Investment Bankers Vs Lawyers: Who Earns More?

Investment banking and law are two popular career paths for ambitious young people looking to earn a good salary straight out of university. While investment bankers used to make multiples of what lawyers did, this trend has changed in recent years, with lawyers now earning more than bankers in many instances.

On Wall Street, equity partners at top law firms can make around $3 million or more a year, while managing directors at banks who aren't in high-ranking leadership roles earn between $1 million and $2 million on average. This disparity is due to stagnant banker pay for all but the top performers and changing dynamics at law firms.

However, it's important to note that the career paths differ in terms of educational requirements, skills, and work-life balance. Investment banking requires fewer years of school and greater quantitative acumen and math skills, while law demands more formal education, including a degree from law school and successful passage of a state bar exam.

Investment bankers make more money straight out of school

Investment banking and law are two popular career paths for ambitious young people looking to earn a good salary straight out of university. While both careers offer high earning potential, investment bankers typically make more money in the initial years after graduation.

One of the main reasons investment bankers can make more money straight out of school is the difference in educational requirements between the two careers. Becoming a lawyer usually requires a bachelor's degree followed by three years of law school. In contrast, investment banking has fewer rigid educational requirements, and a four-year degree is often sufficient to enter the field. This means that undergraduates looking to start earning without incurring additional student debt from law school may prefer investment banking.

The starting salary for investment bankers is very competitive. As of 2023, a first-year analyst in investment banking could expect a base salary between $100,000 and $120,000 per year, according to Wall Street Oasis. This base salary does not include bonuses, which can be substantial. Bonuses in investment banking often equal 50% to 100% of the base salary, and the better you are at your job, the higher your bonus.

In comparison, the starting salary for attorneys varies depending on the field of law. Corporate law, which is considered the most lucrative area, offered a median starting salary of $200,000 for first-year associates in private practice in 2023. This figure can increase in major markets such as New York, Los Angeles, and Washington, D.C., where first-year associates may earn up to $215,000.

While investment bankers may have an edge in starting salaries, it is worth noting that employment in both fields is projected to grow between 2022 and 2032, according to the Bureau of Labor Statistics (BLS). Additionally, the BLS notes that services provided by investment bankers, such as assistance with initial public offerings and mergers and acquisitions, will continue to be in demand as the economy grows.

Lawyers have more room for salary growth

According to the Wall Street Journal, managing directors who aren't in high-ranking leadership roles at banks make an average of between $1 million and $2 million most years. This includes bonuses often paid in stock and has remained more or less unchanged from two decades ago. On the other hand, equity partners at top law firms can make around $3 million or more a year—more than triple what they were making two decades ago. An elite group of partners at some firms are earning north of $15 million.

The discrepancy in pay growth between the two professions can be attributed to several factors. Firstly, the public nature of banks means that profits are distributed to shareholders, diluting the compensation for bankers. In contrast, law firms, particularly those with partnership models, distribute excess earnings directly to partners, resulting in higher individual earnings. Secondly, the fee structures for bankers and lawyers differ. Bankers typically earn a bonus when a deal closes, while lawyers get paid regardless of the deal's outcome. This means that in a recession, bankers may sit idle, pitching for new business, while lawyers can continue to bill for their work.

Additionally, the legal profession offers a broader range of paths for attorneys to specialize and grow their salaries. For example, patent, intellectual property, trial, tax, and corporate lawyers are among the top earners in the field. Corporate law is particularly lucrative for new associates, with first-year associates in private practice earning a median salary of $200,000, and those in markets like New York, Los Angeles, and Washington, D.C., commanding even higher salaries of up to $215,000 per year.

Furthermore, the educational requirements for becoming a lawyer provide more flexibility and opportunities for salary growth. While both professions require rigorous education, the path to becoming a lawyer is more structured and offers more options for aspiring attorneys. A bachelor's degree is required for both, but lawyers must then attend law school and pass a state bar exam. This additional education can lead to greater expertise and specialization, which can command higher salaries.

Investment bankers work longer hours

Investment bankers work notoriously long hours, often ranging from 70 to 90 hours per week during their first year. This includes working on Saturdays and Sundays and very few vacation days. While work hours become more manageable as bankers build seniority, investment banking rarely becomes a 9-5 job.

There are several reasons why investment bankers work such long hours. Firstly, the nature of the job involves serving major clients with high-stakes demands and expectations. Bankers are often at the beck and call of their clients, needing to respond to requests at a moment's notice. This is further exacerbated by the unpredictable nature of the work, which can involve frequent changes and tight deadlines. For example, bankers may receive feedback on presentations at 11 pm and be expected to have the final draft ready by 4 am the next day.

The division of labour in investment banking also contributes to the long hours. Due to the client-specific nature of many deals, it is challenging to divide the work among multiple people. As a result, one person often has to "own" each aspect of a deal, leading to a high workload and long hours.

The culture of the industry is another significant factor. Senior bankers, having worked long hours themselves, often expect junior bankers to do the same as a sort of rite of passage. Additionally, the competitive nature of the industry means that bankers are always trying to impress clients and outdo their competitors, leading to an increase in workload and hours worked.

Lastly, the availability of technology and the work-from-home culture during the pandemic have also impacted the hours worked by investment bankers. With remote work, bankers are expected to be constantly available and responsive to messages and work requests at any time of day. The lack of separation between work and home life has further blurred the boundaries, making it challenging for bankers to disconnect and take breaks.

Lawyers have more career paths available to them

The variety of career paths in law means that there are options for lawyers who want to work more traditional hours. Roles within the local public defender's office, for instance, follow a more standard 40-hour workweek. However, these roles do not offer the same lucrative salaries as those found in corporate law.

Law also offers a wider range of exit opportunities than investment banking. Lawyers can go in-house, for example, and work their way up from there.

Additionally, the skills required for law are more transferable than those required for investment banking. Law school teaches strong critical thinking, persuasive, and analytical skills, which can be applied to a variety of fields outside of law.

While investment banking might be the more lucrative career path in the short term, law offers more diverse career options and greater long-term earning potential.

Investment bankers require greater quantitative acumen

Investment banking and law are two popular career paths for ambitious young people looking to earn a good salary straight out of university. However, the two careers require different skill sets, and it is important to understand these differences when choosing between the two.

One key difference is that investment banking requires greater quantitative acumen and math skills than law. Investment bankers need to be comfortable with large numbers and complex financial calculations, as mistakes in this field can cost companies billions and even result in job loss. On the other hand, law is a broader field with more diverse paths available to attorneys. While some areas of law may require mathematical skills, others may focus more on persuasive abilities, critical thinking, or multilingualism.

The educational requirements for becoming a lawyer are more rigid than those for becoming an investment banker. Aspiring lawyers must complete a bachelor's degree, attend law school, and pass their state's bar exam. This typically requires at least seven years of post-secondary education, resulting in more student debt. In contrast, investment banking has fewer educational requirements, with most firms requiring only a four-year degree from a top-rated university. While an undergraduate degree from a less prestigious school may hinder one's chances, obtaining a Master of Business Administration (MBA) can improve one's prospects.

The starting salaries for these careers also differ. As of 2023, a first-year investment banking analyst earned between $100,000 and $120,000 in base salary, with potential bonuses of up to 100% of their base salary. In law, corporate law is considered the most lucrative field, with first-year associates earning a median salary of $200,000 in 2023. However, it is important to note that salaries can vary based on the region and specific field of law.

While both careers offer high earning potential, the work-life balance differs significantly. Investment bankers can expect to work long hours during their first year, averaging 70 to 90 hours per week, with minimal vacation days. Corporate lawyers follow a similar schedule, although less demanding paths within the legal field do exist, such as positions within the local public defender's office. However, these positions typically come with a significant pay cut.

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