Consulting vs. Investment Banking: Everything you need to know

Consulting vs. Investment Banking Everything you need to know

If you’re preparing for consulting interviews, chances are you’ve also thought about investment banking. Both industries attract people who enjoy fast-paced work, who want to be on a steep learning curve, and who seek a competitive salary. Consulting and investment banking do share some similarities. But they have some big differences too.

So, how to think about which industry might be a better fit for you?

Consulting firms advise companies on their toughest strategic challenges, while investment banks help companies complete large financial transactions. So, the industries have different business models, build different skill sets over time, and have different lifestyles too.

In this article, we’ll discuss the following topics about consulting vs. investment banking:

  • Industry overview
  • Skills you will develop
  • Career path
  • Exit opportunities
  • Salary & compensation
  • Lifestyle considerations
  • Entry points & recruiting process
  • What you will need to land & ace interviews
  • 5 top signs consulting might be for you

Let’s get started!

Consulting vs. Investment Banking: Industry Overview

Management consulting and investment banking are two of the most sought-after jobs for the young, smart, and ambitious. They offer rigorous business training, high entry-level salaries, and great exit opportunities.                                         

But what do these firms really do?

Both industries serve as advisors to major corporations. They play important roles that help organizations grow, transform, and adapt to shifting economic and political conditions.

Management consultants provide strategic advice to top management on various corporate challenges such as revenue growth, cost management, and organizational performance. For additional information, check out our article “What Is Consulting?”.

Investment bankers focus on corporate finance. They provide capital-raising services, supporting organizations in raising equity and debt funding. They also advise on mergers and acquisitions, helping companies acquire other companies, or helping them negotiate the sale of a business unit or of the entire firm.

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Skills You Will Develop

Many skills overlap between the industries. In either industry you will be expected to take a rigorous analytical approach to the question at hand, to present your ideas compellingly, and to work effectively with a team on tight timelines.

However, there are a few differences to consider.

Consultants gain broad exposure to how companies operate and to the strategic questions that arise when running a business. Because of this you will develop business problem-solving skills that can be applied across industries and functions, such as diagnosing the cause of the problem, analyzing data to inform the way forward, and developing a recommendation.

In consulting, you will spend more time communicating with PowerPoint slides than developing Excel models. (Though Excel modeling can be a part of a consulting case.) You will refine the “answer” as you surface new information, interacting more with your team and client than in banking. For this reason, consulting is a great place to hone “soft” skills such as communication and influence alongside analytical skills.

In investment banking, you will learn the process of executing financial transactions from pitch to deal closing. You will spend most of your time developing complex financial models for mergers, leveraged buyouts, and company valuations.

As a banker, you will become an Excel wizard and will be expected to produce a great deal of analytical output in a very short time. While investment bankers also need to be proficient in PowerPoint, you will spend less time creating and presenting slides than consultants. At junior levels you can expect more independent work time and much less client exposure.

Career Path

Consulting vs Investment Banking: Career Path

Both industries offer a lucrative and structured career path, though this can vary with firm size. In general, you can expect that smaller firms will provide less structure, and potentially lower compensation, than larger firms.

One important difference between consulting and investment banking is that you can expect more job stability in consulting. Consulting firms are less impacted by downturns than investment banks since their clients will halt fundraising or M&A efforts in a recession, but may still hire consultants to support cost-cutting.

So how do you progress in these careers? Both industries are rather hierarchical, with similar ladders: Analysts/Associates perform the analysis, Managers supervise the work, and Directors manage the client relationships.

The timeline to reach the highest level is also similar. Starting from an Analyst position, you can expect to spend 10 to 15 years working towards a senior role. Both industries have an “up or out” culture where you can’t cruise in a position for too long. You will have to either develop the skills required for the next level or look for another job.

Broadly, the consulting career path is as follows:

  • Analyst (out of undergrad): 2-3 years
  • Associate (direct promotion or out of MBA programs): 2-3 years
  • Project Manager: 2-3 years
  • Associate Partner: 2-3 years
  • Partner: 3-5 years
  • Senior Partner: Highest level

And the investment banking career path is as follows:

  • Analyst (out of undergrad): 2-3 years
  • Associate (direct promotion or out of MBA programs): 3-4 years
  • VP: 3-4 years
  • Director: 2-3 years
  • Managing Director: Highest level

Exit Opportunities

In both industries, people regularly assess their exit opportunities. These roles require long hours, so many people plan to dedicate a few years to the grind while setting themselves up for what’s next.

So what comes next?

First, many people do build a long-term career in consulting or banking. These industries have some great advantages, such as a path to promotion with clear responsibilities at every level, and high income with limited volatility. These things are harder to find in industry, where organizational structures can be messier and compensation is lower on average.

While there is overlap in the types of jobs former consultants and former bankers may seek – especially if they are exiting at a more junior level, or doing an MBA in between – exit opportunities tend to be different between the two industries. Generally, you can expect broader roles available for consultants vs. more specialized with higher pay roles available for bankers.

Consulting is a great stepping stone into industry, and most former consultants move into strategy or operational roles at corporations ranging from startups to large firms. While it is a bit more challenging to transition into investing (e.g., private equity, venture capital) than for bankers, it can be done. You can even find former consultants in social impact and the public sector. 

Investment bankers, not surprisingly, exit more frequently into finance. Investment bankers at top firms will have access to lucrative careers across the finance world, from private equity and venture capital to hedge funds. Or they may transition into industry, where they will typically join the finance team, for example in corporate development roles leading the M&A agenda.

There is also the entrepreneurship path which can be a great one for alumni of either industry. Both offer rigorous business training which you can apply to your entrepreneurial ideas. Former consultants bring exposure to multiple business functions and know how to create structure where there is none. Former bankers will bring more technical knowledge about financial management and raising capital.

One other difference is that major consulting firms offer MBA sponsorship to high-performing pre-MBA analysts, while most investment banks do not. Many consultants use that time to learn what they want to do over the long term (e.g., interning at a tech startup). Sponsored MBAs will need to return to their firms and typically work for the period sponsored.

As consultants and bankers think about their next move, they will consider similar factors as anyone changing jobs:

  1. Career path: Will the responsibilities grow over time? What new skills or exposure will the new role build?
  2. Compensation: How does the compensation compare? Is there more or less upside potential?
  3. Lifestyle priorities: Do the number of total hours worked, travel expectations, and level of control fit with personal priorities?

Salary & Compensation

Both industries offer one of the highest salaries out of undergraduate and graduate programs. On average you can expect to get paid more in banking than consulting, with higher variability in the total compensation, but more total hours worked. This is because investment bankers mainly get paid from transaction fees which depend on market conditions, while consultants are paid on a project basis for their client engagements.

Total compensation (base salary + bonus) progresses for consulting and banking as follows. (Note that benchmarks are for North America – other markets may vary.)

Position

Management Consulting

Investment Banking

Analyst level

$100-120K

$150-200K

Associate level

$150-200K

$250-400K

Project Manager/VP level

$200-300K

$400-700K

Partner/Director level

$300-500K

$500K-1M

Senior Partner/
Managing Director level

$500K-1M

$750K-3M

Both industries pay very well, but at most levels you can expect higher total compensation (~30-50% higher) with more variability in the performance bonus in banking.

Check out our article “Management Consulting Salary” for additional information.

Lifestyle Considerations

Both industries will require great effort and some sacrifice of personal time to succeed. They are not 9-to-5 jobs where you can expect to forget about work every evening. You are expected to deliver high-quality work and to improve constantly, making these demanding jobs.

Nonetheless, you can expect some differences in lifestyle between the industries:

  1. Travel: Many consultants travel to their client site – sometimes across the country – each week from Monday to Thursday, while junior bankers work from their local office.

  2. Total hours: Consultants can expect 60-70 hour weeks while junior bankers are regularly expected to work very late nights, frequently clocking 80-100 hour weeks.

  3. Weekends: Weekend work does happen in consulting, but it is treated more as an exception than a norm. Bankers regularly work on weekends (though many banks have recently introduced protected weekend programs).

On average banking can seem more grueling, but once you add the travel time to consulting, there is no doubt that both industries come with real demands on your time – the question is what kind of career you are looking for in exchange.

Entry Points & Recruiting Process

  • Consulting follows a structured process and is open to a range of academic backgrounds:

    • Timeline:

      • Future entry-level consultants start recruiting for internships in their junior years.
      • Internship and full-time recruiting start 6-12 months before the hiring date.

    • Qualifications required:
      • Top firms want to see exceptional academic and leadership achievements, in addition to competitive internships.
      • You don’t need to do a consulting internship to be considered for a full-time role, though it does improve your odds.
      • There is no specific educational background preferred to be considered, though most hires have business/economics degrees or an MBA.
  • Banking is also structured but places more emphasis on relevant experience:

    • Timeline:
      • Future analysts start recruiting for internships in their sophomore and junior years.
      • Internship and full-time recruiting start a year before the hiring date.

    • Background:
      • Top firms want to see banking internships, finance education, top grades, and target schools to be competitive.
      • MBA students are also expected to do an internship to be considered for a full-time role.

If you are set on banking, you will want to start the recruiting process early whether you are an undergrad or graduate student; while many successful consulting candidates only enter the process the autumn before they join a firm. The good thing about having a banking internship is that you will still have the option to recruit for consulting firms. Nonetheless, offers from top consulting firms, especially McKinsey, Bain, and Boston Consulting Group, are typically more competitive to win.

What You Will Need To Land & Ace Interviews

Consulting vs Investment Banking

For both industries, landing an interview is very competitive. Your options for landing an interview can be:

  1. Campus interviews: Typically, available at target schools where these firms actively recruit.
  2. Referrals by current employees.
  3. Networking your way into an interview (e.g., reaching out to fellow alumni of your university).

You can also expect online tests to move to the interviewing stage (e.g., arithmetic and chart reading).

Consulting interviews will require the following:

  1. Strong preparation for the consulting case interview, which is a practiced skill (that we believe can be learned!) – but no specific industry knowledge unless you are applying to a specialized firm
  2. Preparing for fit interviews where you will demonstrate your aptitude for leadership and working with a team

What you will need for banking interviews is a little different:

  1. Strong preparation for accounting and valuation questions (e.g., linking the financial statements and DCF modeling), which are specialized to the industry.
  2. A clear story on why you are seeking to build a career in investment banking.

In conclusion, both interview processes are difficult and will require effort and preparation to pass, but the preparation is a little bit different.

Make sure you read our article “Comprehensive Guide to Case Interview Prep” for more on passing the consulting case interview.

5 top signs consulting might be for you

Still wondering which industry is a better fit for you? Here are some of the characteristics we find that successful consultants share:

  1. You enjoy working on different business problems across multiple industries.
  2. You want to work closely with clients.
  3. You like to work with people from diverse educational and professional backgrounds.
  4. You want to pursue graduate studies after a few years of work experience.
  5. You don’t mind the weekly travel.

– – – – –

In this article, we’ve covered:

  • Consulting vs. investment banking: overview of the industries
  • Differences in skills required, career path, salary, and lifestyle
  • What you need to land an interview and win an offer in consulting and banking
  • Why consulting may be a great fit for you

Still have questions?

If you have more questions about consulting vs. investment banking, leave them in the comments below. One of My Consulting Offer’s recruiters will answer them.

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