The decision was relatively straight forward for me. The negatives of investment banking - long hours, repetitive work, lack of non-finance exit options - mattered more to me than the money.
I considered sales & trading (in fact, I spent a summer at CSFB in NY), and was tempted to continue in that line of work after graduation.
Instead of defining the well-known characteristics of each job (there are plenty of resources out there for that, including my Management Consulted blog), I will address a key list of differences between the two industries.
Let me caveat by warning people that management consulting and investment banking are not your only two career options. Don’t get too caught up.
#1 SALARY
This is the biggest superficial difference. Thats not to imply that salaries aren’t important. Banking salaries average 50-100% higher than consulting salaries, with the difference increasingly significant as your seniority increases. Consulting compensates with perks that banking does not offer - from better travel allowances to more generous health and retirement packages.
Consultants always like to say this:
I know investment bankers make more money. But from a cashflow perspective, its exactly the same!
This simply means that consultants and bankers make similar base salaries, and at the end of the year, bankers are given a huge bonus which can be more than 50% of their total annual compensation.
Cashflow or not, the extra money is substantial and a defining driver of why many people do investment banking over business consulting. This is also a difficult issue for consulting firms with respect to employee retention. In my years as a McKinsey management consultant, easily half the people who left the firm went into the financial world (from hedge funds to PE), and salary was undoubtedly a major factor in the decision.
My advice is - after considering the 5 factors Ive listed here, you still think the pay difference (for analysts, averaging between $30-60K per year) would mean a significant difference in your professional job satisfaction, choose investment banking over consulting.
#2 LIFESTYLE FACTORS
The key differences here are:
-Hours. Bankers work very long hours. They can average 14-16 hours/day but it can get MUCH WORSE.
My roommates in New York (both investment bankers at Goldman Sachs) would sometimes go 2-3 weeks before wed exchange a word. This meant not only were they getting home after I went to sleep (around 2am), but they left for the office before I woke up (around 7am).
Your second year as an investment banker gets easier - often in the 10-12 hours/day range but with occasional tough periods.
Management consultants average 12 hours/day, with the typical variations depending on client, team goals, etc
-Travel. Bankers do some for roadshows, due diligence, etc but spend 90% of their time in one office until youre partner-level (this is investment banking; you can expect more travel in private equity and investment management). Consultants - depending on firm - travel anywhere from 25-75% of their time. At the Big 3 (Bain, Boston Consulting Group, McKinsey), you can expect travel 50-75% of the time.
-Relationship with firm employees and coworkers. This is an important but oft overlooked issue. Consulting firms have a very collegial atmosphere, where the focus is on getting work done and ensuring your professional success. This attitude permeates all interactions. Managers never yell, coworkers are supportive whenever possible, and companies are organized to provide consultants support with training, expertise, etc. Finally, networking is critical at consulting firms, and social events are focused on helping business consultants build contacts and relationships throughout the company.
Investment banks, on the other hand, have a more competitive, hierarchical setup. You can expect more tense relationships with your bosses, youll probably be yelled at from time to time for mistakes, and coworkers are much less willing to help each other out (theyve got enough on their plates, and your success means theres more competition for the biggest bonuses).
In addition, youll have minimal exposure across the company to other offices, divisions, etc - and less ability to transfer and network across the company.
Part 2 of this series on consulting versus banking continues tomorrow!
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