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The Case for Consulting Over Banking

Five years ago finance majors and MBA holders at top institutions often chose careers in banking over consulting. The prestige, the money, the rush – it was all there. Then the financial crisis hit, scarring the industry’s reputation while stealing jobs and cutting once-lofty paychecks. With the playing field no longer slanted in the direction of The Street, many of the best and brightest are choosing the consulting route.

For the second year in a row, consulting firms are the top destination for Harvard undergrads – 16% of the class of 2013 is getting into consulting upon graduating, up from 13% the year before. Roughly 15% of graduates are taking jobs in finance, up from 9% last year, but that’s still nowhere near the pre-crisis total in 2007, when an astounding 47% of graduates went into finance.

Overall, just more than 23.3% of U.S. MBA students sought jobs in finance or accounting in 2012, down from 32.5% in 2009, according to the Graduate Management Admission Council (GMAC).

“It’s the job security,” said one MBA holder who just took an advisory job at PricewaterhouseCoopers over one on Wall Street fearing layoffs. “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.

Wall Street compensation has taken a hit across the board, and is unlikely to rise anytime soon with bonus caps coming to Europe and pay pressure being applied in the states. Consulting, meanwhile, is on an upward trend when it comes to pay.

The median base salary for 2012 Harvard Business School graduates who entered consulting was $135k. More than nine out of 10 graduates received a signing bonus that averaged out at $20k. The median salary for those entering financial services – hedge funds, investment banking, private equity etc. – was $100k. Roughly 60% received a signing bonus at an average of $40k.

Same story, different tune at Yale University. Graduates of its School of Management who entered consulting took home an average annual salary of $120k, plus another $25k in other guaranteed compensation. The median base salary for those who accepted a job in finance was $100k, although bonuses stretched the average total compensation to $150k. One-quarter of full-time MBA graduates at the School of Management in 2012 joined the financial services industry, down from 39% the year before, a Yale spokesperson told eFinancialCareers.

While bonuses will be tightly watched on Wall Street in 2013, consultancy firms plan to sweeten the pot. Roughly 25% of companies in the consulting industry plan to increase annual starting base salaries above the rate of inflation, according to the 2013 Corporate Recruiters Survey from  GMAC. Just 15% of financial and accounting firms plan to do the same.

Then there’s the quality of life. “Consulting typically gives you weekends,” said the PwC associate. “Banking has you 24/7.”

Still, there are fresh MBAs who believe Wall Street is in a temporarily lull, and now is the time get in before the eventual upturn.

“If there’s a downturn, there most certainly will be a recovery; that’s the beauty of capitalism and free enterprise,” said one soon-to-be Wall Streeter. One can only hope.

Comments (5)

Comments
  1. 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

  2. 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

  3. Wasim… you are a consulting HR manager, aren’t you ?

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

    Friend of Consentino Reply
     
  5. 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.

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