For ambitious, high-performing economics and finance students, investment banking and asset management offer lucrative career paths. Entering either of these fields often means making a lot of money right out of school, and it confers a great deal of clout, as well. The term "master of the universe" was coined during the 1980s to describe young, wealthy finance professionals, and while the fallout from the Great Recession has somewhat reshaped the public perception of Wall Street, the fact remains that investment banking, asset management and related financial fields retain plenty of prestige, particularly in big cities such as New York.
Though investment bankers and asset managers are ultimately cogs in the same machine, their job duties and day-to-day lives vary greatly, and the two careers cater to different personality types. The starkest difference is that, for the most part, investment bankers operate on the sell side, while asset managers are on the buy side.
Investment bankers sell financial products and asset managers buy them to manage for their clients. Often, the two professionals are on opposite ends of the same transaction – an asset manager, on behalf of his client, purchases an investment product from an investment banker. Typically, investment banking requires greater sales skills, while asset management requires greater quantitative and analytical skills. That said, the most successful professionals in either career have a good mix of both traits.
- Investment banking and asset management are both potentially lucrative financial careers.
- Investment bankers work with companies to raise capital or acquire companies through M&A.
- Asset managers build and maintain investment portfolios for individuals and organizations.
Investment banking is a specific division of banking related to the creation of capital for other companies, governments, and other entities. Investment banks underwrite new debt and equity securities for all types of corporations; aid in the sale of securities; and help to facilitate mergers and acquisitions, reorganizations, and broker trades for both institutions and private investors. Investment banks also provide guidance to issuers regarding the issue and placement of stock. 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.
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.
Asset 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. Along with high-net-worth individual portfolios, asset managers manage hedge funds and pension plans, and—to better serve smaller investors—create pooled structures such as mutual funds, index funds, or exchange-traded funds, which they can manage in a single centralized portfolio.
Asset 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
Unlike medicine, law or public accounting, neither investment banking nor asset management imposes rigid, across-the-board educational requirements. An advanced degree is seen as an asset in either field, but many successful investment bankers and asset managers begin their careers with only a bachelor's degree. On occasion, you can find someone who did not even finish college, though these people are the exception, not the rule.
Whether entering with an advanced degree or a bachelor's degree, a vast majority of new investment banking and asset management hires come from prestigious schools, such as Ivy League schools, the University of Chicago or Duke University. These schools all serve as fertile recruiting grounds for investment banks and asset management firms. Second-tier universities and party schools, by contrast, rarely attract these kinds of companies to their job fairs.
While schooling is flexible, licensing is often mandatory depending on job duties. The Financial Industry Regulatory Authority (FINRA) requires anyone engaged in the sale of securities to maintain specific licenses for each security. These licenses include the Series 7, the Series 63 and the Series 3. Beyond this, the individual firms doing the hiring for each career may impose their own educational and licensing requirements.
Investment bankers must have strong people skills, a tireless work ethic and a love for the markets. While many of the big banks have worked to reshape their corporate culture since the Great Recession, making it less cutthroat and more family-friendly, the fact remains investment banking is a demanding career best suited for aggressive, high-energy professionals.
Because 80- and 90-hour weeks are an investment banking norm, particularly during the first few years, new hires cannot be scared of hard work and long hours. Phone conversations with a diverse mix of client personalities are constant during these long hours, so good people skills and the ability to establish rapport and speak persuasively are a must. Investment bankers need a strong quantitative acumen and a keen understanding of, and love for, the markets.
Asset managers are tasked less often with selling and more often with the technical work of managing clients' portfolios. While people skills are still important, as clients want to be comfortable with the person managing their money, more important is an almost preternatural ability to track the markets and spot lucrative investment opportunities. For students who excel in math and statistics but may not have elite sales skills, asset management often confers an ideal fit in the finance world.
The average starting salary for an investment banker at major banks such as Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo was $85,000 in 2020, according to online finance community Wall Street Oasis. Bonuses, most of which are based on performance, frequently bring a first-year banker's total income to around $105,000. Keep in mind the hours required to earn this money are often more than double what a typical office employee works, so an investment banker's pay broken down by the hour is not as lofty as the annual figure makes it sound.
After two to three years as an investment banking analyst, the person transitions to an associate position, which has an average annual salary of $149,000, plus an average of $77,000 in bonuses (less for first years an more for third years), before getting in line to become a vice president and then director or managing director, eventually earning several hundred thousand a year in salary and bonuses.
Asset manager salaries range in 2020 from $63,000 to $89,000, according to Glassdoor, based on the type and size of assets under management (AUM). Many asset managers are fee-based; the bonuses they earn on top of their base salaries represent a flat percentage of the money they manage and do not vary based on the performance of that money. A reputable asset manager with a lot of money under management makes several hundred thousand dollars per year.
Investment bankers are expected to prioritize work. This is not a Monday to Friday, 9-to-5 gig. Employees who are not comfortable with 80-hour weeks rarely last long in the industry. Almost every Saturday is spent at least partly at work, and even Sundays are not guaranteed off days for an investment banker. Work-life balance is a misnomer in investment banking, because work is life.
Asset managers keep more reasonable hours. While a person's exact working hours vary based on his employer, 40-to 50-hour weeks are pretty standard in the industry, with occasional Saturday work required but weekends off for the most part. Anyone who places work-life balance at the top of his or her priority list for choosing a career has an easy choice between these two careers.
Which One to Choose
Both careers are lucrative, prestigious and selective. Receiving an offer in either field means you have done something right. Which career is a better fit between the two comes down to your skill set and priorities. Professionals who are more aggressive, have great persuasive skills and live for their jobs tend to do better in investment banking. Those who are more cerebral, quantitatively inclined, affable but not natural-born salespeople and prioritize a healthy work-life balance are probably better off as asset managers.