Wealth Management vs Investment Banking: An Overview
Wealth management and investment banking are two of the most important functions of the financial industry. They’re also two of the more lucrative job opportunities, allowing you to play a vital role in the industry while earning a healthy salary.
While wealth management and investment banking are very similar, they actually have two very different functions and different responsibilities. If you’re considering pursuing a career in either wealth management or investment banking, this guide can help you choose between them.
Wealth management is a faction of financial services designed to serve individuals — usually high-net-worth individuals. Wealth management includes portfolio management, meaning financial professionals help plan their client’s asset allocations and manage their portfolios.
Wealth management is usually a form of comprehensive financial planning, meaning it combines portfolio management with a wide variety of other financial services. Other services a wealth manager is likely to provide include cash flow management, tax planning, insurance planning, estate planning, and more.
Wealth managers can work for larger firms or for themselves to serve high net worth clients. They are often paid as a percentage of assets managed — usually around 1%. Wealth managers can also earn a commission for the financial products they recommend to their clients.
According to the Bureau of Labor Statistics, personal financial advisors, which include wealth managers, earn a median annual salary of $94,170, which is considerably higher than the national average. That being said, the highest-paid 10% of advisors earn more than $200,000.
Investment banking is a specific financial service where professionals help corporations, governments, and other entities raise capital.
First, investment bankers help organizations issue debt securities like bonds. They also help underwrite equity securities (aka stocks) for publicly-traded companies. For example, if a large company wanted to issue an initial public offering (IPO), it would hire investment bankers to underwrite the securities and market them to the public.
Investment bankers also help companies undergo mergers and acquisitions. If one company is planning to purchase another, it would likely hire investment bankers to do its due diligence, help with the valuation, assist in writing the contracts, and help see the deal through to the end.
According to the Bureau of Labor Statistics, the median annual salary for professionals involved in securities, commodities contracts, and other financial investments and related activities is $98,030. However, the highest-paid 10% of professionals earn more than $200,000 per year.
Wealth management and investment banking are two of the most popular careers for professionals in the financial services industry. Both offer high pay and exciting opportunities, and each one has some pros and cons to know about.
First, investment banking and wealth management do have some advantages in common. First, both have high earning potential, which allows professionals in the field to earn a median of nearly six figures. And if you live in a high cost of living area or are one of the top in your field, the earning potential is far greater.
Both also have the advantage of not requiring an advanced degree. Yes, you might advance further in your career with a master’s degree or higher, but you can earn a living as a wealth manager or investment banker with just a bachelor’s degree.
The two careers also have some important differences that might help differentiate them. First, when it comes to work-life balance, wealth management is the clear winner. In most cases, wealth managers work normal business hours, with work weeks ranging from 40 to 50 hours.
The work-life balance isn’t quite as attractive for investment bankers. These professionals work in a faster-paced environment and often work upwards of 80 hours per week. If you want to advance in the industry, you’ll have to accept those long hours.
A final difference between the two to consider is the work environment. Wealth managers often work for large firms and may work somewhat collaboratively with colleagues. However, the job primarily involves working with individuals to manage their finances.
When it comes to investment banking, you aren’t working with individuals. Instead, you work directly with corporations and government entities looking to raise capital. Investment banking is also a collaborative effort. Investment bankers don’t generally work alone with their clients. Instead, they work on teams that often involve not only investment bankers, attorneys, and other professionals from their own firm, but from other firms as well.
Which One is Right For You?
If you’re considering a career in financial services, wealth management and investment banking are two excellent options. Both require similar levels of skill and education and offer similar earning potential.
When deciding between these two careers, the most important things to consider are your desired work environment and work hours. If you want more work-life balance and the opportunity to work with individual clients, wealth management is probably right for you. On the other hand, if you want a fast-paced work environment where you work potentially long hours, consider a career in investment banking.
Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.