Trends and tricks
Many of the brightest minds who are highly motivated and interested in a dynamic lifestyle are attracted to careers in consulting or investment banking in college. Not only do these careers offer some of the highest salaries for those with an undergraduate degree, the lifetime earning potential can be significantly higher than those who choose other careers as compensation at senior levels are very lucrative. Along with the monetary compensation, people who choose these careers often enjoy a level of prestige from their professional life which can contribute to an overall positive self -esteem. Extensive training programs are offered by companies hiring in these professions as human capital is one of their most valuable assets as a company and so they are willing to make this investment.
This translates to developing valuable skills in areas such as financial modeling, project management, and strategic thinking right from the start of your career, skills you may not have the opportunity to hone until much later if you choose another path. Skill development will make you a more sought after candidate for future positions if you choose to alter your career at some point after a few years or even much later in your journey. College students are also attracted to the variety of work within these fields across different industries and geographies as well as the impact that their work can have. While consulting and investment banking share many of these same benefits, we will more closely examine some of the key differences to help you determine which may be a better fit for you if you are currently trying to decide between the two.
As lucrative compensation is often citied as one of the main reasons for choosing these careers, let’s start here by taking a closer look at this dimension of both professions. While both industries pay very well, you can still expect higher total compensation in banking. While there can be a lot of variability based on the firm and your individual performance, typically you can expect a 30-50% higher paycheck in banking. Banking does typically come with more variability in the performance bonus because client fees mainly come from transaction fees which depend on market conditions. This trend can often follow you in your career even after making an exit. Bankers will typicaly exit into private equity or investment management which are typically higher paying roles than corporate strategy roles where consultants exit to.
Both professions provide an advisory service, guiding clients to better outcomes. Consulting focuses on general problem solving at a strategic level, typically on how to increase revenue or decrease costs of operating a business. Analyzing how a company can expand into a new market - either by entering a new geography, a new market segment or by launching a new product are all problem solving exercises on the revenue side. To approach the profitability equation by attempting to decrease costs, companies often hire consultants to evaluate their human resourcing plan, explore a more efficient capital structure or make recommendations to cut operating expenses. On the other hand, investment banking is more focused on a single financial transaction of a large scale like a merger or acquisition, rather than the ongoing operations of a business. Investment bankers become subject matter experts with deep knowledge on valuation methods, financial modelling, and transactions.
What does this all translate to in your first year of work? If you enter consulting you will be meeting with clients to understand how they currently operate and synthesizing vast amounts of information to make recommendations on how they should operate differently in the future. In your first year this means creating a lot of slide decks that use numbers to tell a story. If you start off in investment banking you will be performing lots of financial modeling in spreadsheets. It may take you longer to work your way into client meetings but there will be no shortage of numbers to crunch which means your analytical skills will be developing at a fast rate.
In addition to your compensation, there are other lifestyle considerations when choosing between career paths. One of them is job security and while it is difficult to comprehend how important this is to you currently or will become over time as you are just starting out, it is worth noting that consulting is generally considered the more stable industry. Entry level bankers typically work between 80-100 hours per week and can be expected to work over weekends by some firms. Juniors are expected to work the most and so working hours typically decrease to 60-80 hours per week at more senior levels in banking. Entry level onsultants usually work 50-70 hours per week and may see a minor decrease as they raise through the ranks.
One important factor to consider is the amount of travel time. Although this may be changing in a post COVID-19 world, consultants are typically expected to travel much more while bankers often work from their home office. Early in your career travel may be a very attractive aspect of consulting if you are unattached to any personal commitments in your home city and you are interested in exploring new parts of the world. It is important to bear in mind that companies can often have their headquarters in the dismal cities so your work assignments can have a high degree of attractiveness as travel locations. However, it is common that over long periods of time (think years or decades) even for the most enthusiastic traveler, this can become draining. Depending on how you view travel, you may consider add it into your working hours or not, so even the “shorter working hours” for consulting may seem longer once you count the time away from home.
We hope this blog gave you some important things to consider if you are trying to choose between consulting and investment banking. The best way to explore which option is right for you is to do internships in both fields while you are still in college if you have the opportunity. While compensation and lifestyle are important considerations, given you will be spending a large portion of your waking hours at work if you choose either of these professions, it is important that you actually enjoy what you are doing. Even after reading and understanding the differences in the type of work you will be doing, it can be hard to concepualize what it means to be doing this kind of work day after day. Internship opportunities will give you the experience you need to assess the best fit for you.