Investment banking versus wealth management: Which pays the most?
Over the years, many students and recent graduates looking to enter financial services debate whether they should go for investment banking or wealth management. There are also plenty of examples of an investment bankers transitioning to wealth management and vice versa.
There are lot of factors to consider, but, for many, the decision comes down to one thing - compensation. So, which is likely to pay more over the course of a career, investment banking or wealth management?
This is what you'll earn in wealth management in the U.S.
The following are estimates for typical averages for employee-based financial advisers – a.k.a. brokers – at wealth management firms ranging from mid-sized to the largest.
“These are not exact calculations from any one data set or survey, but reflect our experiences in designing compensation plans for regional and national employee-based wealth advisory firms over the years,” said Andy Tasnady, managing partner of Tasnady & Associates, a strategic consultancy specializing in compensation. “Recognize that the total compensation is based 100% on their compensable sales revenue levels.”
Many individuals fall outside of these ranges on both the high and low ends as actual individual sales levels vary by a factor of 10X at any level of industry length of service. So a 30-year financial adviser could be near $500k of sales with close to $175k of compensation or could be at more than $5m in sales and making more than $2m in comp, Tasnady said.
There are often specific behavioral-type bonuses and penalties based on company-specific designs and targets – such as new business bonuses and lowered payouts due to minimums not being met – that also adjust the compensation amounts, Tasnady said. However, the vast majority of an adviser’s compensation level is still based on the total sales that he or she achieves each year.
“This also means that an individual’s compensation can fluctuate greatly from year to year if their sales levels change,” Tasnady said. “The potential magnitude of the fluctuation is less of an issue nowadays since a push of the business models toward ‘fee-based’ pricing products and services, where pricing and therefore commissions are based on a percentage of the assets managed each year, rather than one-time commissions when a trade transaction occurs.”
This is what you'll earn in investment banking on Wall Street
In your first year in investment banking, you’ll earn at least $70k plus a bonus of $42k or more, according to research by recruiters Dartmouth Partners.
For the top-quartile performers at bulge-bracket banks on Wall Street, first- and second-year associates can expect their base salary plus bonus to add up to a figure in the $200k-$350 range, moving up to $275k-$450k in the third year, according to executive search firm Options Group. Phaidon International cited similar figures.
The figures above suggest that if you're at the top of your game in wealth management you can bring in some eye-watering sums. However, at the top end, senior investment bankers earn marginally more than their wealth management counterparts on average.
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