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Management consulting vs investment banking: a comprehensive comparison

If you’re deliberating whether to pursue a career in management consulting or investment banking, it’s important to consider the short and long-term benefits of each option, from compensation, work-life balance and general enjoyment, to transferable skills and long-term career prospects.

The investment banking industry includes some of the most selective employers in the world, such as Goldman Sachs and Morgan Stanley. In terms of prestige, these companies are on a par with McKinsey, BCG and Bain, the world’s top management consulting firms. However, there are also a number of crucial differences for candidates to consider when they’re weighing up which career path to pursue.

Within the world of investment banking, there is a wide variety of roles, each with a different set of characteristics. The roles that typically attract candidates of a similar caliber to those sought by top consulting firms are trading, equity research, mergers and acquisitions (M&A) and sales. In this article we compare each of these roles to the role of a management consultant and consider the short and long-term benefits of each career path.

Management consulting compared to trading

Traditionally, traders spend a great deal of time on the phone with clients and buyers to package and agree on deals. This makes trading a fast-paced role that’s great for people who love math, deal-making and the buzz of making money. Traders work independently and have a large amount of responsibility because they manage their own ‘book’. It’s an environment in which competitive people thrive.

The compensation in trading is typically higher than it is in consulting. The hours also tend to be more reasonable, as traders only work when the markets are open. However, because traders become specialized very early in their careers, the role doesn’t lead to any other long-term career options. While, for some, the compensation may be sufficient incentive to stay in the job, for others, it’s not enough to remain engaged and happy in the long term.

With the rise of technology, there is a question mark over whether trading, as it currently stands, will be a job that exists in the future. This means that traders may find themselves with limited options, as they tend not to develop many transferable skills in the role because of its narrow and repetitive nature. Even today, it’s not uncommon for those who leave trading to find themselves without a job – after five to ten years of making excellent money as a trader – as a consequence of having very few transferable skills.

While the compensation in management consulting is not as attractive as it is in trading and consultants work longer hours than traders, consulting offers better long-term career opportunities, with many attractive exit opportunities available to consultants who have worked at top firms.

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Management consulting compared to equity research

Equity research involves gathering information through desk research and interviews, and then creating reports to educate investors on whether a particular stock is a good purchase. As a role that allows people to work fairly independently, equity research is an attractive option for those who enjoy analysis work and are deeply curious about the in-depth details of business. It also appeals to those who get a buzz from the stock market and investments in general.

Equity researchers are the named authors of the reports they produce, which allows them to build a name for themselves as subject matter experts in particular stocks. Because they interview CEOs about their strategy and results, equity researchers also enjoy unparalleled exposure to business leaders.

However, equity research is typically the least well-paid role in investment banking because it doesn’t generate revenue for firms directly. The reports that equity researchers produce are offered to prospective clients for free in the hope that they will choose to make brokerage transactions through the investment bank’s services. Another downside of equity research is that the exit opportunities are limited to roles within the field of investment management.

For those who are driven to shape and influence the strategy of a business, rather than simply research, observe and report, a career in management consulting is likely to be more appealing than one in equity research. At its heart, the work of a management consultant is to help some of the world’s largest organizations solve their most critical and complex problems. The impact of a consulting project could easily make the business news headlines, and might even affect the economy, climate change or what people consume. There is therefore far greater scope for a consultant’s work to have a tangible impact in the business world.

Management consulting compared to mergers and acquisitions (M&A)

Simply put, those in M&A pitch potential acquisitions to clients and help them execute deals in return for a share of the transaction value.

People at the start of a career in M&A are responsible for identifying acquisition opportunities, modeling cash flows and writing pitch presentations. The role is a good option for those who are driven by money, love making deals, and have a high tolerance for hard and repetitive work.

M&A is traditionally the most prestigious role within investment banking because of the opportunity it provides to work on big, headline-making transactions, and to learn key skills like understanding corporate finance and working with senior executives. There are also attractive long-term financial prospects available, as many go into Private Equity or move into a Managing Director role after spending time in M&A.

However, the work is highly repetitive and offers less of an intellectual challenge than equity research or trading. A career in M&A also involves working extremely long hours, sometimes in a harsh environment where there is little concern for the wellbeing of individuals.

While the compensation in M&A is higher, a career in management consulting offers a broader and more intellectually stimulating range of work, the chance to make a positive difference in a business, and a more favorable work-life balance.

Management consulting compared to sales

Those in investment banking sales work closely with clients to support them in making the decision to buy investment products. It’s a role that appeals to those who enjoy convincing others, reaching targets, making money and, once they’ve made a sale, are ready to do it all over again.

Those new to sales in investment banking quickly become responsible for specific client accounts. They have to keep their finger on the pulse of the financial market in order to provide insightful recommendations to clients.

The perks of a career in investment banking sales are good compensation and a generous client entertainment budget. The downside is that there are few exit opportunities beyond moving into a lesser-paid sales job in a different industry. In addition, sales is perceived to be the least prestigious area of investment banking.

While a career in sales offers higher compensation and the opportunity to entertain clients, management consulting offers greater intellectual challenge, the opportunity to make a meaningful impact and exposure to real-world business challenges.

Management consulting vs investment banking: which career path is right for me?

While there are specific differences between management consulting and each of the four key roles within investment banking, there are also some broad comparisons that can be helpful to consider when deliberating which career path to pursue.

In summary, management consulting may be the right choice for those who are drawn to a career that offers:

  • broad learning and transferable skills
  • excellent long-term career prospects
  • the opportunity to make a tangible impact
  • exposure to a great variety of industries and business challenges
  • a high degree of intellectual stimulation

Investment banking, on the other hand, is likely to be a better fit for those who:

  • get a kick out of making deals
  • are fascinated by the financial market
  • don’t mind repetitive work
  • are driven by money

Management consulting firms and investment banks alike take a very thorough and highly selective approach to recruitment and hiring. In both industries, recruiters review applications and decide which candidates to progress based on a combination of their online applications, resumes, cover letters and, in some cases, the results of online tests, such as McKinsey’s digital assessment.

While each investment bank will take a different approach to the interview process, they will all seek to gain a better understanding of candidates’ technical skills, as well as their fit for the firm and overall potential. Consulting interviews, on the other hand, all follow a very similar format: a case interview followed by a fit interview or, in McKinsey’s case, a Personal Experience Interview (PEI).

If a career in management consulting sounds like it might be right for you, you can learn more in our complete guide to the management consulting industry. And if you’re preparing to apply to a top consulting firm, the resume and cover letter templates and specialized advice in our Free Resume Course will help you get your application in great shape.

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