Should I do asset management or investment banking?

Asset management and investment banking are often used in the same breath but they shouldn't be, as each has major distinctions that separate two of the biggest financial management models on Wall Street.

The fact is, asset management and investment banking do have significant differences, and investors who accumulate a load of cash and who want top-notch financial advice should know the difference.

That said, it's understandable that Main Street investors would bundle investment banking and asset management together. After all, if you're investing with a bank that also manages assets, then you're leveraging an investment banker, right?

Not exactly. Any attempt to clarify the differences between asset management and investment banking should start with an explanation of what both financial services are -- and what they are not.

Let's do exactly that with this deep dive on asset management and investment banking.

What Is an Investment Bank?

In a word, an investment bank is a financial services company that engages in more high-level, high-complexity financial activities. These activities include underwriting new stock issues, being the middleman between publicly-traded companies and the investing public, advising larger institutional clients on investment options, and helping companies steer mergers and acquisitions from concept to reality.

The list of high-profile investment banks is familiar to anyone who follows the financial markets. Goldman Sachs (GS) - Get Free Report , JP Morgan Chase (JPM) - Get Free Report , Citigroup (C) - Get Free Report , and Bank of America (BAC) - Get Free Report are emblematic of the gold-standard of U.S.-based investment banks.

Often, investment banks will provide services geared towards larger financial clients, but still offer Main Street investors retail financial services like banking and investing advice on the side. Barclays (BCS) - Get Free Report and Royal Bank of Scotland (RBS) - Get Free Report are good examples of the "hybrid" investment banking model.

Here's how investment bankers like the big boys listed above earn their ample fees.

Through Merger & Acquisition Help

Investment bankers can earn a big slice of a mega-million (or mega-billion) corporate merger or acquisition by navigating clients through the regulatory, financial and legal maze that comes with company mergers and acquisitions.

By Helping Raise Cash via Equity or Debt Offerings

Investment bankers also help companies raise much-needed money for acquisitions, infrastructure projects, research and development, hiring, and other high-level corporate investments.

They do so via debt offerings (like selling bonds on fixed-income markets) and equity (by raising money of selling shares of company stocks in the financial markets.) They sell investment vehicles in the primary markets, where debt and equity are offered by a company for the first time, or through the secondary market, where the same debt or equity is sold following the initial "new issue" phase.

Through Brokerage Services 

Investment bankers also often serve as middlemen between buyer and sellers of stocks, bonds and other investment vehicles.

Investment banking firms usually reside on the "sell side" of Wall Street, as they sell investment vehicles on behalf of institutional clients. Asset managers reside on the "buy side" of the financial markets as they purchase investment vehicles from or through investment bankers.

What Do Asset Managers Do?

Asset managers have one primary job -- make their client's more money by investing it in the best investments possible, given the client's unique financial needs, their risk tolerance, and short- and long-term financial goals.

They usually do so via the management of so-called pooled assets in investment funds, which are designed to meet specific investment needs, like asset accumulation (i.e., in stocks funds) or capital preservation (i.e., in bond funds), among other general investment needs.

Asset managers can also invest client's money in diversified ways, like with stocks, bonds, real estate, commodities, and even complex (and risky) derivative instruments.

Since asset managers are purchasing investment vehicles on behalf of clients, they are deemed to be on the "buy side" of the financial markets. Mostly, asset managers work with wealthy clients, like high-net-worth individuals, companies, non-profits, foundations, and other high-end institutional clients.

Skill-wise, asset managers bring a specific set of tools to the investment management table, including:

Analytics

Asset managers should possess strong data analysis skills as they dig deep to find stocks, bonds, funds, and other investments that have strong earnings potential but are trading at good value for clients.

They Are Strong Traders

Asset managers not only identify good investments they also need to know when to strike, and buy those investments at the best price. That means asset managers must have good decision-making skills and have good contacts within the industry they're tracking, to get a better feel for asset pricing and trading.

They Can Communicate With Investment Bankers and Their Clients

Investment bankers usually have a deeper base of knowledge about complex financial markets and asset managers need to be able to engage with investment banks at a high level.

Conversely, asset managers also must explain sophisticated investment opportunities to clients who may not have as much knowledge about the markets. Thus, good "two-way" communication skills are a must for asset managers.

Career Outlook for Investment Bankers and Asset Managers

Both investment banking and asset management offer good career choices for finance-minded professionals.

More than likely, the best jobs will go to candidates with financial services experience and college graduates with finance, business and, increasingly, technology degrees. The best jobs often go to graduate students who earn an MBA at a high-level (often an Ivy League or similarly esteemed) university.

That said, many of the best investment bankers and asset managers in history have brought more street credibility to the finance sector than they have academic pedigrees. Good trading, analysis, money management, and investment sales skills, no matter how you get them, will earn the attention of most Wall Street hiring managers.

Many investment bankers and asset managers get their start at Wall Street firms who hire them directly out of college and put them to work as interns first, and as hard-working hires once they've proven they have the potential to work either on the buy-side or sell-side money management sectors.

The skill sets that make or break a good investment banker and asset manager rarely change, although the "fintech" merger between finance and technology has put a special emphasis on training in artificial intelligence, robotics, data analysis, and trading algorithms in recent years.

Traditional skills like good number-crunching capabilities, investment analysis and money management will also always help a disciplined financial professional to rise up the ladder at an investment banking firm or asset management firm.

As for a specific job outlook in both sectors, the U.S. Department of Labor estimates a 12% industry growth rate up until 2024. Jobs will especially be abundant in fintech positions, data analysis posts, foreign currency management, and in direct money management.

What Do Investment Bankers and Asset Managers Earn in Salary?

Salaries continue to be strong even as automation takes a firmer grip on Wall Street jobs.

For Investment Bankers 

The average salary for an investment banking professionals overall stands at $89,041 annually, according to Glassdoor. Average pay is higher for investment banking analysts (at $95,000 per year) and for traditional investment bankers (at $83,000.)

On the lower end, financial analysts only average $67,000 annually while traditional finance professionals earn $68,000 annually, according to Glassdoor.

For Asset Managers 

In general, asset managers start out at $55,000 annually right out of college, plus a percentage of any funds they happen to manage.

According to Glassdoor, the average salary overall for asset managers stands at $85,189, with portfolio managers faring the best income-wise, earning an average of $106,000.

On the lower end of the salary rung are portfolio analysts (at $73,000 a year) and general asset managers (at $71,000 a year.)

It's well worth noting that if either an investment banker or asset manager make up it up the corporate ladder as a C-level, salaries levels rise exponentially. It's common for executives in both occupations to earn $500,000 or more annually at the executive level.

Chief Pros and Cons of an Investment Banking Career

As with any occupation, there are upsides and downsides in forging a career in investment banking.

Pro: Income

The income earned as an investment banker can be huge. On top of a fat salary comes the opportunity to earn year-end bonuses that in some cases are higher than your average salary.

Con: Long Hours

The hours are long and the work is arduous when you first start out. Eighty-hour weeks with plenty of weekend hours logged on the job are commonplace with fresh-out-of-college investment bankers.

Chief Pros and Cons of an Asset Manager Career

The same goes for asset managers - the job comes with its own set of "pros and cons."

Pro: Income

Like investment banking, the money is great. Whether you're a fund manager, a data analyst or other asset management professional, the financial opportunities are tremendous right now on Wall Street.

Con: Automation

Yes, the hours are long and the pressure to produce big investment performance numbers is significant. But the largest con is still in the development stage and that's the threat of artificial intelligence and robotics to curb or even eliminate opportunities in the money management market. Automation has already killed jobs in multiple industries (like manufacturing and retail). Wall Street could be next.

The Takeaway on Investment Banking and Asset Management

As the underlying structure of finance continues to change in favor of technologies like artificial intelligence, quantitative finance, data analysis, and robotics, among other emerging trends, the investment banking and asset management professions are changing, as well.

Yes, human capital still is highly valued on Wall Street, but down the road, it's the money managers, brokers, traders, analysts and fintech specialists who'll have the best crack at big finance industry salaries.

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