Given my experience working in consulting and investment banking* (3 years in each field), the most-asked questions I receive are, “What are the differences? Which do you prefer?” Standing on the verge of Hell Week, I was recently asked the same questions from some of my section mates.
Here are my thoughts.
The biggest common factor is the existence of a “teamwork culture”. At both consulting firms and investment banks, everything is a team effort. Teams usually consist of four to six people. For instance, at a consulting firm, a team may consist of a managing director, a project leader, a consultant, and 2-3 associates. Since the team members share good and bad times during the project, it is quite important each team member has good interpersonal and teamwork skills. When I interviewed candidates, I was always asking myself “do I want to work with this person for 20 hours a day?”
“Up or out” is also an important common factor. Consultants and investment bankers are required to dash up their career steps and can’t stay at a step longer than a specified period of time. Usually they need to be promoted to the next step within 2 to 3 years (UP), and if they cannot do so, they have to leave the company (OUT).
Another common factor is “top management issue focus”. Both consulting firms and investment banks always deal with CEO agendas, and the team frequently interacts with the client company’s executives. In a meeting, even if you are a junior analyst, the executives ask you “what should we do?” with the expectation that you will answer. Inevitably, consultants and investment bankers have to hone their general management and decision-making skills. This is why these jobs attract many MBA students.
The biggest difference is the acquirable skills gained through the two jobs. If you spend your career as an investment banker, your core skill would be hard skills – financial modeling, due diligence, accounting and corporate law. On the other hand, if you work for a consulting firm, you would acquire soft skills – strategic planning, project management, and critical thinking. The important thing to note is that these skills are all essential for business management, and they complement each other.
From a business perspective, there are many differences. While investment banks usually work on a success-fee basis (plus a retainer fee); consulting firms work on a monthly fee. Junior investment bankers work on multiple projects (2-5) simultaneously, but junior consultants usually focus on 1 or 2 projects. Deal origination and execution are different careers at an investment bank, but consultants work on both types of projects. And so on.
Other frequently asked comparisons are as follows:
To get a clearer picture, you may want to view this classic video.
Personally I prefer consulting.
*: Here, investment banking refers to so called Investment Banking Divisions, which provide M&A advisory and financing services to corporate clients. Other divisions, such as Capital Markets, Equity Research, and Asset Management, are not included.