Finance vs. Management Consulting #Finance

in today’s CashNews.co we are going to contrast the decision to start a career in Finance and to start one in management consulting i would say this represents

a very common kind of decision point that a lot of ambitious business students have to make including myself i think both of these career paths are excellent and there’s a reason why so many people compete to get into color: #1a73e8; text-decoration: none;">Finance and to get into consulting they’re both high paying career paths where most of the employers are well respected global firms additionally you have a lot of exit options when you go into

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance or consulting you can exit to a wide range of things despite being on the investment club and interning and none;">Finance a part of me wondered whether it was still better to start my career in consulting so today we’re going to talk about some of the pros and cons of the career paths and how you can think about making the decision for yourself so let’s speak in broad strokes

about careers in Finance and in consulting in none;">Finance most of the time you are either advising on transactions or you’re investing in companies this represents the sell side and the buy side Investment Banking for example that’s you giving advice on these large complex financial transactions on

the sell side Equity research would also fall into this category and buy side would be things like private Equity and Hedge Funds i think generally speaking you tend to make more money in

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance as opposed to consulting and you also tend to work more hours in terms of why you make more money i think it’s part of the business model especially on the investing side if you’re deploying large

amounts of Capital then you just have the opportunity to generate even more returns while consultants earn fees which is based on projects and projects have a more kind of labor intensive orientation to them now Investment Banking of course is also like this where

you get paid fees based off of deals or projects that you do however in banking it’s still quite common to earn a percentage of the total transaction value which aligns the economic incentives between the clients and the bank and i’m gonna do a gross simplification here but i would say

that Finance tends to attract very intense and highly motivated people that tend to have a strong affinity for numbers or the Stock Market i would say that

most people that end up in Finance already have had a laser focus on the industry for quite a while and they followed it for a number of years it’s harder to like

stumble into Finance or banking as opposed to consulting where you can just be a very smart person and kind of recruit for it last minute in consulting you’ll be hired

by companies for a wide variety of projects this could be something like restructuring in which you have to reorganize a company something like market research very common for private Equity firms to hire consultants and they’ll work together to understand an industry better

integrations between companies are also common implementing new project or infrastructure into a company is common there truly is a wide range of projects and i think that’s why consulting is so attractive as an initial career as a junior consultant i think you’ll be exposed to probably

more Industries than in Finance and you’ll also be

exposed to a wider range of projects and tasks i do think there’s a lot of overlap between say banking and consulting work at its fundamental level a lot of it is dealing with excel building models whether it’s financial or market models you’ll also spend a lot of time building

presentations in powerpoint and working closely with a vp or an md on your team one of the main characteristics of consulting is that there’s weekly traveling in covetous side this means that you’re generally spending between monday and thursday on the client site that means you have to

travel either sunday night or monday morning and you’re dedicating a lot of your time pretty much the majority of your life into being in a different city on the plus side this means you can travel the world you can go to a bunch of different cities that other people would not ordinarily go

to and on the con side you know there’s quite a bit of travel it can be exhausting over time and i would say from my experience in business travel you don’t always get to appreciate and understand a city if you’re just there kind of working but some people do really like this

aspect of their job and really enjoy traveling and the benefits that come with it for my observation it seems a lot of generalists are attracted to consultants you also tend to get a lot of engineers and people who don’t have a strict business background because a lot of the times you just

need a very capable problem solver and i would say there’s less of kind of an initial technical understanding you need to know compared to Finance now if you were to

compare banking consulting head-to-head in terms of starting pay ib i think you’re going to make more in your first year if you’re at a top firm i think you’re making between 125 160 000 while in consulting i think the number is closer to 80 to 110 you’re still making quite

a bit in consulting but it’s not quite as much as in banking in terms of hours i would personally say that in banking over the course of two years you’re probably working between 65 and 85 hours per week i do think this varies depending on your deal and kind of the culture at your firm

but i would say that most people work between this band for consulting i think the range is a lot closer to 45 to 65 hours i think it can still also be pretty bad and extreme if you’re on a short sprint things like a private Equity due diligence are notoriously bad but i

think most people’s hours are going to be within this range and it might not seem like a lot but i do think that that difference between 45 and 55 or 65 is enormous every incremental hour after 50 or 60 hours hurts kind of on an exponential level because it starts cutting directly into your

sleep and any kind of semblance of leisure time so if you’re someone with diverse interests or you want to spend a lot of your time on another project or exploring other skills i would say consulting is probably going to give you more time at the beginning of your career this of course is

excluding travel there is a trade-off if you’re kind of out of the city you want to be between monday and thursday you might not have the same kind of extracurricular options so let’s double click on how that salary grows over time now the typical path and

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance is you’ll do two years in banking and then two in private Equity or hedge fund or some kind of buy-side roll and this is what we’ve modeled for the

graph right here so in banking you might start making 145 then 160 but when you leave to private Equity when you leave to a hedge fund you could easily be making 275 300 000 just three years at a school and right now i would say the street compensation at a top fund four years out

of school is about 325 to 350 000 now consulting is also quite a lot i think initially you’re making between 95 and maybe 115 000 in your first two years and by your fourth year i think you’re making around the 200 000 range so there is still a large upward trajectory by that fourth

year after you’ve kind of got a promotion you will be making a lot more money and making 200 thousand dollars four years out of school is also remarkable so next i want to talk about optionality and banking i think is very good at leaving its doors open but it’s hard to argue that

it’s better than consulting in banking all your options are still primarily going to be Finance focused it’s no surprise because the work you’re doing is so

specialized and you’re very deep in one segment of the economy i think most people probably like two-thirds of people end up in some kind of buy-side role that would typically be private Equity Hedge Funds or venture Capital i think a lot of

people in banking will end up getting their mba kind of as a pit stop so they can ultimately go back into a buy side role you also have people going into corporate but that tends to be corp dev roles meaning doing corporate color: #1a73e8; text-decoration: none;">Finance at a company and there are people who switch into tech but from my observation that tends to be more in Finance

roles it’s definitely possible to go to a tech firm in a strategy role but i do think most people will look at you as the person who knows Finance for consultants i

think the world is kind of your oyster i think a lot of people and in my perception the most popular option is that people will get their mbas a lot of consultants will also end up in corporate roles and i’ve seen it span a very wide range of functions you could be a chief of staff you could

do directly operations or strategy i think if you want to go corporate you’re much less limited coming from a consulting background in terms of the kind of companies i don’t think you can easily distill it i’ve definitely seen people go to startups as well as to really establish

fortune 500 companies i’ve seen lots of consultants also take product manager roles at tech firms which is a very popular and lucrative option as well the more money oriented consultants will often end up in #1a73e8; text-decoration: none;">Finance and lots of private Equity firms will directly hire at a consulting and lots of consultants will also end up in entrepreneurship and i’ve kind of just listed almost every career option that exists to a business student

which i think shows you how versatile consulting is you also have lots of people who stay in consulting the only people i know who are at their original jobs my year in school which means like six years out of school are at their original consulting firm pretty much everyone else i know in

Finance or in marketing or Accounting they’ve already hopped around a couple of times so clearly these consulting firms are doing something right there

is one more insight i want to share with you and that’s this idea of expected value when i did the exercise of trying to determine the consulting target schools i noticed that some schools are significantly better at color: #1a73e8; text-decoration: none;">Finance or consulting recruiting and if you’re a student in university this should be of a high concern to you for example my alma mater iv i think is much better at placing at the

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance specifically if you want to go to new york or san francisco and frankly i think it’s just a lot harder to break into a top consulting firm this is definitely not true at every school but if you go to

somewhere like nyu or to boston college you’re probably gonna have a lot better luck just gunning for Finance now one feature of investment banks is that they give lots

more internships as opposed to consulting firms a lot of these consulting firms won’t hire as many summer interns i think they might hire maybe half of what they expect to get for their full-time class but the internship program is very important for investment banks and i think one takeaway

from this is that if you really just want a quote unquote good job at a school there is merit to just going for an Investment Banking internship for the summer and then deciding afterwards what you really want to do so here’s my rough recommendation and i would say if

you’re still indecisive don’t expect yourself to have necessarily the perfect answer lots of people don’t get it right for several years and it’s okay if you don’t know immediately out of school so i would say you should go into

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance if you’re trying to maximize your earnings if you don’t mind working hard or if you like working hard and if you kind of like

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance i think you should at least kind of like Finance or

not hate Finance if you’ve read a couple of investing books and it doesn’t make your stomach turn then you probably like

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance enough and i think you should focus on consulting if you really don’t know what you want to do in the future and you want to just develop the most well-rounded skill set

as possible and one very tangible piece of advice i think you should do i think you should try to speak to three people in both Industries a varying seniority and see who you relate to

better see whose values you actually resonate with see who you have a more engaging and interesting conversation with i think that’s the best way to make life decisions in general you should try to find people who are potential role models whose values are similar to yours so this CashNews.co

if you’re interested in learning about the technical skills you need for Finance you should check out a course that we just launched on our website it teaches you all

the Valuation you need to know for Investment Banking interviews as well as how to build discounted Cash Flow and financial model and i’ll see you in the next one i