Investment Banking vs. Wealth Management: An Overview

Wealth management and investment banking are two of the most popular career choices within the financial sector. While there is a significant amount of overlap and interaction between these fields, the two jobs are distinctly different.

An investment banker mainly offers financial services and advice to corporate entities, rather than to individuals. Investment banking is the area of the financial sector that handles mergers and acquisitions (M&A), business restructuring, spinoffs, stock splits, share buybacks, initial public offerings (IPOs), and secondary stock issues or bond issues. In addition, investment bankers may handle the short-term investments of their corporate clients.

Key Takeaways

  • Investment bankers are likely to work longer hours and draw somewhat larger paychecks.
  • Wealth management is focused more on personal service of individuals, while investment banking clients are primarily corporations.
  • There is frequently some overlap between the operations of investment bankers and wealth management firms.
  • High net worth individuals who are clients of wealth management companies are often business owners who are likely to want advice from the field of investment banking regarding business restructuring or possible M&As and may want access to investment banking products, such as IPOs or bond issues. 

Investment Banking

The best investment bankers excel at managing businesses' finances and persuasively negotiating complex multi-billion-dollar deals. They are adept at leveraged buyouts and at helping clients resist attempted hostile takeovers. Investment banking can provide considerable excitement from time to time, but also consists of periods of relative inaction.

Investment bankers must be able to understand the important industry-specific factors that drive the success or failure of a business. While market analysts are experts are evaluating stocks, investment bankers must be experts at the fundamental evaluation of businesses.

In addition to having a solid head for numbers and basic accounting, investment bankers must also be able to think creatively to devise the best possible means of arranging financing and structuring business deals.

In terms of the actual functions within investment banking and the job responsibilities of investment bankers, there are two types of investment banker positions: account managers and operations specialists. Account managers act in the lead position of developing and maintaining relationships with clients and seeing that their needs are properly met. Operations specialists execute investment banking services, such as an IPO or stock buyback.

Wealth Management

The field of wealth management is concerned with providing financial services primarily for high net worth individuals and ultra high net worth individuals, although less wealthy people sometimes seek wealth management services, too. There are wealth managers who work with individuals who hold assets anywhere from $50,000 to $500,00, and others who prefer to work with high net worth clients and handle millions.

Wealth managers may work one-on-one with their clients, while investment bankers typically work with multiple corporate clients.

Wealth management refers simply to money management, in all its aspects. Wealth management firms make money by charging fees for the various services they provide. In the area of investments, clients are often sold managed account services, discretionary investment accounts that are traded on behalf of the client by one of the investment professionals at the firm.

In addition, wealth management firms provide clients with brokerage accounts, so clients can access virtually any type of investment. In addition to investment services, wealth management clients are provided with tax planning, estate planning, and retirement planning services.

Relationship Managers and Investment Professionals

The job of providing these services is typically split between relationship managers and investment professionals. The job of the relationship manager is to know the client. The job of the investment professional is to know the investments that are considered by, and for, the client.

It is the relationship manager who is primarily responsible for meeting the client's needs and wishes, and who most often meets directly with the client, although investment professionals are frequently included in regular, scheduled client meetings.

In the case of ultra high net worth clients, there may be an entire team of people assigned to a client's account, but there is still usually a single relationship manager assigned to oversee the account and to serve as the firm's primary representative.

The division of labor between the two aspects of wealth management can be seen as somewhat resembling the two aspects of relationship management and project execution that exist in investment banking.

Special Considerations

There are certain commonalities that tend to exist in candidates for a career in either wealth management or investment banking, but there is no educational major that specifically prepares an individual to act as a wealth manager or an investment banker. A degree in business, either a bachelor's degree or a Master of Business Administration (MBA), provides a basic foundation for a career in the banking or financial service industry. A degree in accounting or economics may be equally useful.

Importance of Talent and Skills

What may be more important than an individual's specific educational background are the personal talents and skills he or she possesses. Good communication skills, both verbal and written, are definitely required for either career choice.

A relationship manager for a wealth management firm needs to have well-developed interpersonal skills to service the firm's clients. Interpersonal skills are important for an investment banker as well since it typically requires a substantial amount of wining and dining of clients.

Fluency in a second language or familiarity with the culture or business practices of another country can be a plus on a job candidate's resume since the banking industry is a global enterprise. Anything an individual can take care of in the way of obtaining licensing or certification, such as taking the Series 7 exam or obtaining certification as a financial planner or chartered financial analyst (CFA), can put him or her ahead of the game as far as necessary training and qualification, for either job.