The Differences in Investment Banking vs Investment Management

There are so many roles in the banking industry that are similar it can be hard to distinguish which one is the best one for you to be working with. Financial planners, Investment Managers, and Investment Bankers jobs all have attributes of each other, but are actually very different.

Two commonly interchanged disciplines are investment banking and investment management. They are pretty much the same thing, right? Wrong. Let’s take a look at the difference between the two.

Investment Management

Investment management is managing a person’s portfolio dependent on their assets, goals, and risk tolerance. An Investment Manager acts on behalf of a person, investing appropriately for them. It is very personalized, as everyone’s portfolio is different.

These managers keep a detailed eye on all of the markets and check their client’s books daily to ensure they are saddled with the very best set of investments to help their money grow. Most investment managers sit in a daily meeting to discuss market trends and then evaluate how they will affect each one of their individual clients. For some clients it may make sense to sell a stock that is not doing as well as others, but for other clients they make end up paying a high tax percentage if they go that route, so it is better to hold onto the falling stock for the time being. It is an extremely personalized practice.

Because they act as a fiduciary, investment managers are required by law to act in the client’s best interest, which is why it is essential to evaluate the market change for each client. Additionally, when a client’s wealth level or investing level changes, it is imparitive that they maintain the change appropriately. If a client suddenly has a larger sum to invest, not only are they able to purchase different levels of investments, but it could change their risk tolerance too. Higher risk usually sees higher rewards, but also higher losses.

Small businesses typically benefit from an investment manager because their initial book of business is small, and they are just starting to grow their capital. Once they reach a corporation level and have a solid portfolio, they can start to work with an investment banker who will help them raise capital.

Investment Banking

Investment Banking is very similar to investment management except it handles all of the finance in the corporate world. These bankers can help with raising funds or capital and handle all of the investments of the corporation they are representing. These are usually much larger investments than a single individual, so the stakes are a lot higher.

Much like investment managers, they still act as a fiduciary and must act lawfully in their client’s best interest.

One big difference is that investment bankers have the ability to handle underwriting. So, if a business needs to take a loan out for expansion or capital acquisition, an investment banker is able to underwrite that loan. Many times, this is done as a team instead of just with one banker to spread out risk and ensure no conflict of interest happens.

Investment bankers traditionally handle the higher-profile cases at the bank and also tend to have the highest salaries due to the nature of their work.

Corporate Mergers and Acquisitions

Another major dealing of investment banking is working through mergers and acquisitions. Even a company who has been through multiple sales can benefits from having a good investment banker on their side. Targeting middle and upper-market transactions, they will help walk them through the whole sales process.

Most investment bankers want to work on the seller’s side of corporate sales. They help determine a purchase price and the value of the business being sold. They meet with prospective buyers and help to work out the best deal for the sellers. Additionally, they can help raise capital and arrange financing for the prospective buyers to ensure the deal is secure.

While some people choose to use a business broker instead of an investment banker when engaging in a sales transaction, most large-scale business sales require financial knowledge that a broker may not have. This is one of those “leave it to the professionals” situations that require the best knowledge to make the transaction close smoothly. The last thing you want in any sales transaction is for a deal to fall apart right before it is closed.

Full Scale Wealth

If you are a small business or an individually owned business, you would be better off using an investment manager to handle your portfolio. Once you grow and your business wealth increases, you can move to the use of an investment banker. Choosing a full-service wealth company like Bogart Wealth can make the transition between the two disciplines seamless. Offering complete wealth services also means they can help you find the department that best suits your specific needs.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes