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 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 terminology 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. Many in the industry refer to this as the "buy side," where investment products are purchased in hopes of generating profits.
Investment bankers, by contrast, are deal-makers. They work as high-level consultants and analysts for large companies (normally corporations) to help with initial public offerings (IPOs), stock purchases, mergers and acquisitions (M&As), and other capital-raising techniques. 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. A lot of 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 health care or pharmaceuticals.
Firms are generally looking a strong combination of the following skills and characteristics:
- Strong written /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 lofty bonuses. Even the lowest-level investment banking analyst at a smaller firm can expect a first-year salary of $65,000 to $95,000 and a hefty signing bonus. Third- and fourth-year analysts with major investment banks typically earn more than $250,000.
Investment managers and asset managers in the United States earn anywhere from $50,000 to several hundred thousand dollars annually. Senior managers for hedge funds or private equity firms are at the high end of the scale, but recent trends suggest that all buy-side analysts are experiencing income bumps.
Historically, investment bankers have been the highest-paid and most sought-after positions in the financial world. The New York Times reports that, as recently as 2004, investment bankers earned nearly twice the average compensation as investment managers ($315,000 to $168,000). Dynamics changed over the subsequent decade, and the gap between each career narrowed substantially ($288,000 to $263,000) by 2014.
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 disjointed and awkward hours. Private equity firms average much longer work days, 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 lofty salary and prestige afforded to an associate or analyst, many burn out and suffer physically and emotionally after a few years on the job. This is definitely not the career for people who enjoy relaxing on weekends, spending time with family, taking time off for the holidays or focusing on hobbies.
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 the entire finance industry will experience 16% job growth between 2012 and 2022.
Investment management jobs seem to be on an upward trend relative to investment banking jobs, but there is still a stigma among industry professionals about investment management as the underappreciated stepchild of investment banking.
Comparing Managers and Bankers
It's probably bad advice to be picky with regards to either of these careers; most vacancies receive hundreds of applications from highly qualified candidates. Almost any job offer is considered top-level in the finance industry.
However, there are some notable differences between bankers and managers. Investment banking associates and analysts work longer hours and travel more frequently than their investment management peers. Investment bankers also make more money earlier in their careers.
Investment managers work with a wider variety of clients and have to balance more accounts. They also tend to work in larger groups and face less individual responsibility at lower levels, which might be more desirable for some individuals.
In all likelihood, a prospective banker or manager must decide on a firm-by-firm basis. Pay structures and workloads are more disparate than ever before, so the choice hinges more on Firm ABC versus Firm XYZ than on investment banking versus investment management.