Wealth Management vs. Investment Banking: The Differences Explained

Delwin Graham & Eric Brown - Oct 14, 2020
We’re going to break down wealth management and investment banking for you. By the time you finish this article, you’ll not only know the differences between the two, but you’ll also know which is right for you.

People often confuse wealth management and investment banking. They know that they both deal with large sums of capital, but other than that, they’re not too sure about the details.

If that sounds like you, don’t worry. We’re going to break down wealth management and investment banking for you. By the time you finish this article, you’ll not only know the differences between the two, but you’ll also know which is right for you.

How to Compare Wealth Management and Investment Banking

Let’s examine the two large categories that highlight the major differences between wealth management and investment banking:  Their target customers and their primary goals.

Target Customers of Wealth Management

Wealth management firms focus on developing a clientele of individuals such as business owners. These are people whose income or assets put them in the small minority of the population that’s considered wealthy.

Each firm concentrates on clients of different levels of wealth. For example, one company may have clients with five-or-six-figure incomes while another firm across the street deals only with those who have a net worth of at least seven figures.

The client could be anyone from your former high-school math teacher to your favorite movie actor. The background and legitimate source of his income are irrelevant.

The client can also be at any point on his career journey. He may have only recently launched his career, which means that he’s highly successful at what he does for a living if he needs wealth management so soon.

The client could also be someone who has worked a middle-income job for many years and saved his money. Now he’s ready to ask financial advisors for help to make that money grow.

Another potential client is the retiree looking to make his pension and retirement fund stretch as far as possible.

Target Customers of Investment Bankers

Unlike wealth managers, investment bankers aren’t focused on individuals or small business owners but corporations. Investment bankers deal mostly with large companies looking to become even bigger.

Investment bankers also have their criteria for the ideal client. Their criteria will also vary from firm to firm. In general, investment bankers want to make sure that potential clients operate a legally structured enterprise that meets all the necessary regulatory requirements for its line of business.

Primary Goals of Wealth Management

Quite simply, the goal of a wealth manager is to protect the client’s money and increase the client’s net worth.

First, a wealth manager wants to get to know his client. They want to understand his lifestyle and financial needs to construct a suitable investment strategy. For example, a manager will put someone in his 20s on a different investment path than that of someone who is nearing his retirement. The younger client can typically afford to take a greater investment risk since he has more time to recover from a down market.

A good wealth manager will familiarize his client with the vast array of investment instruments available to him. Even extremely wealthy individuals may have little knowledge of the basics of stocks and bonds. Others may have no idea how to formulate a workable budget and stick to it.

In addition to the basics, the wealth manager might also introduce his client to lesser-known investment options that are beyond the expertise of the average person but can help to diversify an investment portfolio. A good wealth management office will keep, on staff, a team of financial advisors with in-depth knowledge of each of the investments available in today’s marketplace. In this way, a client will never be without professional guidance.

Wealth managers try to see the whole picture. They aren’t happy with just making their client happy today but want to make him happy throughout his lifetime. Naturally, the best firms help clients plan for the future, whether that includes saving for the kids’ university educations, planning for retirement, or arranging for the long-term distribution of the family estate.

Primary Goals of Investment Banking

Investment bankers play a huge role in helping a business create needed capital for expansions and upgrades. They also play a central part in the merger and acquisition of companies.

Just as a wealth manager has to get to know his client so does an investment banker have to learn all about the company he’s representing. He also has to study the industry of that client. He must understand the market forces that are influencing both his client and his client’s rivals.

Often when investment bankers are in the news, it’s because they are spearheading an initial public offer (IPO). In other words, they’re helping a private company enter the public arena by offering stock to investors for the first time in the company’s history.

The process is somewhat complicated, lengthy, and filled with mandatory legal procedures. However, it's a highly desired business goal. A successful IPO can launch a company on a path where it will have the necessary capital to grow and assume and even larger position in its industry, as did Spotify and Zoom.

Wealth Management vs. Investment Banking:  Which is Right for You?

After reading the above, have you decided which is your choice in the battle of wealth management vs. investment banking? Most people need private wealth management. They need a trusted and experienced financial advisor to help them make the most of their assets.

Graham Wealth Partners is the choice for many. We are a full-service firm that can help you not only with investments but also with retirement and estate planning.

If you’re a busy business owner, you likely have little time to perform all the financial and investing research that you would like to do. Don’t allow your busy schedule to put at risk your financial goals and those of your loved ones.

Speak to a professional. Contact Graham Wealth Partners today to learn how we can help you manage your wealth and, more importantly, your future.