good preparation and looks solid on a resume too.

Choosing Between Investment Banking and Private Banking

One of the first questions that people considering a career as a private banker or as an investment banker should ask themselves is whether they prefer working with individuals or with large corporations. Obviously, this differentiation is not a hard and fast one, since high-net-worth individuals may also be the owners or officers of major corporations. Still, the basic difference in orientation and focus between the two jobs does exist.

Beyond the question of preference is the question of which job is more suitable for their particular natural talents and developed skill sets. A person might prefer to be an investment banker, but he may actually be more well-suited, by talent and temperament, to private banking.

On average, investment bankers draw higher compensation than private bankers. However, this is not always the case, and both careers often easily command six-figure, and potentially even higher, compensation.