Wealth management vs. investment banking do have differences. Wealth management is all about helping clients manage and grow their money. Investment banking, on the other hand, is all about helping companies raise money by issuing and selling securities.
There is also little overlap in their main goals and business models. Both offer asset management as one of the many services they offer, which is only one of the many offerings that investment banking and wealth management have to offer. This article will explore the main differences between wealth management vs. investment banking so that you can make a more informed decision about which one is right for you.
What is Wealth Management?
Wealth management is a holistic approach to helping clients manage their money. It involves everything from financial planning and investing to tax planning and estate planning. A wealth manager typically works with high-net-worth individuals and families to help them reach their financial goals. The automation in the banking industry has given birth to the robo-advisor, which has disrupted the wealth management industry and some of the investment advisory service these firms offer.
Wealth management firms typically focus on the following areas below:
- Asset Management: This is the process of selecting and managing investments to reach specific financial goals.
- Financial planning: This involves creating a comprehensive plan to help clients save for retirement, manage debts, and more.
- Tax planning: This helps clients minimize their tax liability through strategies like asset location and tax-loss harvesting.
- Estate planning: This ensures that client’s assets are passed on to their loved ones in the most efficient way possible.
- Other financial services: Some wealth management clients seek wealth management services. Those often include money management services, insurance services, and more.
Wealth managers typically work with clients on a long-term basis to help them reach their financial goals. Many wealth management firms also offer other services like insurance and banking.
What Are Wealth Management Services
Wealth management firms are specifically for accredited investors and high net worth individuals (HNWIs) and can be defined as investment advising services with the primary objective of expanding and protecting a client’s wealth. A typical wealth management client will have over $1 million in investable assets.
Who Finances Wealth Management?
High net worth individuals, families, and trust organizations will make up the clientele if the service is provided by a wealth management company. If a bank is providing the service, the clients may be wealthy people or corporate entities that use the bank’s other services such as wealth management investment banking.
Who Provides Services for Wealth Management?
These services are provided by wealth management companies and major financial institutions in the financial sector having a wealth management division.
Products For Wealth Management
Financial institutions and wealth management companies may or may not directly offer these.
- Insurance
- Liquid resources
- Home equity
- investments made immediately
- enduring investments
Services for Wealth Management
- Estate planning and the law
- Tax and accounting services
- Foreign banking
- Plans for charitable giving
- Assistance with starting or selling a business Review of social security and healthcare benefits
- Management and recommendations for investments, especially retirement planning
Wealth managers will seek out and coordinate with experts in any industry to guarantee that the aforementioned services are provided for their clients.
What Is Investment Banking?
Investment banking is the process of raising capital for companies and governments. Investment banking involves corporate related finance matters for business entities and is different than private banking.
It also involves providing advice on mergers, acquisitions, and other corporate finance matters. Investment banks typically divide their services into two main categories:
Corporate Finance
This includes services such as initial public offerings (IPOs), secondary market offerings, and private placements. Investment banks also advise companies on mergers, acquisitions, and divestitures.
Capital Markets
This includes activities such as underwriting, trading, and market making. Investment banks also provide research and sales/trading services to institutional investors.
Here are a few examples of investment banks that are global players:
- UBS
- Citi
- HSBC
- Credit Suisse
- J.P. Morgan
- Deutsche Bank
- Morgan Stanley
- Goldman Sachs
- Standard Chartered
Wealth Management vs Investment Banking
Wealth management and investment banking are two different terms that are often used interchangeably. However, there are some key differences between the two that you should be aware of before making any decisions about your financial future.
Investment banking is all about helping companies raise capital by issuing and selling securities. Wealth management, on the other hand, is more focused on helping individuals and families manage their finances in a way that meets their long-term goals.
Key differences between wealth management and investment banking:
Investment Banking Is Transactional While Wealth Management Is Relationship-Based
Investment bankers typically work with clients on a transactional basis. That means they provide services for a fee but don’t necessarily have a long-term relationship with the client. Wealth managers, on the other hand, usually establish long-term relationships with their clients and work to help them reach their financial goals over time.
Investment Bankers Are Focused on the Short-Term While Wealth Managers Take a Longer-Term View
Investment bankers are typically more focused on the short-term goal of helping their clients raise capital. Wealth managers, on the other hand, take a longer-term view and work with their clients to help them grow and preserve their wealth over time. Portfolio management is front and center with wealth managers.
Investment Banking Is Regulated by Securities Laws While Wealth Management Is Not
Investment banking is a highly regulated industry because of the nature of the securities that are being traded. Wealth management, however, is not nearly as regulated. This can be both good and bad depending on your perspective.
Investment Bankers Typically Work for Banks or Other Financial Institutions While Wealth Managers May Work for Themselves or for a Financial Institution
Investment bankers typically work for banks or other financial institutions. Wealth managers, on the other hand, may work for themselves or a financial institution. This difference can have a big impact on the quality of service you receive.
Investment Bankers Are Typically Paid Through Commissions While Wealth Managers Are Usually Paid Through Fees
Investment bankers are typically paid through commissions. That means they make money when their clients buy or sell securities. Wealth managers, on the other hand, are usually paid through fees. That means they make money regardless of whether their clients make or lose money.
Investment Bankers Typically Have an MBA While Wealth Managers May Have A CFP® Designation
Investment bankers typically have an MBA. Wealth managers, on the other hand, may have a CFP® designation. The CFP® designation is a mark of distinction that indicates the holder has met certain educational and professional requirements and has demonstrated a commitment to helping clients reach their financial goals.
Particular Considerations
Two of the most sought-after occupations in the financial services sector for professionals are wealth management and investment banking. Both have advantages and disadvantages that you should be aware of and both provide great compensation and intriguing chances.
Benefits
First, there are several benefits that investment banking and wealth management have in common. First off, both have excellent earning potential, enabling professionals in the sector to make a typical salary of close to six figures. Additionally, your earning potential is much higher if you reside in a region with a high cost of living or are a leader in your industry.
Both also benefit from not requiring a graduate degree. Yes, a master’s degree or higher may help you develop in your work, but you can start at most places with a bachelor’s degree.
Differences
The two professions also have some significant distinctions that may aid in separating them. First, wealth management is by far the winner in terms of work-life balance.
- Wealth managers typically put in 40 to 50 hours a week during regular business hours.
For investment bankers, the work-life balance isn’t quite as desirable.
- These professionals operate in a more rapid-fire setting and frequently put in more than 80 hours each week.
You’ll have to put up with those long hours if you want to advance in the field.
The working environment is one more distinction between the two to take into account. Wealth managers frequently work for major corporations and may occasionally collaborate with coworkers. However, the main responsibility of the position is assisting people in managing their finances.
Who Are Investment Banking Clients?
Any country in the world may be represented among an investment bank’s clients. They are frequently organizations that fall under the following categories rather than actual people.
Governments
Governments and investment banks collaborate on fund-raising, the trading of securities, and the acquisition or disposal of enterprises.
Institutional Traders
Institutional investors handle other people’s money, including private equity firms. Investment banks assist institutional investors in trading securities and offer them research.
Corporations
Investment banks help both private and public corporations build their operations, sell company units, make acquisitions go public (IPO), generate more capital through debt issuance, and more. These banks also provide research services, such as general corporate finance advice.
Investment Banking Services
Investment banks that offer full-service would offer the following:
- Advice for mergers and acquisitions (M&A)
- Underwriting
- FX, equity, and credit research
- Trading and sales
- Retail and commercial banking
Advice For Mergers And Acquisitions (M&A)
An investment bank assists its clients, including corporations and organizations, in this process as they buy firms. Finding, assessing, and finalizing the acquisition are steps in the process.
An investment bank will bargain on the client’s behalf. Although it can offer guidance on both sides of M&A deals, it will only function as a buyer’s or seller’s representative.
An investment bank can assist its customer in restructuring the newly acquired business once the business has been bought.
Underwriting
This is the process of obtaining money for businesses or other entities through the sale of bonds or the IPO of shares. This benefits companies that require funding to run and expand.
By promoting their company to investors, an investment bank aids these enterprises in obtaining this funding. Three different types of underwriting exist:
- A firm commitment is made by the underwriter (the investment bank), who promises to purchase the entire issue and take full financial responsibility for any shares that remain unsold.
- The underwriter agrees to sell the maximum amount of the issue at the agreed-upon offering price but is free to return any shares that aren’t sold to the issuer without incurring any costs.
- The transaction is canceled and the issuing company receives nothing if the entire issue cannot be sold for the offering price.
FX, Equity, and Credit Research
Investment bank professionals will evaluate, suggest, and/or report on investment strategies opportunities in a variety of asset classes, including fixed income, equity, and foreign exchange, as well as in a variety of industry sectors, including oil and gas, metals and mining, and TMT (Technology, Media, and Telecom).
The research results help with initial bond/share issuing, initial deal origination, and initial deal structuring. They also serve as proof for the clients of Sales and Trading.
Trading And Sales
The Sales and Trading (S&T) segment of investment banks assists in managing the bank’s finances through equities or bond transactions.
Retail And Commercial Banking
Not all investment banks are authorized to offer commercial and retail banking services such as loans, mortgages, deposit placement, check services, savings accounts, and mortgages. Know that commercial and private banking are distinct from investment banking. Private banks don’t engage in investment banking activities.
To avoid potential instances of conflict of interest, these must be strictly separated, and regulations must be put in place to separate the various functions.
Investment Banking: How Does It Work?
At the primary and secondary levels of service, an investment bank or the investment banking division of a bank acts as a middleman between various parties.
In its most basic form, it facilitates corporate funding and acquisitions between corporations (running firms) and institutional investors. Businesses that accept investor funding subsequently issue bonds or shares, with the exchange being handled by the investment bank.
When a wealth manager desire to acquire or sell securities, the bank subsequently assists in facilitating the trade of those securities (bonds or shares) at the secondary level. The investment bank also offers equity and credit research to institutional clients at this time.
Related Questions & FAQs:
Is Wealth Management Part of Investment Banking?
No. Wealth Management is a branch of investment banking that helps individuals with their investments, but it is not the same as investment banking.
Is an MBA Required to Get into Investment Banking?
No, you do not need an MBA to get into investment banking, but having one will give you a significant advantage over other candidates. Other degrees that are commonly seen in investment bankers include economics, mathematics, and engineering.
What Is the Difference Between Commercial Banking and Investment Banking?
Commercial banks are banks that accept deposits and make loans, while investment banks help companies raise money by issuing and selling securities. Additionally, commercial banks are regulated by the FDIC, while investment banks are regulated by the SEC.
Conclusion
Wealth management and investment banking are two different industries. While investment banking primarily deals with institutions, large corporations, and governments seeking to address issues related to corporate finance and/or have significant capital funding requirements, wealth management primarily focuses on the wealth planning of an individual’s assets to preserve and grow over time.
