Investment Banking vs. Consulting Careers
If you’re studying anything related to business, economics, or finance, you’ve most likely heard of investment banking or consulting. And if you haven’t heard about it already, then trust us, you will soon. To ensure you’re up to speed, read on to find out everything you need to know about careers in investment banking versus consulting!
Investment banking (commonly referred to as IB) and consulting are two of the most popular careers for graduates. While they are extremely competitive, they also have many perks, both financial and career-related. But what actually are IB and consulting, and what are the differences between them? Let’s find out!
What is investment banking?
An investment bank is an intermediary that assists individuals and companies with a range of financial transactions and services (for example buying and selling of shares of companies, or entire companies!). In other words, they help to manage and advise on the financial needs of individual customers and corporate customers, i.e. firms. (If you’re anything like us and are getting a bit confused with all the finance jargon, brush up on these important financial terms and check out why financial literacy is so important for teens today)!
An investment bank is made up of a front, middle and back office, with each focused on different aspects of finance. Let’s look at two of the main divisions in the front office.
IB is the most famous part of the front office in an investment bank. It mostly revolves around mergers and acquisitions (M&A) between companies (so it’s not really about corporate banking). M&A transactions happen across all types of industry groups, ranging from healthcare to media.
Can you think of a recent merger? If you’re a Marvel fan, an important merger in the entertainment industry was the one between Disney and Marvel, where Disney bought the rights to Marvel. See, IB is everywhere! Without an investment bank, mergers could never happen. Thus, typical IB roles involve a lot of research into various companies that you’ll be working with to facilitate these mergers, and detailed analysis around why a merger makes sense (or not!). With IB, you get to do a little bit of everything - that’s what makes it so popular!
Sales and trading (S&T)
This division is split between the sales and the trading aspects. Salespeople are the ones who call institutional investors (e.g. institutions like hedge funds who raised money to invest in companies) with ideas and opportunities for investment. This is the ‘Wolf of Wall Street’ type of role. Traders are the ones who execute these orders and advise clients on entering or exiting financial positions in the stock market. Both sales and trading are great roles if you like talking to different people, while trading is great if you like working with numbers (making it very maths-heavy)! The Hollywood representation of this is ‘The Big Short’.
Traders typically have slightly shorter working hours than investment bankers, as they only work when the stock market is open for trading (9:30 a.m. to 4 p.m. for the NYSE and Nasdaq).
Sounds cool! Now, what is consulting?
“Consulting relates to the aggregate decisions of firms as a whole”
Consulting is the service of providing a company with expertise on specific (financial, strategic, environmental, etc.) matters in exchange for a (usually rather large!) fee. Where IB is concentrated around a key pivotal moment in a firm’s life (a merger or a sale), consulting relates to a lot of other situations firms face (from declining revenues, to addressing new markets, launching new products, or slashing costs - you name it!). It tends therefore to be a lot more varied than IB, but equally fast paced! Your clients are demanding and need solutions fast. Perfect for those who like a challenge! Here are some of the aspects of a job in consultancy:
- Fast paced and stimulating
- Learn new skills on the job due to variation in projects
- Work with and learn from professionals who are at the top of leading enterprises or run their own companies
There is a variety of different firms within the consulting industry. The top three management consulting firms are McKinsey, Bain & Co. and BCG, but you also have the ‘Big Four’ firms that offer general consulting services (tax, management and strategy consulting), i.e. Deloitte, PwC, EY and KPMG. The great thing is, most of these companies offer internship opportunities for you to learn more about consulting and see if it’s the avenue for you!
Sounds great! How would I get into one of these careers?
The most popular majors to get into an investment banking or consulting career are business, economics, finance, or engineering, although this does not mean other majors cannot get in on the fun! Employers are looking for business acumen, logical and mathematical skills, and basic financial knowledge or at least strong interest in finance for IB. As long as you can display those, you are on the right track! But unfortunately, there’s more to getting a career in these fields than just academics. Here are some of the steps.
“If you can have someone who can vouch for you in first round interviews, you’re already halfway there”
This is potentially one of the most crucial (and often the hardest) elements of a career in finance. We cannot stress this enough: it’s SUPER important to have contacts in the industry to get your foot in the door. Sure, you can apply to internships and jobs without having internal contacts, and you could get the role. But it’s much harder. If you can have someone in the firm who can vouch for you in first round interviews, or who can pass your resume along to the hiring team, you have a big leg up. If you’re lucky enough to have family contacts who you can reach out to, great! Make use of these and get in touch with people. But if you don’t, that’s ok too! Instead, you’ll have to make the calls yourself, and email people working in the firms you may want to apply to. You may need to contact 50-60 people (yep, that many), across hiring managers or people working higher up in the firm. Even if only 10 respond, and 1 speaks to you - that may be one person who will vouch for you in your first round interviews and push your application forward.
Remember, people working in investment banking and consulting are very busy, and their time is valuable. Coming across as likeable and friendly is a big part of making them see you as someone they could work with. So start making those calls! Any one of them could be the start of your career.
When you first apply, you will most likely be asked to take a series of online tests to assess your mathematical and comprehension abilities. These tests are there to see whether you have the basic skills needed for the job and can work under time pressure. Don’t underestimate these tests! Getting through these is the first stage to your career.
“Interview tip: talk about something casual before the interview properly starts”
First round interviews are typically the second stage in the application process. These will involve a series of competency-based questions, to understand your motivation for applying to the role and your experience. Interview tip: talk about something casual before the interview properly starts, like what you did on the weekend. Coming across as more approachable and friendly will make the interviewer think ‘yep, I could work 16-hour days with this person’! And that is the main part of these interviews. Working hours in investment banking and consulting are long. So obviously, hiring managers want to hire those who will be fun to work with.
Assessment Centres (UK) or Superdays (US)
This is the final stage of the application process (and as you can expect, the most difficult). It is a day of interviews and case study activities, some of which in a group setting to see how you work with others. Sounds daunting? Don’t worry, we’ve broken down everything you need to know about acing your assessment centre here!
True and false: Finance edition!
#1 - Finance firms are evil: FALSE
A common misconception with most investment banks or consulting firms is that they are trying to trick you and make money for themselves. While they certainly do make a lot of money, this is not the motivation behind their work. Without them, the financial world would crumble. A lot of their essential work takes place behind the scenes and underpins the success of many of the most important companies in the world.
#2 - Investment banking life is like the Wolf of Wall Street: FALSE
“The reality of it is hard work and long hours”
This is a bit of an obvious one. Like most movie portrayals, they are not representative of the real world. While the fast pace aspect of the iconic movie is true of real life in finance, investment banking is not a world of partying and extravagance. The reality of it is hard work, long hours, and yes, at the end, a rewarding salary.
#3 - If I work in IB or consulting I’ll be working 80 hour weeks: TRUE (unfortunately!)
Yep… you read that number right. Typically, graduate working hours are about 40 hours a week, but not for IB or consulting careers! For a five-day working week, you can expect to be working at least 16 hours a day (with the rest 8 hours ideally left for sleeping). The finance industry is infamous for its long hours, which is why you need to love your work and enjoy being with the people around you. Only then will you be able to make it through the hours. But do keep in mind, these long working hours are not forever! After about 5 years in the career, they do start to reduce to more manageable hours.
#4 - Investment banking and consulting makes you a billionaire: FALSE(ish)
While you may not make billions in one of these careers, you certainly will make a lot of money. Starting salaries for those working in IB or consultancy can be as much as $100k+ excluding bonuses, which isn’t too bad! But it isn’t the higher salaries that attract people, or that should attract you. To make the long hours worth it, you should genuinely enjoy working with markets and companies, and have a passion for financial developments. Only then will you be able to do your job well.
“Starting salaries can be as much as $100k+ excluding bonuses”
Ok assuming I can get on board with the long hours… What can I do now?
If you have a passion for markets and want to try your hand at a career in IB or consulting, what can you do right from high school or your undergraduate degree?
- Read the Financial Times and Wall Street Journal
- Check out the Economist to keep up to date with what’s going on in the world
- Apply for Spring Weeks, internships and shadowing opportunities in your first year at university
- Start making contacts in the world of IB and consulting through LinkedIn! Start by contacting alumni of your high school / university at the companies of interest to you, they will be more likely to respond and be more willing to help!
It’s never too early to start thinking about your career, and the better prepared you are, the easier it’ll be going forward. To find out more, check out our webinars on investment banking and consulting, or our panel comparing the two!