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  • Writer's pictureBarsha Singh

Investment Banking vs. Management Consulting

There are several financial jobs available, including business analyst, investment banking analyst, management consultant, and others. While each function is distinct, we will concentrate on the management consultant and investment banking analyst responsibilities in this post. Undergraduate and MBA students will find management consulting and investment banking to be attractive vocations, particularly given the six-figure beginning salaries and prominent exit prospects. They are not, however, identical and vary in a number of ways. It's crucial to know the distinctions between management consulting and investment banking so you can choose the right job for you.

Investment Banking vs. Management Consulting: What's the Difference?

Investment banking is all about carrying out transactions like the ones mentioned above.

Because bankers are only paid when transactions complete, they are highly motivated to cooperate with organizations who are serious about purchasing, acquiring, or obtaining cash.

In practice, the "deal process" includes pitching to win transactions, developing marketing materials after the deal is closed, and promoting clients to possible acquirers or investors.

You'll be performing a lot of process work as a junior banker, such as Excel models, PowerPoint presentations, and administrative responsibilities.

Your role is to help close agreements by sifting through the paperwork necessary at each stage.

Management consulting, on the other hand, focuses on providing advice on operational and strategic issues:

• Is it worthwhile for our firm to enter New Market X?

• What can we do to improve the performance of this failing division?

• Is this new employee benefit plan a good match for you? What strategies can we use to recruit greater talent?

• Is it appropriate for us to grow into Southeast Asia?

We're thinking about buying Company X. What is the size of the market? Can you assist us with this deal's due diligence? There is some overlap between M&A and the transactions that bankers execute, although consultants often work on a wider group of projects.

Consulting companies effectively charge depending on the size of the team and the amount of time necessary (i.e., billable hours), therefore they have no motivation to "finish" these projects.

In the end, management consulting is all about diversity, while investment banking is all about specializing in transactions until you've mastered them all.

Sets of abilities

People typically state that consulting allows you to become a "PowerPoint master," as well as learn some Excel abilities, basic business knowledge, and good presentation and communication skills.

You'll have more interactions with your customers and internal team, which will help you improve your communication skills even more.

The standard pitch in investment banking is that you'll become a "Excel expert," but that you'll spend less time on PowerPoint.

Specific technical skills, such as accounting, financial statement analysis, valuation, and financial modelling, will be learned or refined, but you will not get the same sorts of "soft skills" as consultants.

Yes, most junior consultants spend more time in PowerPoint than most junior bankers, and they also spend more time speaking and presenting than most junior bankers.

It's worth noting, however, that investment banking activity may vary greatly across groups and businesses.

If you work for a small regional bank, you'll spend more time on process work and customer interactions than on complicated Excel models. In fact, it's possible that you won't obtain any major technical knowledge.

So, not all bankers become "Excel masters" or technical wizards - but some do, depending on the organisation, transaction flow, and how aggressive they are.

Recruiting for Management Consulting vs. Investment Banking

Recruiting for banking and consulting jobs is divided into three categories: undergrad, recent grad / lateral, and MBA.

Undergraduate investment banking recruiting begins early; in the United States, you'll interview for summer internships a year or more in advance of the internships.

Although the timeframe is significantly slower in locations like the United Kingdom and Hong Kong, you may still apply almost a year before internships begin.

You'll need 1-2 finance-related internships in Years 1 and 2, high grades (>= 3.5 or >= 2:1), plus a reasonable amount of networking to be competitive at the big banks.

If you go to a "target school" where banks recruit, you'll have a tremendous edge.

You'll need to be in a closely comparable position (corporate banking, Big 4, valuation, etc.) and network significantly to get offers as a lateral hire.

At the MBA level, you'll need to attend a top institution, have some relevant experience prior to the start of the programme, and begin networking and preparing months in advance of interviews.

There doesn't seem to be much information regarding the complete process gathered in one place when it comes to management consulting.

• Because the top three consulting companies have fewer entry-level positions and less "strict criteria" in terms of skill sets, technical expertise, and prior internships, more students fight for these positions.

• Anecdotally, it seems that the threshold for grades and leadership experience in consulting is a little higher.

Career Paths and Promotions in Management Consulting vs. Investment Banking

The IB and MC career pathways are quite comparable at a high level:

Starting off, you'll be the "Chief Doer," in charge of Excel, PowerPoint, research, and administrative duties.

Mid-level: You take on the role of "Project Manager," delegating work to junior team members and engaging with senior team members and customers.

Senior-level: Your primary tasks include attracting new customers and increasing revenue from current ones.

Analyst, Associate, Vice President, Director or Principal, and Managing Director or Partner make up the traditional investment banking hierarchy.

Analyst or Associate, Associate or Consultant, Project Leader or Engagement Manager, Associate Partner or Principal, and Partner are examples of consulting hierarchy.

Although the titles varies significantly amongst companies, the tasks are the same at all levels.

It may take 2-4 years to gain a promotion at each rung of the ladder in both disciplines if you do well.

Working hours, culture, and way of life

The major distinctions between consulting and banking are the hours, culture, lifestyle, compensation, and exit chances, since the career trajectories are so similar.

Investment banking hours are notoriously long, with major banks often working 80 hours or more each week.

In reality, this implies that "on weekdays, you'll have nearly no free time outside of work, and on weekends, you'll have a little spare time."

After the first two years, the hours increase, but it's never a 9-to-5 job; even doctors accept calls and react to emails on weekends.

Protected weekends and other measures have helped to make the job more acceptable, but the hours are still long and punishing.

Also, because of the pandemic's surge in work from home, the hours are now expected to be spent in the same cramped apartment all day, replying to emails 24 hours a day, seven days a week.

The fundamental distinction in management consulting is that you work fewer hours but travel more — or at least you did until COVID.

For entry-level jobs, the average tends to be approximately 60 hours per week, which means: "You're very busy during the week, but your weekends are mainly available."

When (if?) the epidemic is over, I expect weekly visits to customers to continue, albeit they may be less frequent than before.

In terms of culture, banks are seen to be competitive places where individuals rush about yelling, while consulting companies are thought to be more polite and professional.

Salaries and Bonuses in Management Consulting vs. Investment Banking

Almost unanimously, investment bankers make more money than management consultants.

The precise disparities vary, but at most levels of the hierarchy, overall IB pay is 50-100 percent higher.

The reason for the differential in income is simple: consultants are paid by the hour, while bankers are rewarded on finished transactions.

While larger agreements take longer to complete, the time needed does not increase linearly with the size of the contract.

In other words, even if the costs are much greater, a $10 billion transaction does not need 100x – or even 10x – more time to complete than a $100 million deal.

Which is Better for You: Management Consulting or Investment Banking?

I'd structure this topic a little differently, as I did with the dispute about bank kinds.

Consider your feasible possibilities as well as the strong and weak justifications for picking each area.

The alternatives are evident whether picking between a McKinsey offer and an offer from 2-Person Boutique Bank X, or a Goldman Sachs offer and an offer from 2-Person Boutique Consultancy Y.

The decision between a McKinsey consulting offer and a Goldman Sachs IB offer, on the other hand, is much less clear.

If this is the case, you should consider all of the benefits and drawbacks of each area.

Consider the following scenario:

Good Case for Consulting: You want to work on more projects in a more civilised setting, you want to continue in consulting or advance into strategy at a major organisation, and you don't mind the lower salary.

Good Case for Banking: You want to work on M&A transactions from start to finish, including the tedious bits and crazy coworkers, and then utilise your expertise to transfer to a private equity company that specialises in a certain strategy.

Banking's Bad Argument: You want to make as much money as possible and are unconcerned with the culture, long hours, or repetitious aspects of the job.

Understanding the trade-offs and selecting the field where the benefits exceed the negatives depending on your unique tastes is the key to making a successful selection.

If you can grasp it, you'll be one step closer to resolving the age-old conflict between management consulting and investment banking.

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