Difference Between Investment Banking and Investment Management

Edited by Diffzy | Updated on: July 19, 2022

       

Difference Between Investment Banking and Investment Management Difference Between Investment Banking and Investment Management

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Introduction

Once acquiring their master's or Degree, many students pursue careers in investment banking and investment management. Today, there are a lot of opportunities in both investment management and investment banking. Both are critical in the development of a firm. This leads to overall economic growth and an increase in per capita income. Therefore, investment banking and management are two of the most sought-after occupations for undergraduates in business and finance, guaranteeing a high-profile career with excellent benefits and incentives. However, making an educated decision would be impossible without first understanding what each of them stands for and the specifics of what they have to offer as a job.

Investment bankers assist corporations with their corporate finance needs, such as obtaining cash or capital. Corporations and governments use investment bankers to help with mergers and acquisitions, initial public offerings (IPOs), and new debt issuances such as bond offerings.

Investment Banking vs. Investment Management

Investment banks and investment management organizations play essential roles in the financial sector. Their efforts may have an influence that extends well beyond the financial industry. However, the distinctions between investment banking and investment management may appear obscure or confounding, especially for people new to finance. The significant differences between investment banking and investment management will be discussed in this essay. Before actually digging into the distinctions between investment banking and investment management, it's vital to understand how the financial playing field is set up. Firms are typically divided into two "sides" — the buy-side and the sell-side.

Difference Between Investment Banking vs. Investment Management in Tabular Form

Table: Investment Banking vs. Investment Management
Parameters Of Comparison
Investment Banking
Investment Management
Key Element
Assist and advise their clients in raising finance.
Assist and guide their consumers in money management.
Essential Abilities
Should have a high eye for detail, excellent ability skills, and solid strategic skills.
Should be able to operate in a fast-paced atmosphere and have knowledge of financial strategy.
Primarily Adopted By
Ordinary folks
People with a significant net worth.
Different Name
They are also known as dealmakers.
They are sometimes referred to as wealth management.
Occupation Entails
Provide tactics, mathematical ability, first public offering, and so forth.
Equity research, financial analysis, and so forth.
Workload
Investment bankers like to joke about having a good "work-life" balance.
Investment managers' workloads differ.
Job Career
 
Investment banking is considered not.
Investment management is regarded as a more blissful job path.
Primary Function
Investment banking is to raising a customer's funds.
An investment manager is responsible for advising his client on how to handle their money.

What Is  Investment Banking?

Investment banks are financial organizations that assist firms issue stock and debt securities through IPOs or FPOs, facilitate mergers and acquisitions (M & M&As) on both the buy-side and sell-side of the transaction, and perform various other activities. In brief, when a business needs funding, it seeks the assistance of investment bankers to execute these large deals efficiently. It is a highly competitive sector with some of the top benefits in the industry. Investment bankers assist corporations with their corporate finance needs, such as obtaining cash or capital.

 Corporations and organizations use investment bankers to help them with complex financial transactions such as:

  • Bond issuance is a type of debt issue.
  • New securities underwrite mergers and acquisitions.
  • Initial public offerings (IPOs) (IPOs)

Investment banking consists of a person who assists customers in raising funds at current market rates. They are commonly referred to as dealmakers. An investment banker's job is to assist clients in making high-level profits and provide them with strategies for acquiring capital, leading to increased corporate profitability. Investment banking includes activities such as equities research, security research, purchasing and selling, and keeping their respective recommendations. Typically, every investment banker begins their work as a financial analyst.

Skills Required For Investment Banking

To thrive in this area, an individual should ideally have expert finance knowledge, strong business skills, and networking talents. However, because most finance-related certificates do not emphasize networking, MBAs are inherently the most excellent match for an investment banking career, given the networking possibilities. Undergraduates in financial and investment-related fields may be more relevant to this sector, but those from other disciplines might still be considered if they possess the needed skill set. Investment banking internships are typically far more competitive than entry-level opportunities in pure finance. However, most investment bankers begin as analysts and investment banking associates before progressing to Vice President, Director, and Managing Director.

Some of the significant talents required are:

  • Excellent analytical skills
  • Excellent analytical skills 
  • A keen sense of detail
  • Advanced mathematical abilities and technical expertise
  • Customer handling and negotiating talents that are second to none
  • Financial Analysis, Spreadsheet
  • Appraisals, presentations, and much more

Importance Of Investment Banking

  1. They are among the highest-paid professionals involved in negotiating complicated business transactions. As a result, investment banking has a specific glamor factor as a high-profile and exciting career option.
  2. They are paid well for entry-level associate or analyst roles with prominent market participants, and there are plenty of opportunities for advancement. For example, they can advance to the position of Vice President or Managing Director with a few years of hard effort.
  3. They are meant to be out there developing strong client connections, assisting in developing consensus between parties in any significant business agreements, and putting their negotiation abilities to use whenever necessary. Of course, there are enough incentives and bonuses to make all of the effort worthwhile.

Limitations Of Investment Banking

  1. It is a highly competitive sector with a more excellent risk-reward ratio than most other financial occupations. The benefits are undeniably appealing, but brokering significant business transactions is a complex undertaking that few may be capable of.
  2. Newcomers to the industry may cope well with the pressure. Still, after a few years, the exceptional job strain may harm an individual's physical and emotional well-being.
  3. Although significant firms continue to seek qualified experts, investment banking has seen a slump in the post-credit crisis era. However, a considerable market downturn might exacerbate their situation.

What Is Investment Management?

Investment management businesses, as opposed to investment banks, operate on the buy-side. In layman's terms, an investment management business invests their clients' funds to generate returns on investment. Anyone might find it challenging to select the most significant assets. Potential investments include everything from fast-growing equities and slow-growing bonds to more risky assets like real estate. As a result, many investors and businesses use investment management services to design a portfolio suited to their investment objectives and risk tolerance. A client's money is invested in numerous asset classes throughout time and managed with a specific plan, thus the term investment management. Clients are drawn to investment managers because of their knowledge and access to investment possibilities. Some investment management organizations,

For example, offer customers direct access to financial instruments such as funds.

Depending on the business, investment managers may have a variety of tasks and duties, which may include:

  • Company's financial examination
  • Asset management, such as a correct bond-to-stock ratio
  • Equity analysis and buy/sell advice
  • Financial planning and guidance

The primary function of an investment manager is to assist their customers in managing their money so that the client may benefit. They advise individuals on where to invest and how to invest, allowing customers to reach their business objectives. People who interpret information from an investment manager are more likely to be persons with a high net worth. A person operating as an investment manager must have specific abilities, such as an absolute and complete understanding of investment products. They should be math experts who can turn complicated lines into simple solutions for their clients. An investment manager contributes to long-term financial goals.

Types Of Investment Management

The very first stage for every investment manager is to determine the client's financial goals and risk tolerance. They can then build an investment portfolio to the client's needs. A strategy is nothing more than a collection of assets. The construction of a portfolio (which assets are invested in and how much is invested) changes based on the customer and market conditions. Asset management and financial advisory are the two basic categories of investment management. While they are similar, their goals are not.

Among many other things, asset managers assist with an investment portfolio, which entails assessing how investments should be dispersed across various asset types. Stocks, bonds, funds, and alternative assets are examples of potential investments. Multiple customers may pay asset managers, including insurance firms, pension funds, and high-net-worth individuals. As opposed to asset management, wealth management considers the big picture for a customer. This may involve developing a portfolio that considers aspects such as insurance, pension plans, and tax planning. High-net-worth people or those seeking financial advice are typical clientele.

Importance Of Investment Management

  1. Although not typically regarded as a very appealing professional path, this has changed in recent years, as detailed.
  2. As against investment banking
  3. , asset management is seen as a safer alternative because it is needed to manage money on behalf of individuals and institutions. Furthermore, because their compensation is dependent on the number of funds with which they operate, there is a higher degree of security and a lower level of risk.
  4. When compared to investment banking specialists, work hours are significantly shorter. As a result, one of the benefits of working in asset management is that it makes it simpler to live a balanced life.

Limitations Of Investment Banking

  1. Despite being a generally safe job path, professional qualifications can help career advancement these days. However, the majority of these certificates are extensive and will need much research on your side. As a result, not everyone may be able to get these professional credentials.
  2. It has become a more sophisticated industry in recent years. An asset management professional is expected to have advanced mathematical abilities and technical competence rather than a general understanding of financial products.
  3. Investing strategies It may be tough to advance as a professional if you are not technically adept.

Main Differences Between  Investment Banking and Investment Management in Points

  • Investment banking is how a customer receives expert assistance in guiding a firm to generate cash and satisfy its financial needs. In contrast, investment management is where clowns obtain specialist advice on investing and managing their money.
  • Investment management is a service that is often provided to those with high net worth. However, investment banking can provide services to the general public as well.
  • Investment banking requires a keen eye, exceptional ability, and strategic thinking. In contrast, a solid understanding of mathematics and outside market rates and the ability to develop simple solutions are essential for investment management.
  • The main function of investment banking is to raise a customer's funds, whereas an investment manager is responsible for advising his client on how to handle their money.
  • Investment management is regarded as a more blissful job path, but investment banking is not.
  • Investment banking positions have a relatively negative image in balancing work and personal life, and investment management is a more delightful career option in this regard. Nevertheless, prospects continue to grow, although most key employment categories have more or less balanced work hours.
  • Investment banking and investment management positions provide competitive pay and benefits. For example, the lowest-level investment banking analyst may anticipate a first-year salary of $65,000 to $95,000 plus a sizable signing bonus even at a smaller company. At the same time, the average starting salary for investment managers is $95,829, with incomes as high as $180,000.
  • Investment managers' workloads differ. Investment bankers like to joke about having a good "work-life" balance.

Conclusion

Despite their stated advantages and disadvantages, you may find making that all-important professional decision challenging. However, a quick examination of these areas indicates that investment banking is intended for dynamic and fast-paced individuals who are great at not only figure crunching but also creating and nurturing significant client relationships. It is more of a function that requires you to go above and beyond to get it done, and it certainly pays off if you end up on the right side.

Individuals with great interest and talent for money but a reserved demeanor may find asset management to be a better fit. Developing and implementing short and long-term investment strategies to meet the financial goals of affluent customers may not be everyone's cup of tea, but it doesn't sound horrible. Although some perceive it to be a more pleasant option than investment banking, this is more of a personal preference than a truth. Of course, it provides a better work-life balance with equal career opportunities and perks, but that isn't the only thing to look for in a job.

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"Difference Between Investment Banking and Investment Management." Diffzy.com, 2022. Tue. 06 Dec. 2022. <https://www.diffzy.com/article/difference-between-investment-banking-and-investment-management-268>.



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