Management Consulting vs Investment Banking: The Eternal Battle

I’m going to start this article with a confession: I don’t particularly care about the management consulting vs investment banking debate.

I’m so far removed from it (I haven’t set foot in an office in over a decade) that it feels like ancient history at this point.

But that also gives me an advantage because I can be more objective.

There are dozens of articles and forum posts about this topic, but they tend to skip some important points.

For example, many articles fail to discuss the big differences between working at one of the top three consulting firms (McKinsey, Bain, and BCG, or “MBB”) and smaller consulting firms.

Based on this omission, they present a misleading view of the exit opportunities available from each field.

We’ll get to exit opportunities, salaries, and more, but let’s start with the basic definitions first:

Definitions

By “investment banking,” I am referring to front-office advisory roles where you work on large transactions, such as mergers and acquisitions, debt issuances, equity issuances, and restructuring.

I am excluding middle-office and back-office roles and areas like private wealth management and sales & trading.

By “management consulting,” I am referring to advising the management teams of large companies on strategic decisions, such as whether to enter a new market or how to respond to a new competitor.

This definition excludes IT/technology consulting, HR consulting, and financial consulting.

There is some overlap with operational consulting and strategy consulting because these two are often viewed as subsets of management consulting or adjacent areas.

Management Consulting vs Investment Banking: The Work

Investment banking is all about executing transactions, such as the ones described above.

Bankers get paid only when deals close, so they are heavily incentivized to work with companies that are serious about acquiring, getting acquired, or raising capital.

In practice, the “deal process” consists of pitching to win deals, creating marketing materials once the deal is won, and marketing the clients to potential acquirers or investors.

As a junior banker, you will be doing a lot of process work, such as Excel models, PowerPoint presentations, and administrative tasks.

Your job is to support deals by grinding through the documents required in each part of the process.

Management consulting, by contrast, is more about advising on operational and strategic issues:

• Should our company enter New Market X?
• How can we turn around this underperforming division?
• Is this new employee benefit plan ideal? How can we attract better talent?
• Should we expand into Southeast Asia?
• We’re considering acquiring Company X. How big is the market? Can you help us perform due diligence for this deal? Do you feel comfortable with Excel database functions and Excel power query?

Sometimes there is overlap with M&A and the deals that bankers execute, but consultants generally work on a broader set of projects.

Consulting firms effectively charge based on the team size and time required (i.e., billable hours), so they do not have a strong incentive to “close” these engagements.

The bottom line is that management consulting is about variety, while investment banking is about specializing in deals until you master each process.

Skill Sets

People often say that you become a “PowerPoint master” in consulting and that you may also gain some Excel skills, general business knowledge, and strong presentation and communication skills.

You’ll also have more interactions with your clients and your internal team, further boosting your communication skills.

In investment banking, the usual claim is that you’ll become an “Excel master,” but you’ll spend less time in PowerPoint.

You’ll learn or refine specific technical skills, such as accounting, financial statement analysis, valuation, and financial modeling, but you won’t gain the same types of “soft skills” as consultants.

At a high level, yes, most junior consultants spend more time in PowerPoint than most junior bankers, and they also spend more time communicating and presenting.

However, it’s worth noting that investment banking work may differ significantly between different groups and firms.

For example, you’ll probably spend more time in PowerPoint than Excel in groups like ECM and DCM and even some industry groups.

And if you’re at a regional boutique bank, you will spend more time on process work and client communication than on complex Excel models. In fact, you may not even gain significant technical skills.

So, not all bankers become “Excel masters” or technical wizards – some do, but it depends heavily on the group, deal flow, and how proactive they are.

Management Consulting vs Investment Banking: Recruiting

Recruiting for both banking and consulting is split into the undergrad, recent grad / lateral, and MBA levels.

Investment banking recruitment at the undergrad level starts early; in the U.S., you’ll interview for summer internships a year or more in advance of the internships.

In places like the U.K. and Hong Kong, the timeline is slightly slower, but you still apply nearly a year before internships begin.

To be competitive at the large banks, you’ll need 1-2 finance-related internships in Years 1 and 2, good grades (>= 3.5 or >= 2:1), and a decent amount of networking.

And you have a huge advantage if you attend a “target school” that banks recruit at.

To win offers as a lateral hire, you’ll need to be in a closely related job (corporate banking, Big 4, valuation, etc.), and you’ll have to network extensively.

And at the MBA level, you’ll need to attend a top school, have somewhat-related experience before the program begins, and start networking and preparing months before interviews.

With management consulting, there doesn’t seem to be much information about the entire process organized in one spot.

However, my impressions from readers and research are:

• The process seems to move more slowly, with applications opening less than a year in advance of internships and full-time jobs.
• You still need high grades, previous internships, and, ideally, a “target school” to have the best shot – but leadership roles also seem to be more important. Also, your previous internships don’t necessarily need to be consulting-related. Brand names matter more than specific roles.
• There seems to be a bit less emphasis on summer internships converting into full-time roles. Consulting firms still like to hire their interns when possible, but they’re more open to full-time hires from outside the firm.

Overall, I’d say it’s more competitive to win a management consulting role at MBB than it is to win an investment banking role at a bulge bracket (BB) or elite boutique (BB) because:

1. There are fewer entry-level roles at the top three consulting firms.
2. There are fewer “hard requirements” in terms of skill sets, technical knowledge, and previous internships, so more students compete for these roles.
3. Anecdotally, it seems like the bar for grades and leadership experience is a bit higher in consulting (I don’t think there’s a massive difference – emphasis on “a bit”).

Interviews and the Interview Process

Increasingly, banks are trying to automate investment banking interviews with tactics such as:

• HireVue or other pre-recorded video interviews.
• Online tests, quizzes, and “games.”
• Hiring 3^rd party recruiters to interview candidates.

If you make it past all the nonsense, you’ll eventually interview with human bankers (well, if you consider bankers to be human…).

However, the general shape of the interview process has remained the same over time: an initial screening (HireVue, online tests/applications, or, in the old days, actual interviews) followed by a Superday or a series of back-to-back, more difficult interviews.

In regions such as EMEA, the assessment center replaces the Superday, so you need to prepare for all sorts of other exercises.

We’ve covered interviews countless times on this site, so I’ll refer you to the investment banking interview questions and answers article for the details.

In short, your “story” is crucial, you need a minimum amount of accounting/finance/valuation knowledge, and you need to be prepared for behavioral questions and a few discussions of recent deals.

On the management consulting side, some of those trends have carried over.

For example, the large firms also use HireVue, and firms like BCG use Pymetrics tests because completing a bunch of online mini-games correlates very well to responding to client requests!

The major differences are that case interviews are critical in consulting, and you don’t need to know specific accounting/finance/valuation concepts.

This site does not focus on consulting, so I would recommend reading everything on Management Consulted related to case interviews to start preparing.

“Case studies” occasionally come up in IB interviews, but more so for lateral hires, at the elite boutiques, and at assessment centers in Europe.

And these case studies are usually Excel-based modeling tests or other time-pressured exercises; they’re not open-ended.

So, which field has more difficult interviews?

It depends on what you mean by “more difficult”:

• Preparing for IB interviews requires more time since you need to learn or review significant technical information – but you can also “memorize your way to success” more easily, at least at the large banks.
• Preparing for case interviews in consulting probably takes less time, but you also need more creativity and skill to succeed. You can’t just memorize specific concepts or technical points to win offers.

Management Consulting vs Investment Banking: Career Path and Promotions

At a high level, the IB and MC career paths are quite similar:

• Entry-Level: You start as the “Chief Doer,” responsible for Excel, PowerPoint, research, and administrative tasks.
• Mid-Level: You become more of a “Project Manager,” responsible for distributing work to the junior team and communicating with the senior team and clients.
• Senior-Level: Your main responsibilities are winning new clients and generating more business from existing clients.

The standard investment banking hierarchy is Analyst, Associate, Vice President, Director or Principal, and Managing Director or Partner.

In consulting, the hierarchy might be Analyst or Associate, Associate or Consultant, Project Leader or Engagement Manager, Associate Partner or Principal, and Partner.

The names differ slightly at different firms, but the responsibilities are similar at each level.

If you perform well, it might take 2-4 years to earn a promotion at each step of the ladder in both fields.

Adding up all the levels, going from entry-level hire out of undergrad to Partner might take an average of 10 to 15 years.

“Up or out” is part of the corporate culture in both industries, so you’re not going to be an Analyst or Associate for 5 years.

If you’re not performing well enough to advance, they’ll ask you to leave in your next annual or semi-annual review.

Hours, Culture, and Lifestyle

Since the career paths are quite similar, the real differences between consulting and banking lie in the hours, culture, lifestyle, salaries, and exit opportunities.

Investment banking hours are known to brutal, often rising to 80+ per week at the large banks.

In practice, that means: “You’ll have almost no free time outside of work on weekdays, and perhaps a bit of free time on weekends.”

The hours improve after your first 1-2 years, but it’s never a 9-to-5 job; even MDs take calls and respond to emails on weekends.

Protected weekends and other measures have made the workplace a bit more tolerable, but the hours are still long and painful by all accounts.

Also, the rise of work from home due to the pandemic has made the hours longer because you’re now expected to be in the same tiny apartment all day responding to emails 24/7.

In management consulting, the main difference is that you work fewer hours but travel more – or, at least, you did in pre-COVID times.

The average seems to be around 60 hours per week for entry-level roles, which means: “You’re fairly busy on weekdays, but your weekends are mostly open.”

I use “mostly” because work does come up on weekends, and you might be expected to spend time preparing for the next week’s projects.

When (if?) the pandemic ever ends, my guess is that weekly travel to clients will resume, but it might be less extensive than it used to be.

In terms of culture, the stereotype is that banks tend to be cutthroat environments with people running around screaming, while consulting firms tend to be more civilized and professional.

These differences may be a bit exaggerated, but I think the general points are true.

You can find smaller banks and specific groups that are less crazy, but I would wager that the “psychopath percentage” is much higher in banking.

Management Consulting vs Investment Banking: Salaries and Bonuses

Almost everyone agrees that investment bankers earn more than management consultants.

The exact differences vary, but total IB compensation is often 50-100% higher in most levels of the hierarchy.

The explanation for the compensation disparity is simple: consultants get paid by the hour, while bankers get paid based on closed deals.

While it does take more time to close bigger deals, the time required does not scale linearly with the deal size.

In other words, a $10 billion deal does not require 100x more hours – or even 10x more hours – to execute than a $100 million deal, even though the fees are substantially higher.

If we focus on compensation at the bulge bracket and elite boutique banks vs the MBB consulting firms, the approximate differences at each level are as follows:

• IB Analyst vs MC Analyst: Base salaries in the U.S. are just under $100K for both, but bonuses in consulting are far lower (~20-33% of base). As a result, total compensation for MC Analysts might be in the $100K – $120K range, while it’s in the $150K – $200K range for IB Analysts.
• IB Associate vs MC Associate: IB Associates can expect total compensation in the $250K – $400K range as they advance. MC Associates might start in the $200K – $250K range but will not advance too far beyond that.
• IB Vice President vs MC Engagement Manager: VPs earn in the $450K to $700K range for total compensation; on the consulting side, Engagement Managers earn closer to the $250K – $300K level.
• IB Director vs MC Principal: In IB, Directors or SVPs might earn anywhere from $500K to $1 million per year; Principals in consulting earn more like $400K – $500K total.
• IB Managing Director vs MC Partner: Finally, there’s some convergence. At this level, base salaries are similar ($400K – $600K range), so total compensation depends on bonuses. A decent-performing IB MD and MC Partner should both earn around $1 million per year, but there’s huge variance above and below that based on performance.

In short, you should expect lower total compensation in management consulting at every level until you reach the top of the ladder.

And at smaller firms outside MBB, total compensation is lower as well (to be fair, IB compensation is also lower at boutique banks).

Job Stability

Defenders of management consulting often respond to these salary differences by saying:

“Yes, you earn less for most of your career, but your job is also more stable! Companies need to hire consultants during both recessions and expansions, but most bankers get cut when there’s a recession!”

If it’s a generic, cyclical downturn, I agree that MBB jobs are more stable than IB jobs at large banks.

But if it’s a recession driven by a health crisis or a sector-specific problem, that might not be true.

However, I will concede this point about the stability of MC jobs because:

• In consulting, you can be more of a “generalist” as you advance, but in IB, you specialize in an industry or deal type, which increases the risk.
• And cyclical business downturns tend to be more common than pandemic-driven or other recessions.

Management Consulting vs Investment Banking Exit Opportunities

The usual argument here goes like this:

“Investment banking gives you better access to finance exit opportunities in private equity, hedge funds, and corporate development, but management consulting gives you broader exit opportunities not just in finance but also in strategy, operations, non-profits, startups, and more!”

I agree that consulting is the better option if you want to work in a strategy or operational role in any company or organization.

But I think consulting is worse than IB for exit opportunities for several reasons:

1. In practice, it is very difficult for management consultants to get into private equity and hedge funds, especially in North America. Candidates overwhelmingly come from investment banking for PE and from IB, sales & trading, and equity research for hedge funds. We even published an interview about the difficulty of the consulting to PE transition.
2. There is a BIG difference between MBB and smaller consulting firms – more than the difference between middle market banks and EB / BB banks. You won’t get into KKR or Blackstone coming from a MM bank, but it is possible to network your way into smaller PE firms and hedge funds. It’s much more challenging to do this if you’re a consultant at a smaller firm. Again, take a look at readers who have stated this point in interviews.
3. Regional differences matter and they affect consulting more than IB. For example, in Europe, exit opportunities from Big 4 and consulting firms are generally better than they are in the U.S.
4. Finally, when you cut away the BS, most people want exit opportunities that pay the most. And the strategy and operational roles you can win via consulting pay far less at the entry levels than PE/HF roles.

So, I agree with the point that consulting offers “broader” exit opportunities.

But in exchange for that breadth, your chances of winning the highest-paying opportunities decrease substantially.

Management Consulting vs Investment Banking: Which One’s Right for You?

As with the arguments about the types of banks, I would frame this debate a bit differently.

Think about it in terms of your realistic options and strong and weak arguments for choosing either field.

If you’re deciding between a McKinsey offer and an offer at 2-Person Boutique Bank X, or between a Goldman Sachs offer and an offer at 2-Person Boutique Consultancy Y, the choices are obvious.

But if you’re deciding between a McKinsey consulting offer and a Goldman Sachs IB offer, the choice is much less obvious.

If that’s the case, you should think about all the advantages and disadvantages of each field.

For example:

• Good Argument for Consulting: You want to work on a greater variety of projects in a more civilized work environment, you want to stay in consulting or move to strategy at a large company, and you don’t care about the reduced pay.
• Bad Argument for Consulting: You want the most exit opportunities.
• Good Argument for Banking: You want to work on M&A deals from start to finish, including the repetitive parts and psychotic co-workers, and you want to use the experience to move to a private equity firm that focuses on a specific strategy.

• Bad Argument for Banking: You want to earn the most amount of money possible, and you don’t mind the culture, long hours, or repetitive parts of the work.

A good decision comes down to understanding the trade-offs and picking the field where the advantages outweigh the disadvantages based on your personal preferences.

Understand that, and you might be closer to settling the eternal battle of management consulting vs investment banking.

Oh, and if you still can’t decide, pick banking – you’ll thank me later.

Further Reading

You might be interested in:

• Wealth Management vs. Investment Banking: Career Deathmatch
• Capital Markets vs. Investment Banking: Deals, Careers, Recruiting, Exits, and Offer Decisions
• Investment Banking League Tables: Neutral Arbiter of Bank Rankings or Marketing Manipulation?
• Investment banking PowerPoint shortcuts
• The Investment Banking Vice President: The Toughest Job at a Bank?
• The Investment Banking Career Path: The Complete Guide
• Corporate Finance vs Corporate Strategy: The Never-Ending Debate?
• The Full Guide to Pre-MBA Internships: Are They Worth It?
• From Consulting to Private Equity: How to Make the Leap
• Investment Banking Exit Opportunities: The Myth of the Buy-Side Job