Investment Banking vs. Investment Management: An Overview
Plenty of undergraduate finance majors and master of business administration (MBA) students consider pursuing a career in investment banking or investment management, two intensely competitive fields in the finance industry, after receiving their degrees. These professions offer some of the highest starting salaries in the field, and there's plenty of room for growth for those who are talented and ambitious enough to land one of these spots.
If you take away all of the industry terminologies and boil these jobs down to their basic elements, investment bankers and investment managers (sometimes called asset managers or fund managers in the U.K.) are primarily responsible for channeling money from investors to companies that need capital. Some of the top experts in the investment world can be found in these positions.
Investment management is all about investment decisions and asset allocation. This means coming up with investment strategies and directing funds to property, equities, or debt securities on behalf of clients. Investment bankers, by contrast, are deal-makers. They work as high-level consultants and analysts for large companies to help with capital raising strategies.
- Investment managers help clients by managing their money. Clients can include individuals, educational institutions, insurance companies, and pension funds.
- Investment managers perform financial analysis, portfolio allocation between bonds and stocks, equity research, and issue buy and sell recommendations.
- Investment bankers help with corporate finance needs, such as raising funds or capital. Companies and governments hire investment bankers to facilitate mergers and acquisitions as well as IPOs, and new debt issuance such as a bond offering.
Investment managers help clients reach their investment goals by managing their money. Clients of investment managers can include individual investors as well as institutional investors such as educational institutions, insurance companies, pension funds, retirement plans, and governments. Investment managers can work with equities, bonds, and commodities, including precious metals like gold and silver.
Investment managers can have varied roles and responsibilities, depending on the firm, which can include:
- Financial statement analysis
- Portfolio allocation such as a proper mix of bonds and stocks
- Equity research and buy and sell recommendations
- Financial planning and advising
- Estate and retirement planning as well as asset distribution
Investment bankers help with corporate finance needs, such as raising funds or capital. Companies and governments hire investment bankers to facilitate complicated financial transactions, including:
- Debt issuance such as a bond offering
- New securities underwriting
- Mergers and acquisitions
- Initial public offerings (IPOs)
Investment banking can involve equity and security research and making buy, sell, and hold recommendations. Investment banking firms are also market makers, which provide liquidity or connect buyers and sellers to "make" the market.
Almost every investment banker starts out as an associate or analyst and hopes to put in enough years to reach a role as a vice president or managing director.
Education and Skills
Competition for both careers is notoriously stiff. Investment banking firms are usually only interested in candidates who have graduated from top schools and who have worked previously with major corporate players. It's virtually impossible to find an investment banking associate position without an MBA and strong recommendations from respected professionals in the field. Investment management positions aren't quite as crowded by top applicants, but it's still very difficult to break into major firms.
Networking is very important and sometimes matters more than experience or academic bona fides. Many firms use internships as extensive application processes; in fact, some investment management and banking internships are more competitive than entry-level positions for corporate finance or research analyst positions.
Undergraduate degrees are preferred in business disciplines, such as finance, economics, accounting, or investment analysis, although degrees from other fields are considered. Some banks look for demonstrated analytical proficiency in specific sectors, like healthcare or pharmaceuticals.
Firms are generally looking a strong combination of the following skills and characteristics:
- Strong written and verbal communication skills
- Analytical and problem-solving skills
- Demonstrated independence and responsibility
- Responsiveness and attention to detail
- Negotiation and client management skills
- Knowledge of investments, corporate finance and business negotiations (practical commercial expertise)
- Advanced mathematical and technical skills
- An ambitious, eager, get-it-done attitude
Investment banking and investment management jobs have attractive salaries and bonuses. Even the lowest-level investment banking analyst at a smaller firm can expect a first-year salary of $65,000 to $95,000. Firms may also offer a signing bonus as an incentive to competitive candidates.
The average base pay for investment managers is $95,829 with salaries that can be as high as $180,000, according to glassdoor.com. Additional compensation averages $14,900, which includes commissions and bonuses.
The average base pay for investment bankers is $119,110 with salaries that can be as high as $235,000, according to glassdoor.com. Investment banking analysts make anywhere from $73,000 to 108,000.
High-level investment jobs are highly concentrated in New York, London, and Tokyo. Even though there is some evidence of geographical shifts as the 21st century marches forward, it is still probable that a career in investment banking or investment management means moving to one of these three global financial hubs.
Workloads for investment managers vary. Those employed by mutual funds or hedge funds work when the stock market opens and closes. This can be a relatively short time if the firm is only active in one market, but those active in all three major exchanges can have very irregular. Private equity firms average much longer workdays, sometimes as many as 65 to 70 hours per week.
Investment bankers sometimes joke that they enjoy a nice "work-work" balance. Very few careers demand as much time and energy as investment banking; it's not uncommon to work 12- to 14-hour days for six or seven days a week. Despite the high salary and prestige afforded to an associate or analyst, many burn out and suffer physically and emotionally after a few years on the job. These roles are for career-minded people who may have little time for relaxing on weekends and spending time with family.
These are very prestigious careers with huge salaries, so competition should remain very high for the foreseeable future. The U.S. Bureau of Labor Statistics estimates that financial jobs such as analysts, bankers, and financial managers will experience 15% job growth between 2019 and 2029.
In all likelihood, a prospective banker or manager must decide on a firm-by-firm basis. Pay structures and workloads can vary, and the choice may hinge on the specifics of the role and the career goals of the individual.