Investment Banker vs. Management Consultant: Why the Banker Wins with a Knockout in Round 1
“What’s missing from your resume is a focus on the results… I see all your recommendations and the projects you worked on, but I don’t see what happened as a result of your work.”
-McKinsey Recruiter to Me, 3 Years Ago
Some of you have asked about consulting (as in management consulting, not IT consulting – who in their right mind would do that?) vs. investment banking and which is “better” to pursue.
So here’s why investment bankers dominate management consultants, and why you should do banking.
The Myth: Bankers vs. Consultants Video
On the day the infamous Leveraged Sellout video was released, I received about 10 forwards from readers and friends, so I’m guessing almost everyone has seen it by now.
But just in case you haven’t, here it is again for good measure:
Although it’s fiction, the video does a surprisingly good job of summarizing the bankers vs. consultants debate.
“Be a Burnout Banker, Teaching Math at My Prep School”
There’s a lot of burnout in both fields. My management consultant friend almost quit after he had to work 14 hours on his birthday once. True, consultants get uninterrupted weekends… sometimes… but regardless of whether you’re a banker or consultant, you’re going to work a lot.
To imagine the schedule of a consultant, just take my Week in the Life series and add traveling to Idaho at the beginning of the week and coming back at the end of the week. Also delete all references to quantitative work and replace them with finger-painting.
“Nothing but Grunt Work”
Not quite.
There’s a lot of grunt work in both industries. In banking, it’s more quantitative and no one cares about offering “strategic insight” and putting things in quadrants – they just care what the Pro Forma EPS is.
“Make a Really Significant Impact and Get Home by 7:15″
I know of no consultants who get home by 7:15. One of my friends is an IT Consultant and even he doesn’t get home by 7:15.
So far, banking and consulting might seem similar… but let’s take a look at the first part of this claim – “Make a Really Significant Impact.”
Despite what the consultant argues, bankers typically make far more of an impact than consultants. True, some transactions fall apart, but when they happen you get a new public company or a new conglomerate.
By contrast, you never know if the recommendations consultants make will be implemented.
Got results?
“Mining for Gold out in Saskatchewan”
“Business travel” sounds cool to people who haven’t traveled much before, but it’s less appealing when you’re flying to Saskatchewan every week in February. Consultants are always on the road, and while bankers do travel occasionally, it is much less of a burden.
It’s fun to live in another country for an extended period, but it’s much less fun to travel back and forth every single week.
Plus, even if you are stationed in Saskatchewan you probably won’t discover any gold.
“You Try to Add Value… I Straight Create It”
At the junior level, no banker or consultant “creates value” and they rarely even “add value.” Senior bankers who negotiate on their clients’ behalf can sometimes “add value” by getting the buyer to pay more, but even that is rare.
Both banks and consulting firms are in the business of giving advice: advice on what to do financially and what to do operationally. Companies actually “create value.”
“House in the Hamptons and a Penthouse Loft”
Even at the market peak in mid-2007, 1st Year Analysts made only $150K ($60K base + $90K bonus). While that’s a lot of money for someone fresh out of school, it’s certainly not enough for a house in the Hamptons and a penthouse loft – especially after taxes.
Bankers do make more than consultants, but it will take quite some time to turn yourself into Gordon Gekko.
“But You Still Can’t Buy Bottles with Starwood Points”
True.
Consultants make a fraction of bankers’ bonuses – firms are notoriously secretive about exact numbers, but even in good times a $10K bonus isn’t unreasonable for consultants.
You could argue that they work a lot less and therefore make about the same hourly wage, but I’m not convinced. Sure, you won’t pull consistent 100-hour weeks in consulting, but it’s a lot more than 9-5, especially when you take into account the travel.
And even if it is more per hour, good luck having enough for bottles, let alone models.
“Take This Mouse and Get Back to Making $60K a Year”
Most consultants make more than $60K, but not by much.
However, they definitely don’t know how to use Excel properly – just ask that consultant we hired after I unplugged his mouse and he almost fainted.
The Consultant Formerly Known as Banker
One year, we hired a summer intern who was pretty good as far as investment banking interns go. He didn’t do anything stupid, he always smiled, and he even bought us drinks. But he “couldn’t take the hours” and he went to consulting full-time instead, in search of that elusive “work-life balance.”
I spoke with him the other day and he said the hours were pretty bad and he was being dragged around between 3 continents on clients’ whims – in other words, it was actually worse than banking, and he was getting paid less.
Damn, It Feels Good to Be a… Consultant?!
I didn’t continue with consulting because:
- I hated constant travel.
- I wanted to get tangible results rather than making “strategic recommendations” to management.
- Oh yeah, I couldn’t tolerate making $60K a year. Even $70K is pushing it.
That said, you may still want to consider consulting if your original plan was finance:
- Consulting is diversified in different industries, so the financial chaos won’t hit it quite as hard.
- No consulting firms have subprime anything on their balance sheets.
- You might still sneak into PE if you get lucky. Golden Gate Capital, for example, hires most of its Associates from Bain Consulting.
Rebuttal?
If you’re a consultant who now feels angered, feel free to write in with a rebuttal and I’ll publish some of the most entertaining responses. Make sure you also enclose some of those Starwood points.
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Tags: business travel, consulting lifestyle, investment banking, Investment Banking Bonus, investment banking sacrifice, understanding investment banking
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Excellent, as always! Management consulting is by far the dullest job I can imagine. (I’m not a banker, whatsoever)
Cheers
would agree…
it would be nice to have a comparison on the mba level where consultants are making a “living wage”.
Even at the MBA level, consultants don’t make too much – base salaries might be $100-$120K with small ($20-30K) bonuses. Associate bankers, by contrast, would probably be pulling at least $200-300K, and it only goes up from there.
but is it possible to start or have a relationship as a banker? it seems difficult but possible as a consultant since you should get most of your weekends, but as a banker, it seems like you get no weekends whatsoever. unless of course, you dip the pen in company ink–which seems like a bad idea in general, especially in an industry were you spend so much time with your coworkers.
It’s hard to start a relationship in either one. That’s one of the reasons I left.
Any one else feel like the guys in that video sound like total douche bags/ nerds ?
Yeah, but it’s still better than AJ from the Models and Bottles video…
For me they sound arrogants…
Like, they have to prove to themselver that they are betters…
That´s a sheet..
Nomatter where you are.. just do your job, try to learn, and spent your money….
The reasons to get a job is to live happy.. not to say to other that you´re the best…
I´m in a Investment Banking now… in Spain… and let me say, the people over here is preatty much arrogant and that makes me want to quit….
They fell like they are more important than other just becouse they are at M&A….
but gues what…
They are the same people as everybody else….
Keep in mind that it’s satire.
But yes, it’s true that no one in the real world cares that you’re in finance.
[...] & Inquisitions weighs in on the bankers vs. consultants debate. Now if you can just get an offer from [...]
How do you feel about BigLaw? Is that a viable option in this market?
BigLaw is getting hurt by the recession quite a bit as well. A friend of mine at MoFo (Morrison & Foerster) said there were a bunch of layoffs there recently.
As with consulting, it’s less affected by the economy than banking/finance is… but given that it takes 3 years of school to get into, it’s a less viable option for most people.
how would you compare the lifestyles, exit opps, and pay IN GENERAL of BBs in LA, SF, and in NY?
thanks
NY is generally best. For LA and SF lifestyle may be a bit better but you will be more limited to buy-side firms on the West Coast rather than NY + rest of country. Pay is about the same at major banks regardless of where you are, but obviously smaller regional places pay a lot less.
I think consulting at the big 3 (McK, BCG, Bain) may be tougher to get into just because there are fewer firms than there are bulge brack banks–well at least before the recent fallout. My sense is that they hire almost exclusively from Ivy League/target schools, so there seems to be some cache to spending some time at these big 3 firms. In that regard I think if you look at exit ops beyond LBO firms such as VC and Corp Dev/Strategy, while BB analyst might have a little extra coin in their pocket, your long-term earning potential is similar. (Who knows if you’ll even have extra coin in your pocket after “having to” spend on models & bottles to blow off steam after your 100 hour week.) So yes, I agree that investment banking may give you a better core financial modeling toolbox after doing time as an analyst, but it terms of looking at the wider range of opportunities, it seems consulting vs. banking is roughly similar.
True, although I do think the only thing that beats finance in terms of long-term earnings potential is entrepreneurship, but I would argue both consulting and banking are extremely poor preparation for that (having done all 3 in my life so far).
In any situation where you own substantial equity in a successful company, your earning power is greatest–that could be as an entrepreneur or as an investor. Those positions also carry the most risk, but also offer the potential for great reward. Acting as a 3rd party advisor (whether advisor or consultant) your earning power is going to be limited by the structure of your role since someone else is writing your paycheck. That said, I think it’s still possible to be entrepreurial within a field, i.e. opening your own firm.
Oh no need to remind me of that one. I’m well-acquainted with the Cash Flow Quadrant.
When you were a banker, could you handle the hours?
Is it tolerable for an average person?
I could handle the hours, but I frequently pulled all-nighters from middle school onward. I still only sleep an average of 2 hours a night.
The average person cannot handle it.
Are you an insomniac or something?
Yeah, pretty much.
So are there any healthy/ normal people in banking?
Not really, no. Maybe a few, but most of the bankers I came across have been deranged in some form or another.
If you’re being serious, this is quite sad. You should put up this warning somewhere on your site. LOL.
There already is a warning – see my Day in Life / Week in Life articles.
It seems to me like if you want to make a lot of money in this world, you have to be mentally ill in some way. Normal people wash out and go back to 9-5 normal people world.
Law seems to attract people with mood disorders, leading to high alcoholism (self-medication) rates. A hystrionic personality is an asset in a courtroom. (I thought it was totally appropriate that Tom Wilkinson’s character in “Michael Clayton” had bipolar disorder.)
Finance seems to attract people with narcissistic personalities. Think Bateman.
Software (which can be very lucrative for those who are sufficently ill) favors those who fall on the Asperger’s/autism gradient.
Our Maker, in his infinite wisdom, saw fit to give everyone equal ability. However the proportion of ability within each person is not the same, and those who are wunderkinder along some axis can make a lot of money if they nurture their malady. The tradeoff is a life of loneliness and alienation.
That’s kind of depressing. I do well while still having a life and great family/friends… internet business is the way to go.
Does the transition from a middle of the road consulting firm to PE or VC happen much? I am looking at some firms like Deloitte, IBM, and CRA and am wondering about the best way to get to PE is as the ibanking route isn’t possible for me.
See Dan’s response below – it seems unlikely. I would say b-school may be a better bet for you.
I’m at a 2nd tier consulting firm (i.e. booz, monitor, mercer) and I completely agree with this analysis. It was a terrible mistake to turn down my BB IBD offer for this job. We have crappy work life balance once you include travel (I can’t even join a gym in NYC because I have to travel so much), the pay sucks, and the worst part is that I don’t get the financial valuation skillset that all the PE and HF firms want.
If you have your mind set on consulting, go to a top tier firm (McK, BCG, Bain). Otherwise, it’s incredibly difficult to move onto a PE/HF firm and your only “good” option is to go to grad school.
Straight from the source, ladies and gentlemen…
i thought Booz was “top-tier.” are they not?
Usually McKinsey, Bain and BCG (MBB) are considered “top-tier.”
I am amazed you went as far as to break down the satire that is leveraged sellout. As alway, M&I, you always seems to amaze me.
How’s the entrepreneurship going? Glad to be out of the banking world pre-the near collapse?
Thanks.
Yeah, things are going well. Think my timing was definitely good, though I wasn’t planning to continue with banking anyway even back when things were good.
It’s definitely a different kind of stress – it’s less about getting 100 orders a second from an annoying VP and more about being self-motivated and getting stuff done with no external pressure. But I’m having a lot of fun so far, so we’ll see what happens.
Why do many students from target schools choose consulting? Going by this analysis, it seems that consulting has nearly the same hours as i-banking, but inferior pay and training.
Or is consulting seen as a pathway to something better, like the VC and Corporate Dev/Strategy positions analyst 3 mentioned, with few people sticking with a firm for long? Post MBA, I cannot understand why anyone would choose to work for ~$120k rather than ~$250k.
Is choosing consulting the result of misinformation/good recruiting, or am I missing a major aspect of consulting’s appeal?
Some would argue you that it gives you a broader set of options with fewer hours… although I don’t really think that’s true. A lot of liberal arts majors also think they can do consulting but not banking since it involves less math.
I’m a consultant for IBM and let me tell you…..the hours are ridiculously long (absolutely NO work/life balance) and the pay is garbage compared to comparable careers. Any time you have IBM wants to suck it up, including your weekends and nights. Don’t let them know you’re single and/or childless, they will work you like a Hebrew slave! I wish I had gone into banking! I’m 28 with NO personal life whatsoever…thanks IBM. I can’t wait to leave this hell hole!
And you’d have a personal life in banking?
I guess the pay is better…
IBM has opened my eyes to the fact that we’ve ALL been sold a dream when it comes to corporate America! I can’t live my life knowing some corporation owns me…if I’m going to bust my hump everyday, I want it to be for ME! I’m starting my own business and NEVER looking back! If you’ve read the first 10 pages of Rich Dad, Poor Dad…you know exactly what I mean.
I agree with you in principle, but keep in mind that starting a business is not for everyone. Yes, if you want to be financially free you have to be an investor or a business owner… but not everyone wants to take the risk, despite the rewards it can potentially bring.
when was this written?
oct 2008
what are you guys whining about? at least you’re not an auditor.. i work in a big four in south east asia and i could tell you that i do exactly the same hours with the salary only a fraction of what IB could offer.
..Actually, my last close encounter with an IB guy (an Indian from Citi Hong Kong) in a client’s right issue left me rather unimpressed.. My client is a bank and the Citi guy didn’t know shit about repurchase securities deal and kept on asking me about the presentation in the balance sheet and stuff. Is it normal for an IB not to know about this? judging he’s a CFA level II and all..
That sounds pretty odd but it’s not unexpected… ability/knowledge vary widely in some parts of the world.
So from what I can see, sales and trading is the best of both stereotypical worlds i.e. the great pay from IBD (okay, thats stereotypical for a reason) and a supposed work – life balance from consulting?
Sort of, although there are other downsides i.e. you don’t have as many exit opportunities.
I’m a 3rd year undergrad student at a decent business school in a state university in New England, and in the “what the fuck should I do with my life” mode. I looked into consulting, but after many people telling me just what this article says I don’t want it anymore. I know I could pull off investment banking, I don’t sleep, I’m into business, markets and analysis. Some of the people here seem pretty well versed, might as well throw out some things I’ve been thinking.
Should I go for an MBA right out of undergrad if i want to get into Ibanking? I’ve got a high GPA, and enough internship experience to get into (hopefully) some good programs. I’m already being awarded a scholarship to take the CFA level 1 from my school, is that enough?
Also I could take a 1 year full time MBA from my state school…its decent, not top 100.. But i could finish it in six months because I’m already so far ahead. I would use 2 years at a Stern or Columbia.. how important is an MBA from a high level school?
What kind of competition for jobs in the next 5 years do i face from all these laid off Ibankers recently.
I could go on all day but this is getting long, i need to meet with an analyst and pick their brain.
No, MBA right after undergrad is useless. The CFA is also similarly useless.
You need at least 3-5 years of solid work experience to get into finance from an MBA program… you’re competing with a lot of really accomplished people.
And yes, an MBA from a top school is really important, anything less than that is pointless because banks won’t recruit there
Damn…. there goes another profession I was aspiring to do go down toilet. I thought the travel involved in consulting was just exaggerated. But I was wrong. I heard from kevin that consultants at McKinsey travel 50-75% of their time. I’m sorry but I just can’t handle. My only other alternatives are PE and HF. How are the hours and travel like for each of those professions. I’m praying that at least these jobs don’t fuck up my life…
Let me just put it this way: if something pays you a lot of money, it’s either a. Very stressful / long hours b. Risky or c. Illegal
You don’t travel as much in the fields you mentioned, but you are never, ever going to have a “normal” life and 40 hour per week job in PE / HF… that’s just not how it works, at any level. While it’s better than banking, you will still be working more than the average person.
I am willing to work more than the average person. It’s just that I want to work less than an IB analyst does without travelling as much as a consultant. Somewhere in the region of 60-70 hours (maybe 80) would be ideal. Any jobs that meet these requirements?
Ok, maybe the ones you mentioned could work then.
I would suggest doing some more thinking about what you really want to do first, though.
Thanks for the reply. I’m planning on taking the CFA because I’m currently something of a “stock jock”. I invest/trade all the (little) money that I have while at school, follow the markets and am genuinely interested in the subject. At first I thought I wouldn’t go into investment banking because it is mainly grunt work not dealing with actual purchase of securities. I liked investment banking because the pay is fairly certain to be high as long as you land a job (and dont screw up). This is important.
I’m willing to work as many hours as it takes, but I would be more interested in equities. What kind of out of college finance jobs are available that have similar pay scales to IB? Isn’t trading infinitely harder to land a job in and also much more individual work, and solely performance based?
I know this isn’t the main focus of the site but you have been very helpful, and anything you can say will help. I’ve learned tons from this site, and will definitely send people here.
I would do trading instead, and yes it is more individual and performance-based
Banking is retarded. Not quantitative at all. Very little impact as a junior member. Life sucks.
If you have balls or like math be a trader.
If you like thinking be a consultant.
If you’ll work as hard as it takes to get the cash money banking is for you.
Simple.
It seems like the best bet is to work for a few years at a less stressful job out of undergrad that still makes you a good candidate for B-school, and then just go directly into a hedge fund if you can get in, and if not, then go into banking for a year, make a cool $2 or 300,000 your first year out (while working less hours then an IB analyst), and then try to get into a hedge fund. thoughts???
The problem is that it’s hard to get into a top business school with a stress-free job, and it’s almost impossible to get into a hedge fund with no finance experience.
Of course, there are always other options… but this site is strictly about finance.
Understood. I guess if you didn’t do finance but you want to get into a hedge fund then it’s best to try to got to business school and land an IB associate job for a year or two and see where it takes you. I’ve heard that associates typically have a marginally better lifestyle than analysts, and that those extra 10 or so hours per week are crucial to your sleep/health. Would you agree with this?
Sort of but not really. Yes it’s incrementally better but your life still pretty much sucks.
What do you think of the actuarial profession for work/life balance and compensation? Once you pass your exams, you’re sitting on a comfortable six figure salary while working 45-50 hrs/week max.
I’m curious as I am interested in investment banking, but I have some actuarial internships on the table already. Is it worth giving up these offers to try to recruit for an investment banking internship? I don’t think I’ll have another chance to see if I’d enjoy/could handle investment banking before I graduate.
Actuarial work is a little slow I think, but it’s not a bad option. I wouldn’t give up the offers unless you have to – the main advantage of banking is the long-term earnings potential is higher.
I received an offer to join the debt capital market team in a BB. The team works on asset-backed securities, convertibles, restructuring, etc.
And I have another offer to join an equity research team of a smaller firm.
I have two questions:
1. What are my exit opportunities if I join debt capital markets? Similar to M&A?
2. I have been told that equity research is more intellectually challenging, more fun and offers better exit opportunity. I am not sure. What do you think?
Not as good as M&A because you don’t work on actual M&A transactions, but you could still go to PE for example. I would definitely not take equity research over DCM – exit opportunities and pay are not better, and “intellectually challenging” is a joke in finance.
So in terms of banking vs consulting a lot can be said!
In my opinion operational consulting is much more tangible as you are the one continuously implementing and bringing changes. there is constant pressure to prove delivery and hence justify their investment in you.
Strategy consulting is different though!
In terms of money, well the base salary is similar as you mentioned before but its the bonus that makes the difference. What you are forgetting is the commission consultants get for bringing in more business, which i can assure you is a significant amount. Atleast 0.5% on lets say a 4 or 5 million (minimum) project! the question how many projects you can sell like that in a year! (any good consultant can sell 3 or 4 without much work).
Lastly in the work life balance argument, it can be just as bad but it depends on which phase of the project you are in. so once in a while you do get a month or two of 7 to 7’s or sometimes even less!
Right, but at the junior levels no one gets commissions… and the same can be said of banking.
Could you do a piece on the spectrum of jobs in IB, i.e.: Sponsors, M&A, Industry groups, generalists, LevFin, Cap Markets, S&T, etc.? A lot of us have to specify which we are interested in when applying for internships and FT. An insider’s perspective would be nice…
Will see what I can do – there is already an article on M&A here and Restructuring but working on more for next year.
I am beginning my job with RBC CM as an investment banking analyst in July upon graduating from business school. I was wondering what type of level of financial/valuation modelling skills would be assumed, if any, when first starting. Nothing was mentioned throughout the recruitment process about my ability to do modelling, however I know this is a crucial aspect of the career, and therefore am concerned that I will not know enough. Should i be concerned? Will I be trained upon arrival? Is there any other things that I can prepare to assure I will be the best that I can be? I appreciate any insight you can give me as I am still nervous even though I already landed the job!
I don’t know much about RBC but I would expect at least some training. Less than Goldman Sachs, for example, but more than small boutiques. You can consult with books, ask friends, or go through training programs like the ones offered on this site if you want to learn more.
I mp3ified that video, played it in my car,
while my consultant gf was sitting in the passenger’s seat
oh i forgot the word * accidentally *