Consulting vs Investment Banking

[TheWharfConsultant1]

Probably a topic that is discussed during every student party at business schools (and beyond). Both industries tend to fish from the same pond, so it is a valuable discussion to be had. With consulting, I mean not necessarily MBB only (McKinsey, BCG, Bain), but the upper tiers of management consulting. We might need to have another post on the tiers consulting firms are believed to be in.

Both industries look for sharp, analytical minds and usually have the same target universities. IB might not be that easy to get into if you are not quant-heavy or do not have a finance focus whereas consulting is open to pretty much any field of studies and diversity is actively encouraged. You will see this in the people you are working with: IB is quite focussed and with a high level of expertise in an area. Consulting unites people with lots of different backgrounds.

When it comes to career prospects, both industries operate on an up or out model and are fairly hierarchical. Whereas you progress alongside your cohort in IB, consulting offers you time to grow at somewhat different paces and even take time out – educational leave for an MBA is much less common in IB. Constant 360 degrees feedback in consulting is something you need to get used to whereas IB is more meritocratic, and decisions are number/data-based rather than on (loads of) personal feedback. On the other hand, consulting is growing faster than IB which means there are more opportunities for progression (BCG grew by 25% in 2021; slightly skewed comparison as the base year is 2020, but still impressive https://www.consultancy.uk/news/309...r-25-percent-growth-to-11-billion-in-revenues). The flipside is that profiles might not be as strong as before as consultancies need to add more people.

The good news for consulting is that there are more and more experienced hires, not only for specialist tracks, but also for strategy teams, so you can switch careers into consulting later if you want to.

Whereas you will gain deep expertise in IB, consulting will make you a generalist, seeing lots of different industries and functions, especially in the first couple of years before you specialise. Think about like a CFA vs an MBA.

Front-office pay in IB is better than in consulting, unless you make it to senior partner. Consulting can offer faster progress, though, and your bonus at later stages becomes less volatile as it depends more on personal/team performance than market conditions.

Both industries tend to have very long hours. In IB, it depends on where you work, e.g. trading has more regular hours compared to M&A where it gets particularly crazy if a deal is on (I had friends leaving dinner parties at 10pm on Saturdays after receiving THAT email). In consulting, travel (see below) helped a bit to get some downtime (plane nap, anyone?). Lockdown was crazy as juniors tended to work way past midnight five days a week (rather than the usual two). Nowadays, there is a lot of emphasis on finishing not too late, taking an evening out for sports, family etc., especially at the beginning of a project. It is recommended that one day a weekend is off as well. And it happens more and more often, maybe all that facetime is not necessary after all...
A bonus of consulting is that you can take longer (unpaid) periods off without a problem: you finish a project and start your next one two months later.

IB sees almost no travel bar the odd client meeting/workshop. Pre-Covid, consultants lived out of their suitcases: Monday to Thursdays on client site and Friday in the office for admin/training/networking. Great for your mileage accounts, but it can become tiring after a while, and is not very family friendly. A 4am start on a Monday to catch the 6:30 flight out of Heathrow is a sure way to ruin a Sunday. Obviously, there was a lot less travel (read none at all) during Covid and it has only partly bounced back a little, depending on what clients ask for. Consultancies sometimes co-locate case teams in their offices, even if they are not working on site. Choose your focus wisely and you may dramatically reduce (or increase) your travel, some of my colleagues in the CW office serving British banks did not board planes for months, but could walk to their meetings
Changing between consulting and IB after a couple of years is not that common as you develop different skill sets. If it happens, it is usually from IB to consulting as you can use your analytical skills in consulting rather than the project management and people skills from consulting in IB. Should you want to make the switch from consulting to IB, an MBA coupled with an IB internship or two is probably your best bet.

In general, consulting will give you better/more exit opportunities as you have gained broader experience and tend to interact more and over longer periods with clients. However, the big exceptions are PE and hedge funds which offer a lot higher salaries and bonusses than consultants moving into industry.

More and more, consulting firms are also offering expert tracks etc. where pay is pay (but also the hours and the pressure) is lower, but still very decent.

The current outlook for graduate hires in consulting is mixed, though. While most of MBB had a good Covid crisis, some of the smaller companies in London even furloughed some of their staff and then slowed down hiring. After business picked up (clients needing more advice on how to deal with the current situation), they did not have enough juniors, so hired a lot more in 2022, probably more than needed. If that means more “outs” for 2023 (and also saving on 15%+ salary increases) or less graduate hiring remains to be seen.

Long story short: there is no definitive answer, so it probably depends on personal preference which makes the discussion so interesting. What is your take on this?

 

[JustAnotherHuman1]

A comprehensive and realistic overview of the industry. Thanks for sharing this.

From what job title do firms sponsor MBAs? Does it cover the full cost? Is there any covenants built in that prohibits one from jumping ship once got the qualification?

I agree work in high finance generally has become less intense probably since around 2017 I think it was (or was it 2020?) when banks started taking work life balance more seriously with some specific programmes introduced for juniors (mandatory day off etc). The cataclysm was most probably the several tragic events that have happened due to the crazy work culture (Moritz Erhardt) and maybe a realisation that it is pointless as long as the work gets done (and to a high standard).

 

[TheWharfConsultant1]

A comprehensive and realistic overview of the industry. Thanks for sharing this.

From what job title do firms sponsor MBAs? Does it cover the full cost? Is there any covenants built in that prohibits one from jumping ship once got the qualification?

I agree work in high finance generally has become less intense probably since around 2017 I think it was (or was it 2020?) when banks started taking work life balance more seriously with some specific programmes introduced for juniors (mandatory day off etc). The cataclysm was most probably the several tragic events that have happened due to the crazy work culture (Moritz Erhardt) and maybe a realisation that it is pointless as long as the work gets done (and to a high standard).

At MBB, you usually get it an MBA sponsored in your third year after joining from university (assuming you did not take too many long breaks ) Full sponsorship depends on you agreeing to come back after it beforehand and quite often you stay an employee (with zero hours) during an MBA. The sponsorship is often pro-rated over three years.

If you are thinking about doing something else, do not worry: you can resign for the MBA and if you still decide to rejoin, there might be a signing bonus or an greement to take over some of your tuition - this tends to vary between companies and even offices.

 

[JustAnotherHuman1]

Cheers, what do you mean the “sponsorship is pro-rated for 3 years” though?

 

[TheWharfConsultant1]

Cheers, what do you mean the “sponsorship is pro-rated for 3 years” though?

The MBA sponsorship is streched over three years and each year a third of the fees is "paid off". Let's say the tution cost 60k and you decide to leave after two years, the company would have paid 40k, but you would still need to pay 20k

 

[redherring1]

A comprehensive and realistic overview of the industry. Thanks for sharing this.

From what job title do firms sponsor MBAs? Does it cover the full cost? Is there any covenants built in that prohibits one from jumping ship once got the qualification?

I agree work in high finance generally has become less intense probably since around 2017 I think it was (or was it 2020?) when banks started taking work life balance more seriously with some specific programmes introduced for juniors (mandatory day off etc). The cataclysm was most probably the several tragic events that have happened due to the crazy work culture (Moritz Erhardt) and maybe a realisation that it is pointless as long as the work gets done (and to a high standard).

This is 100% accurate. I remember some of the unfortunate events from 2010s. Especially early, mid 2010s were dark days for junior bankers employed in high finance jobs. Work culture is a lot more balanced nowadays with collaboration, reasonable deadlines and checks in place for extreme cases (Such as working 3 nights in a row, never taking weekend breaks etc).

 

[JustAnotherHuman1]

This is 100% accurate. I remember some of the unfortunate events from 2010s. Especially early, mid 2010s were dark days for junior bankers employed in high finance jobs. Work culture is a lot more balanced nowadays with collaboration, reasonable deadlines and checks in place for extreme cases (Such as working 3 nights in a row, never taking weekend breaks etc).

Do you reckon it’s events as such that caused the change across the industry or did shareholders and senior management suddenly simply got a warmer heart? I’m not too sure but maybe even woke culture has something to do with it (started around the same decade)?

 

[redherring1]

Do you reckon it’s events as such that caused the change across the industry or did shareholders and senior management suddenly simply got a warmer heart? I’m not too sure but maybe even woke culture has something to do with it (started around the same decade)?

I think a little bit of both. Not necessarily warm heart but cultural events probably forced shareholders to reconsider the old and flawed banking culture a bit. I hear much more positive stories from junior bankers nowadays compared to 7, 8 years ago.

Possibly, it also got harder to attract top talent for big banks. Remote work opportunities, pandemic and growth of tech and AI and other new trends have provided desirable talent with other attractive options. Banks' struggle to attract talent will continue in the future. Almost every big bank HR department is scratching their heads about it and it won't be as simple as increasing remuneration.

 

[TheWharfConsultant1]

Do you reckon it’s events as such that caused the change across the industry or did shareholders and senior management suddenly simply got a warmer heart? I’m not too sure but maybe even woke culture has something to do with it (started around the same decade)?

Probably also a limited supply (graduates) meeting an increasing demand - tech started recruiting (heavily) from business schools and consulting expanding, so finance had to adapt or risk being priced out of the market (i.e. other industries offering better working conditions)

 

[magellan1]

Great summary. I would add a few points. It is true that investment banks prefer people with a quant/finance background but I have met several people who studied non-finance-related subjects like Music or Literature at top universities such as Oxford or Harvard. Banks know that such people lack domain expertise but are very smart and can obtain the knowledge/skills needed for their work fast.
Perhaps, I am a bit biased since I come from the IB side but I don't believe that one can become extremely successful as a generalist. There are thousands if not millions of generalists which makes such people easily replaceable. If you look at the most successful people in the world, many of them are extremely good experts in a specific field ( Warren Buffett, Bill Gates, Elon Musk, etc.).
Personally, I am not a fan of consulting because a lot because there are a lot of presentations, recommendations and talks with little real work. The idea of a 25-year-old person consultant telling a 55-year-old executive with 30 years of experience in an industry what to do seems ridiculous to me.
I know dozens if not hundreds of people working on both sides (IB and Consulting). The two sectors attract very different types of people. When I was at uni it was relatively easy for me to get interviews/internships/jobs at investment banks but not so much in consulting (not a good personal fit).
On one side, consultants are smooth talkers that present themselves as bigger than they are. Consultants can easily fool you and make you believe that they are nice or important people. On the other side, bankers are very competitive, harsh and somewhat difficult people but they get real work done and can help you make money.

 

[TheWharfConsultant1]

Not to defend consulting (it is a personal choice after all), but I wanted to shed some more light on the industry. Companies will engage management consultants for a number of reasons, usually because of:

• Capacity – something like a strategy study needs to be done quickly, but your team is busy for the foreseeable future; you will be surprised how much time executives are spending to run their company (“keeping the lights on”) and how little on the future of it

• Knowledge/focus - the consultants are specialised in an area that you are not; this might well be – this might indeed mean that a “25-year-old person consultant telling a 55-year-old executive”

• Team composition – I have heard it a couple of times: some companies admit that they are not able to high-calibre talent, e.g. because they are based in a low-cost location, so it is easier to hire consultants than graduates from top universities

• Cost – yes, consultants are charging (sometimes ridiculous) money, but you only pay for the work that you want and can part ways with them whenever you want

• View from the outside – it often helps to have a (qualified and experienced) outsider review what you are doing to avoid tunnel vision and to break up structures (“we have always done it this way”)

• Neutral view – an independent observer might take a more neutral stance than someone internal with a vested interested, e.g. expanding production on site A rather than B will entail different views in A and in B

• Internal politics – if you need to implement a difficult decision, it might help if you can sell it as the recommendation of well-respected, neutral consultancy X rather than your own

All this means that you need to have certain communication skills to be successful which can come across as overly slick. It does not help that you are supposed to have an opinion on everything at once (something that puts me off consulting a lot, saying “I don’t know – let me come back on this” is frowned upon). As for the money-making part: cause and effect in finance/IB are probably easier to calculate – buy X and it will go up (or down), but I agree that there is quite a bit of hot air in consulting. Not that IB is completely free of it, though As a graduate you can expect to see a fair share of work on powerpoint in both industries...