Fundamentally, asset management involves managing money that other people have, and investment banking is about raising money that companies want but don’t have.
It becomes more complicated as you try to explain the terms in detail. So, let’s touch upon just the basics here. Investment banking (IB) involves raising financial capital for companies, government, and other organizations to help them expand their activities. It obtains this capital from those who are keen to invest and grow their money.
IB uses mergers and acquisitions, initial public offerings, stock purchases, and other methods to build capital. IB has a sell-side (it sells stock, etc., to raise capital) and also a buy-side (it advises clients on buying into mutual funds, private equity, insurance, etc.).
Investment banks also provides assistance in marketing and trading equities, derivatives, fixed-income securities, and commodities, and in conducting securities research.
Asset management (AM) is easier to define: it invests its clients’ funds in equities, derivatives, commodities, securities, currencies, etc., to grow these investments. It chooses investment vehicles based on clients’ requirements and attitude to risk.
Here, we discuss careers in IB and AM. How do these fields compare for a job-seeker? What are the similarities (education, skills, job outlook) and differences (salaries, career prospects, work-life-balance, nature of work, and personality types)?
Although investment banks (often just “banks,” here) or asset management companies (AMCs) don’t insist on educational qualifications across the board, an advanced degree does open doors for job aspirants in both fields. Like many asset managers, many bankers also begin their careers with only a bachelor’s degree. Moreover, as with AM, there may be a rare bird in IB who didn’t finish college but is doing well.
Candidates for both banks and AMCs should be good at number-crunching and knowledgeable in economics, finance, investment analysis, and accounting, points out an article in wallstreetmojo.com. But an elite company would require a degree or an advanced degree from a prestigious institution, such as an Ivy League school, the University of Chicago, or Duke University, which are all favorite hunting grounds for both IB and AM recruiters.
Doing an internship is a good way of getting a foot in, since you are already a “known candidate” when it is time for full-time recruitment. Networking is also required, since the biggies ask for references, and a good word from a supervisor about your work is likely to help.
Education may be flexible, but in the US, licensing is mandatory. If you are dealing in securities, for example, you need to hold licenses for trading in each security.
There is substantial overlap in the skills sought for IB and AM positions: analytical and problem-solving skills, oral and written communication skills, negotiation and client-service skills, and people skills.
Investment bankers work on the sell-side, selling financial products, and asset managers work on the buy-side, buying the products that bankers sell. Therefore, bankers need more sales talent, while asset managers need more quantitative and analytical skills.
Bankers should have the ability to work long and hard hours. They should have good people skills, and know how to interact with clients persuasively. Of course, they should love the markets.
Asset managers are in the technical job of managing investment portfolios. They should be able to spot lucrative investment opportunities. Sales talent is not required, but they still need people skills to instill confidence in their clients that they can manage investments wisely. However, the best bankers and the best asset managers have an equitable mix of skills required for both.
Both IB and AM have excellent job prospects. The US Department of Labor estimates that the finance sector will witness a growth rate of 12 percent between 2014 and 2024. As more complex finance and investment products are created, the need for professionals is likely to increase. As new markets emerge, AM seems to have a slight edge over IB when it comes to job prospects.
The salary gap between investment bankers and asset managers has reduced considerably in the last decade or so. In 2004, the average salary of AM professionals was $168,000 and that of IB employees $315,000. But ten years later, in 2014, the average AM salary was $263,000 and the IB salary $288,000.
According to Investopedia, the average starting salary of bankers in 2015 was $75,000-$85,000. Performance-based bonuses took this to $140,000 for a first-year banker. AM salaries ranged from $55,000 to $100,000, plus a flat percentage of the funds they managed.
An FT article from 2015 refers to research by a think-tank, New Financial, that says that before long, AM salaries are likely to overtake IB salaries, indicating a shift in the global capital market following the financial crisis.
The future is in the AM arms of investment banks, not in IB, according to an article in www.financialcareers.com. The CEO of a top investment bank predicted a couple of years ago that the savings pool is growing, and there will be a need for more asset managers.
An advantage of asset managers is that even if salaries plateau or drop, as has happened in the case of bankers, the bonuses, which are percentages of funds under management, won’t change. Many bankers are leaving their jobs to go into AM, and those with transferable skills are succeeding, according to the article.
Both investment bankers and asset managers have tough work schedules. But compared with the lifestyle of a banker, with 70-90-hour weeks common in the first year, that of an asset manager is certainly more relaxed, with 40-50-hour weeks. Bankers may also need to travel as part of their work, and their Saturdays and sometimes even Sundays may be spent in office, particularly in the first couple of years. Asset managers get most weekends off, though they may be called to work occasionally on Saturdays.
Work hours also depend on the company and the number of different kinds of markets handled by it. Some companies engaged in just one market may have shorter work hours, and some other companies that operate from big centers such as New York, London, and Tokyo may have very long and taxing work days.
Students and graduates considering financial careers think of IB as the first option, because they still pay better than AM, though the salary gap has narrowed. But what should make AM equaling appealing is that asset managers have the freedom to make investment decisions on their own.
For example, as an asset manager in an AMC, if you are certain that a particular company is going to do well, you would increase your investment exposure to this firm, with certain constraints. You are the advisor but, practically, also the investor. Of course, if the investment makes a big profit, the asset manager and team take full credit.
In contrast, in IB, whether you specialize in equity sales, corporate finance, or fixed income, you need to convince investors to take a particular action that you feel will grow their investment. You are basically only an advisor.
Also, in IB, you may end up overspecializing and therefore often limiting your field of expertise, whereas AM gives you a bird’s eye view of the global economy, thus paving the way for a long-term career path. In AM, you also get to meet many private clients besides representatives of companies in which your fund is investing, and you can develop enduring professional relationships.
A veteran with 25 years’ experience in a London-based AMC highlights three advantages of asset management as a career, in an article in thegatewayonline.com: every global event that affects the market affects your investments, and an asset manager is at the epicenter most of the time; you get to interact with the representatives of the top management of companies; and, you are free to act on your own convictions.
Although bankers and asset managers are both cogs in the same wheel, they have different duties and day-to-day lives, says an article in Investopedia. Because of this, the jobs are suitable for two different types of personalities.
Either career will make you rich. They are also both prestigious. So which will you choose? The answer depends on your personality and priorities. If you are the go-getter type with great persuasive skills and feel that “life is work,” you probably will fit in with IB nicely. If you are the cerebral type and are known as a “nice person,” and you give a lot of importance to work-life balance, you are likely to be better off in AM.
Some people who are familiar with both AM and IB say that there is something different about AM, and not everyone enters asset management just because he/she wants to make a lot of money. Some, it turns out, are also heeding a greater calling. They want to help ensure a good return for the ordinary investor, too, not just for the super-rich, believing that their profession can pursue a social purpose.
A LinkedIn blogger who works for an AMC writes that he loves working in asset management because it helps common people build up their savings wisely, so that in the later part of their lives, they won’t be forced to live in poverty to be able to send their children to college or continue working till their last breath, struggling to repay their home mortgage.