Investment Banking vs Wealth Management

investment banking vs wealth management

Investment Banking vs Wealth Management


In our earlier articles, we discussed the differences between asset management and private banking with wealth management. Between the three topics which have been compared, investment banking has the least commonality with wealth management in terms of the types of services offered.

The core purpose and business nature of both also share little common ground. In terms of services rendered, both include asset management, which is only one of the many services in the repertoire of investment banking and wealth management.

What is investment banking?

It is a range of corporate financing services available at investment banks and banks with an investment banking division. There are two core activities in investment banking; merger and acquisition (M&A) advisory, and underwriting.

Here are a few examples of investment banks which are global players:

  • Citi
  • UBS
  • HSBC
  • J.P. Morgan
  • Credit Suisse
  • Deutsche Bank
  • Goldman Sachs
  • Morgan Stanley
  • Standard Chartered

Who are investment banking clients?

Clients of an investment bank can be from any part of the world. They are not individuals but are often organisations belonging to these categories:

  1. Governments

Investment banks work with governments to raise money, trade securities, and buy or sell corporations.

  1. Corporations

Private and public companies work with investment banks to go public (IPO) or raise additional capital via debt issuance, grow their businesses, make acquisitions, sell business units, as well as obtain research from these banks, including general corporate finance advice.

  1. Institutional investors

Institutional investors, including private equity firms, manage other people’s money. Investment banks provide research to institutional investors and help them trade securities.

They also help private equity firms acquire portfolio companies and exit those positions by either selling to a strategic buyer or via an IPO.

Investment banking services

Full-service investment banks would have the following:

  1.       Merger and acquisition (M&A) advisory
  2.       Underwriting
  3.       Equity, credit and FX research
  4.       Sales and trading
  5.       Commercial and retail banking

1. Merger and Acquisition (M&A) Advisory

This is a process whereby an investment bank helps its clients such as corporations and institutions to acquire businesses. The process involves finding, evaluating and completing the acquisition.

An investment bank will negotiate on behalf of its clients. It can provide advice on both sides of M&A transactions but will only represent one side of the deal – either the buy side or the sell side.

Once an acquisition of a business is complete, an investment bank can help to restructure the newly acquired business for its client.

2. Underwriting

This is a process of raising capital through selling of bonds or issuance of shares via IPO to investors on behalf of corporations or entities. This helps businesses which need money to operate and grow.

An investment bank helps these businesses gain this capital by marketing their companies to investors. There are three kinds of underwriting:

  1. Firm commitment: The underwriter (i.e. the investment bank) agrees to buy the entire issue and assume full financial responsibility for any unsold shares.
  2. Best efforts: Underwriter commits to selling as much of the issue as possible at the agreed-upon offering price but can return any unsold shares to the issuer without financial responsibility.
  3. All-or-none: If the entire issue cannot be sold at the offering price, the deal is called off and the issuing company receives nothing.

3. Equity, Credit and FX Research

Professionals in an investment bank will analyse, recommend and/or report on investment opportunities across asset classes such as equity, fixed income, FX, or across industry sectors such as Metal & Mining, Oil & Gas, TMT (Technology, Media, Telecom) etc. 

The research findings facilitate primary bond/shares issuance, primary deal origination and structuring, as well as provide supporting evidence for the Sales and Trading clients.

4. Sales and Trading

Investment banks have a Sales and Trading (S&T) division to help manage the funds of the bank with equity or bond transactions.

6. Commercial and Retail Banking

Not all investment banks have the license to carry out banking services offered in commercial and retail banking such as deposit placement, savings accounts, cheque service, mortgages and loans. 

These have to be strictly separated and controls must be implemented to separate the various functions to prevent potential instances of conflict of interest.

How does investment banking work?

An investment bank, or an investment banking division of a bank, works like an intermediary between different parties at the primary and secondary levels of service.

At the primary level, it mediates corporate financing and business take-overs between corporates (operating businesses) and institutional investors. Corporates which accept financing from investors then issue bonds or shares with the exchange facilitated by the investment bank.

At the secondary level, the bank then helps to facilitate the trade of securities (bonds or shares) with fund managers who either want to buy or sell these securities. This is also when the investment bank provides equity and credit research to institutional clients.

What is wealth management?

Simply put, wealth management is an investment advisory service with the main goal of growing and protecting a client’s wealth; namely, those of high net worth individuals (HNWIs) and accredited investors.

You may read more about the topic in the article What is Wealth Management?

Who offers wealth management services?

Wealth management firms, and large financial institutions with a wealth management division, offer these services.

Who wealth management is for

If the service is catered by a wealth management firm, the client base will be high net worth individuals, families and trust groups. If it is catered by a bank, the clients can consist of business entities or affluent individuals.

Wealth management services

  • Legal and estate planning
  • Accounting and tax services
  • Charitable giving plans
  • Help with starting or selling a business
  • Examination of healthcare and social security benefits
  • Investment management and advice, including retirement planning

Wealth managers will locate and liaise with professionals of any field to ensure the above services are fulfilled for their clients.

Wealth management products

These may or may not be directly offered by wealth management firms and financial institutions.

  • Insurance
  • Liquid assets
  • Home finance
  • Short-term investments
  • Long-term investments

Summary of comparison between investment banking and wealth management

Wealth Management Investment Banking
Definition Refers to the management of all financial aspects of a client Refers to an area in the financial sector which handles corporate financing, take-overs and corporate asset management
Scope of service Primary

Extends to all aspects of wealth such as planning tax, retirement and succession, as well as philanthropy

Secondary

Liaising with professionals of all fields necessary to serve client

Primary

Negotiate million-dollar business deals, deal origination and structuring, and raise capital via bond/share issuance.  

Secondary

Act as agents to buyers and sellers to trade securities of businesses

Main objective Grow and preserve wealth Finance businesses, facilitate primary bond/shares issuance, manage secondary market liquidity, and execute take-overs of businesses
Type of organisation Wealth management firm, bank and financial institution Investment bank, bank
Type of client High net worth individuals, families and trust groups Institutional investors (fund houses, private banks etc), Corporations, and governments
Compensation term of firm or servicing manager Retainer fee based along with a fee for an asset under management and/or fees charged according to performance. Fees for all services rendered and income generated from deal origination, structuring, and primary issuances 

 

Conclusion

Two completely different industries, wealth management mostly comprises of wealth planning of an individual’s assets to preserve and grow over time, whilst investment banking mainly deals with large corporations, institutions and governments seeking for corporate finance related matters and/or have large capital funding needs to address.

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Haruhito Imakoji

<strong>Co-Founder, Chief Executive Officer</strong> <br /><br /> Haruhito was the Executive Director of Marcuard Heritage Singapore Pte Ltd, a Swiss multi family office. He was instrumental in building up their European and Asian clientele base which comprised of a global network of asset managers, distribution partners, and legal & tax specialists. Prior to that, he held various positions for 10 years in Deutsche Bank where he gained extensive experience in various Asian markets. <br /><br /> Haruhito has been accredited as a Trust and Estate Practitioner (TEP) by STEP, and as a Financial Industry Certified Professional (FICP) by Singapore’s Institute of Banking and Finance. His vision for Salzworth is to steer it to establish multi-asset class portfolios and funds that seek to achieve steady returns for investors. <br /><br /> <a href="https://salzworth.com/our-team#haruhito" target="_blank" rel="noopener">More information about Haruhito Imakoji</a>