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The case for consulting over investment banking and hedge funds

It’s a simplistic strategy, but one that may work for some people. Identify the industries that graduates from top business schools are entering and try to follow suit. As they are typically offered more employment options, Ivy League MBAs can provide a road map to the hottest industries and companies that tend to pay the most and offer the best experience.

Looking at the latest employment figures, several signs point to consulting as a preferable option to investment banking and even hedge funds, at least early in a career. Roughly 25% of 2017 Harvard Business School graduates took a job as a consultant. Meanwhile, only 5% accepted offers at investment banks and just 6% of HBS grads went to work at hedge funds or other investment management companies (not including private equity and venture capital firms). At Yale School of Management, a whopping 36% of the same class went into consulting, while around 12% took jobs in investment banking with 2% working in investment management.

Perhaps a more interesting angle is to look at the business school that is known to be the top feeder for financial services jobs. At UPenn’s Wharton School of Business, more than 16% of 2017 graduates accepted roles in consulting. While 35% entered the general bucket of financial services, less than 12% went into investment banking while 3.7% took jobs at hedge funds.

A similar exercise can be done with Stanford Graduate School of Business, a program known as one of, if the not the best, feeder for jobs in Silicon Valley. Technology companies remained the top destination for Stanford graduates in 2017 with a 25% acceptance rate, but that was down eight percentage points from the previous year. Meanwhile, consulting gained four points to 20% of the overall total.

Initial pay

Generally speaking, a long career in investment banking or at a hedge fund will pay off more than one in consulting. Compensation for MDs at consulting firms averages around $300k. But investment banks see plenty of turnover due to work-life balance issues while more hedge funds have closed than opened for several years running, likely playing a role in the aforementioned placement numbers. If you look at the immediate payout, consulting stacks up rather well.

“It’s the job security,” said one MBA holder who just took an advisory job at PwC over one on Wall Street. “Plus, there’s less financial upside in banking then there used to be.” He accepted a higher-salaried position at PwC, not knowing if the lure of the Wall Street bonus would have become a reality.

For Harvard grads, median pay for first-year consultants was $150k, the same base compensation for hedge fund employees but $25k more than investment bankers. The median signing bonus for consultants was $25k compared to $50k for investment bankers, so first-year pay was essentially a wash. Hedge funds also offered a median signing bonus of $50k, but just more than half of first-year employees received one. In consulting, 95% of HBS grads received a sign-on bonus. The numbers were very similar at Stanford and Wharton, with the average consultant earning a higher salary during their first year but a smaller signing bonus. Yale didn’t break down base pay and bonus by industry.

Work-life balance

Compared to investment banking, consultants typically work significantly fewer hours, though there is often more travel involved. And “consulting gives you weekends,” the PwC consultant said. Hedge funds win out when it comes to hours and travel, though the day-to-day pressure is unmatched. One trader told us he limits the amount of liquids he drinks so that he doesn’t have to go to the bathroom during market hours.

Have a confidential story, tip, or comment you’d like to share? Contact: btuttle@efinancialcareers.com

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AUTHORBeecher Tuttle US Editor
  • To
    TomWatts
    5 June 2013

    I love these debates about which is better - consulting or banking and which will you make more money as an MD/Partner after 10 years. I think the better question is which excites you more and which will you excel at more. Only the top 10 or 15 percent will make it to partner/MD. You will have to excel to get there and be passionate. The other question is, which has outplacement that matches your interests, since most incoming Associates will leave after a few years.

  • Fr
    Friend of Consentino
    1 June 2013

    The problem with consulting is that you tend to forget the Ecel 2010 financial modeling skills learned as an undergrad...

  • Lu
    Luba
    31 May 2013

    Wasim... you are a consulting HR manager, aren't you ?

  • Ho
    Homerjkl
    30 May 2013

    Luba - you're wrong, on pretty much all points.

    1. If you want to specialise in a particular industry then the advantages of consultancy is that it will allow you to accelerate and move into a corporate at a far higher level once you do make this move than just working your way up the ladder in a corporate. This is how the McKinsey model works. Same goes for BCG, Bain, Deloittte.

    2. Becoming a Partner at a consultancy firm is far more rewarding than an MD, on a risk-adjusted basis if not in an absolute level. That's why consultants stuck it out on relatively low pay compared to bankers as their NPV of future potential earnings should they make Partner (and hence own an equity stake in the business) is a lot higher

    3. Consulting firms are FAR MORE INTERNATIONAL compared to investment banks, both in terms of relocation flexibility, project location etc. Indeed I knew consultants at my firm that had no fixed abode but lived in hotels project to project, saving their entire pay packets.

    So in essence, don't pay attention to Luba.

    Wasim

  • Lu
    Luba
    30 May 2013

    Consultants beware:
    - Consultancy is often a dead end job. Leave in 2-4 years' time or you run the risk of remaining trapped.
    - If you want to specialize in an iindusty go working for a large corporation in that industry and not for a consulting firm
    - Becoming a partner at a consulting firm is as challenging as becoming a MD at an investment bank but the rewards are lower
    - Consulting firms are much less international in their approach than investments banks and than what they used to be in the early '2000s

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