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Investment banking vs asset management

Difference Between Investment Banking and Asset Management

The basis of investment banking and asset management lies in dealing with money. Many students find it difficult to make a career choice between the two because of the competitive salary packages both offer. The latest statistics show that investment banking and investment management companies offer graduates the highest starting salaries.

Both are highly competitive industries and employ the best talent from the world's leading universities, mostly finance graduates or postgraduates, mostly MBAs Masters of Business Administration or CFAs Chartered Financial Analyst.

Let's understand the fundamental difference between the two industries.

What is investment banking?

Investment banking is the area of ​​banking that helps create financial capital for its clients, be it institutions, corporations, governments, or other corporations. Basically, investment banking is about providing an exchange market to raise and deliver money to those who need money to finance or grow their business, namely those who have excess capital and are looking for funds for lucrative investment opportunities .

Capital is raised through an initial public offering (IPO), mergers and acquisitions (M&A), share purchases and other techniques.

An investment bank acts as an underwriting agent and raises capital through debt or equity and is involved in other IPO management activities such as advice, book preparation, drafting of a memorandum of understanding and offer letters from a company as well as the legal aspects of an IPO. The bank's investment banking division also finds clients for public issuance, be they mutual funds, insurance companies or pension funds. It also supports mergers and acquisitions by providing all kinds of additional services to its clients, including securities research, market making and trading in stocks, derivatives, fixed income, commodities and currencies.

The activities of an investment bank can be further divided into “buy side” and “sell side”. The “buy side”, as the name suggests, offers purchase advice to its customers who include mutual funds, hedge funds, mutual funds, life insurance companies and private equity funds. The “sell side”, on the other hand, includes trading securities for cash or other securities by facilitating transactions or market-making, as well as raising capital through subscription and research activities. Since both functional areas are contradicting in nature, it is important that the information does not switch from one side to the other. Therefore, an information barrier is being created within the investment banks so that inside information is protected in order to avoid possible conflicts of interest in the future.

What is asset management?

Asset management in its simplest form can be defined as doing business with other people's money. Asset management or investment management firms are typically financial services companies that invest their clients' money in securities, stocks, debt, commodities, derivatives, currencies, and so on.

Financial asset management firms employ professionals who are experts in handling other people's money. It involves managing money and handling investments from clients. Different clients have different needs, a good asset manager examines their clients' specific needs and recommends investment products based on the client's asset allocation.

It is a comprehensive area that plans, recommends, and reviews the investments made by customers, be they individuals or companies. Dealing with money is a tricky job that you need to keep up to date with. The main goal of any money manager is to invest the money in ways with minimal risk and maximum return.

A wealthy person does not have the time or inclination to manage their investments all by himself. This is where asset managers come into play. An asset manager has the expertise and experience to manage the client's money by diversifying their investments and generating more returns for them, thereby enhancing their overall portfolio.

Asset management firms, also known as investment management firms, employ professionals with analytical skills and are able to assess which investment products are beneficial for their clients in order to achieve the desired financial goal within the established guidelines. The products in which professionals invest the client's money are mutual funds, hedge funds, pension funds, pension funds, etc. in various financial instruments such as options, futures, stocks, derivatives.

Asset managers recommend various products and investment vehicles after performing due diligence and assessing the risk appetite of their clients, understanding their financial goals and the amount of expected returns taking into account the risk. Your goal is to maximize the return on investment and ensure that the financial goal set by the clients is achieved.

Asset management firms hire the best talent from the best universities in the world. Certain prerequisites are required for the setting. This is a degree in finance, primarily a CFA Chartered Financial Analyst or an MBA Masters of Business Administration in Finance. While these degrees are not required for entry-level jobs while working up the corporate ladder in an asset management firm, these degrees are very beneficial. The second most important requirement would be that you are a number cracking expert and that you have good quantitative and analytical skills to help you with the job, along with strong communication skills as the wealth manager profile requires a lot of client interaction at all times.

The job options in an asset management company are many. You can be employed as a customer advisor, sales manager, portfolio manager or financial advisor. All of these are extensive interactive customer profiles.

Investment Banking vs Asset Management - Education & Skills

The training and skills required for both areas are the same. Companies are looking for candidates who have a flair for numbers and a knowledge of business disciplines, be it finance, economics, accounting or investment analysis. Candidates aiming for a career in investment banking or asset management should be prepared for extremely tough competition from graduates from top business schools and universities.

An MBA degree and relevant work experience are prerequisites for an entry-level position in the company. It is extremely difficult to be hired by large firms, most of which are looking for strong references from respected professionals. Hence, networking plays an important role in breaking through large companies. The right contacts will, among other things, help you gain an advantage. As the competition is very fierce, most companies also view internships as an advanced application process to find the right candidates.

The know-how sought by companies mainly includes.

  • Financial modeling skills
  • Assessment Skills - DCF and Relative Ratings
  • Strong oral and written communication skills
  • Analytical skills and problem solving skills
  • Interpersonal and intrapersonal skills
  • Negotiation and customer service skills
  • Time management and attention to detail
  • Advanced math and technical skills
  • Leadership skills and a good attitude
  • Commercial knowledge and deep understanding of the subject

Career prospects

The employment and career prospects for investment banking and asset management have always been positive. There are more investment opportunities available in emerging markets, leading to the innovation of new and more complex financial products, making investment portfolios much more diverse than they used to be.

The US Bureau of Labor Statistics has estimated that the entire financial industry would have a growth rate of 12% from 2014 to 2024. The outlook is positive and competitive for the industry which is expected to create new positions with huge salaries in the near future.

Although the industries as well as investment banking and asset management show an upward trend and excellent career prospects, it is generally assumed that jobs in asset management would grow faster than jobs in investment banking, as there is much too much in the new and emerging areas Exploring is emerging markets that opened the doors to investment management jobs, but there are some who still believe that the wealth management industry is not on par with the investment banking industry

The top companies hiring investment banking firms and money managers are Goldman Sachs, Blackstone, JPMorgan and Chase, Merrill Lynch, Well Fargo, to name a few.

salary

Investment banking and asset management companies are some of the highest paid companies in the world. The median average wage for financial analysts was given as 80,310 USD, which increases many times over after years of experience. The average compensation for an employee at an asset management company has increased over the past decade to $ 263,000 in 2014.

Entry-level investment banking analysts can expect rewards of between $ 65,000 and $ 95,000. Three to four years of experience further increases the package to more than $ 250,000 per year.

The pay gap between investment banking and asset management employees was nearly half as large in 2004, at $ 168,000 and $ 315,000, respectively. The compensation structure has changed dramatically over the past decade. The pay gap has been reduced to several hundred thousand, typically $ 263,000 for asset management employees and $ 288,000 for investment banking employees.

Career advantages / disadvantages

Without a doubt, these careers are among the highest paying careers in the world. Their salaries and bonuses are so lucrative that they draw graduates into these industries. According to the US Bureau of Labor Statistics, the median annual wages in May 2015 were $ 80,310, $ 67,740, and $ 36,200 for financial analysts, financial specialists, and all careers in the U.S. economy. This number itself shows the huge pay gap between the financial industry and all other professions, which also indicates the workload that these professionals have to bear.

High-level investment jobs are concentrated in the three financial centers of London, Tokyo and New York. Although with the advent of the century and opportunities in emerging markets, jobs have shifted to other geographic locations, the main concentration of top jobs is still in these three cities.

Investment banking and wealth managers have tough lives, working 65 to 70 hours a week. Working hours vary for different companies. Companies operating in only one market have shorter hours, while those operating from all three financial centers have demanding hours that are often difficult to manage. Although it is a very promising and lucrative career that offers high salary packages along with a high level of commitment and dedication, it is a very emotionally demanding and physically challenging career.

A career in one of these areas requires a relentless commitment to one's job, often neglecting the needs of your family and friends.

Which one should i choose?

This is the most difficult question and cannot be answered directly. It's like comparing apples to oranges. Both careers are lucrative and offer many opportunities for growth and advancement. Working hours are exhausting and a successful career in both areas requires a lot of responsibility and time management. However, there are key differences that can make it easier for a potential candidate to choose between the two careers based on their area of ​​interest.

Investment banking professionals travel more and work longer than their asset management counterparts. You need to bring the savers to the borrowers, which is a mentally stimulating task in itself and which, in the end, requires a lot of responsibility and accountability on the part of the investment banker. In addition, the biggest difference is in the salary package of the two. Investment banking professionals definitely get higher salaries, which is evidenced by longer hours.

Wealth managers manage money for individuals, companies, and others, which means they have a number of clients to look after. You need to monitor the individual needs of all of their clients and provide them with unbiased investment advice based on their needs. They have to balance their time and energy between different accounts and work in larger groups with comparatively fewer individual responsibilities than their counterparts in investment banking.

The choice of career between investment banking and asset management is a question of personal choice and individual interests. Both are lucrative careers, however, and an opportunity should not be missed by getting a break in either of them as there are fewer opportunities and aspirants are in abundance.