Investment Banking Headhunters: Friend Or Foe?
“My name is Rebecca Nicholson. I’m a recruitment consultant at Assbury Moron.” This HR chick has obviously mis-dialed and has no idea that this is not Assbury Moron, or wherever else she’s looking for.
“A recruitment consultant. A headhunter. Are you free to speak for a few moments?”
A headhunter! Wow. Ok. Sure you have time to speak!
“Um, er… yes” you mumble in a whispery voice as you stand up and walk away to find a little privacy. Like it isn’t suspicious enough that an unknown caller rings and after they introduce themselves you get all secretive and hide, but you obviously don’t realize this as it’s your FIRST HEADHUNTER CALL!!!!!
“Um, er… yes… I can speak now”
“Great,” says Rebecca, “Mike, I’m calling because you’ve been recommended to me and I would like to see if you’ll be interested in coming in to see a private equity firm for an interview.”
-The Kruelberg Kretin Saga – Episode VI: The Headhunter Call, The All-Nighter
With everyone on Wall Street getting fired and those who haven’t been fired looking at other opportunities, I’ve seen lots of discussion lately around headhunters.
There are many misconceptions out there about what headhunters actually do, how they get paid, and who they work for.
So let’s fix all that right now.
What Headhunters Do
You might recall back when I explained what investment bankers actually do that I likened us all to Ari Gold. We don’t create; we’re not there for the long-term; we just sell.
But if there’s anyone more deserving of the “Ari Gold” title than investment bankers, it’s headhunters.
Recruiters are hired by investment banks, private equity firms and hedge funds to find potential candidates for hire. A lot of junior investment bankers get this wrong and think that the recruiter works for them.
I’ve seen questions like “Should I get a headhunter on retainer?” asked on forums and via email.
But unless you’re willing to pay them up to a third of your total pay upon placement (what the firm retaining the headhunter might pay), you will never have a headhunter “on retainer.”
Since they are paid on commission and the firm that retains them pays them, their loyalty is to the firm.
This is not necessarily a bad thing, but you should keep it in mind when making decisions about where to go next.
The Recruiting Process
Generally the headhunter contacts you directly by phone or email and introduces himself/herself, then assesses your interest in the opportunities he/she has available.
You need to meet in-person so you can present your “story” and so they can do a better job bringing you the appropriate jobs. Meeting in person can also help you overcome a weaker finance background or a non-brand-name bank.
After that, they will pass your resume onto firms that hire them and will effectively act as the first screen in the recruiting process.
After your first interview, the role of the headhunter varies depending on which firm and which recruiter you’re dealing with.
Sometimes they will back off and let you continue discussions on your own, and other times they will talk to both sides throughout the entire process and try to make a “deal” happen.
Why They’re So Prevalent In Financial Services
Recruiters exist in every field, but they’re most prevalent and most influential in financial services for 2 reasons:
- The highest pay of any industry out there. Even junior-level employees make over $100,000, and mid-level hires will get between $500,000 and $1,000,000. Try finding that in manufacturing.
- Incredibly high turnover at all levels. Just look at what happened to UBS LA with Moelis’ departure. Some analysts switch firms multiple times in 2-3 years.
If you get paid commission whenever people switch firms and you work in the industry with the highest salaries and highest turnover rates, that translates into a lot of money for those who facilitate the moves – the headhunters.
Also, the world of finance is very small – both in terms of firms and number of employees. Even the largest private equity firms have only a few hundred employees – just look at Blackstone’s 2007 10-K:
“…we employed approximately 1,020 people, including our 65 senior managing directors and approximately 395 other investment and advisory professionals.”
Less than 500 “investment professionals” at the largest and most well-known PE firm out there.
So it’s easy for a few recruiting firms to “own” all the relationships with buy-side institutions and to be responsible for all their new hires.
This would be much more difficult in a field like technology, where there are tens of thousands of employees at brand-name firms.
So, Should You Use Them?
Almost certainly. In fact, if you ever want to work at a private equity firm or hedge fund, you don’t have much choice in the matter.
Since the firms are so small, they almost have to rely on headhunters to find candidates. No matter how well-connected the investors are, they’ll never have good access to investment banking analysts with only 10 employees.
You should definitely network with firms you’re interested in and see what develops as well – but you probably won’t know people at every firm you might want to work at.
And that’s where headhunters come in: they provide the introductions that get you in the door and alert you to opportunities you might not otherwise know about.
Friends have gotten interviews via networking, without going through headhunters – but very few have actually received offers at legitimate firms without going through them.
Buyer Beware
As I alluded to above, there are a few points to watch out for when doing your recruiting through headhunters.
Introductions, Not Decisions
Never rely on a recruiter to make a decision on whether or not to accept an offer.
It’s not that they’ll try to lead you astray or force you into something you don’t want – it’s just that the decision needs to be yours.
You should do your own diligence when interviewing and decide for yourself what makes sense.
The Tough Market
Besides financial institutions, guess who else suffers when the market tanks?
That’s right – the headhunters. When hiring slows down and the number of people being laid off exceeds the number hopping between firms, headhunters lose their main source of revenue.
So in a recession, you need to be even more careful and persistent with how you approach the recruiting process – headhunters can still help, but you need to consider all angles and network on your own when you’re “in the market.”
Coming From Non-Bulge-Bracket Banks
Some headhunters will ignore you or pay less attention to you if you’re not from a bulge bracket bank. It’s just a matter of return on time for them – they are more likely to place candidates who come from “better” names, so that’s where they spend most of their time and energy.
Sometimes you can get around this by making a great impression during your interviews. But this is difficult and you’ll be at a disadvantage no matter what you do.
The solution: continue to network on your own, and speak with headhunters who focus on smaller and middle-market firms.
Closing Thoughts
If you want to work in finance for the long-term, you’ll have to work with headhunters – regardless of whether you’re jumping between firms or you decide to start your own one day and need to find employees.
So get to know them, and speak with as many as you can to get introductions – but keep in mind that you also need to do some work on your own, and that you can’t rely on recruiters to do everything for you.
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Another great post. Thanks and keep up the good work!
Thanks, glad you enjoyed it!
In discussing recruiters, it is important to note the difference between firms that are retained and those that work on contingency. Retained firms are paid when the search begins; contingency firms only get paid when someone gets hired. Retainer firms conduct higher level searches wherein they examine the marketplace, personally interview all of the candidates, provide detailed written descriptions of the candidates, check references and act in a consultative manner. They do not send candidates to more than one client at a time. Contingency firms often don’t meet candiates, just send resumes and often send the same candidate to multiple potential hirers.
The contingency recruiter works for him/herself, and cannot maintain objectivity or the candidate’s interests because of the transactional nature of their relationships with their clients.
Retained search professionals do work for the clients who pay their fees. The fundamental difference resides in their desire to maintain long-term relationships with clients and candidates by seeking the most highly qualified candidate for the positions, even if that candidate makes less money than someone who is not as good.
We always recommend that candidates ask the recruiter if they are working on a retainer basis or contingency. It is an important distinction and will be a good predictor of what they can expect.
Excellent points Robert. I didn’t go into detail on retained vs. contingency firms here because it was more of an introduction to recruiters.
Still, I feel it is important to note that headhunters always work for the firm(s) and get paid by the firm(s) rather than the individuals and that they should not be relied upon for deciding on whether to accept offers.
Always a pleasure reading your articles.
Could you expand on how candidates can make themselves more visible and/or attractive to headhunters at smaller firms?
Thanks! Look forward to many more great posts.
Thanks, glad you enjoyed it.
As far as making yourself more visible: confidence plays a big role. If you come in and meet them and sound like you know what you’re talking about, that alone will go a long way toward making you more appealing in their eyes.
Make sure you have an iron-clad “story” for why you want to be in PE or HFs – the general “interest in business/finance” that worked for banking is not going to work here. You need to convince them that investing is your passion.
Good deal experience also helps a lot – even if a deal is small, if you can tell a good story around it or make it seem like you played a huge role, that also helps you.
Author, your statement regarding the percentage of payment headhunter’s recieve is incorrect /not universal. Good, retained firms take 33 and 1/3% of the annual estimated total cash. Also the section that mentions headhunters “will almost always urge you to accept it. Unless there’s something else that would generate a higher commission.” Is false, we do not make recommendations to accept an offer unless we feel this will be a good long term fit. Again most good, retained, reputable firms will guarantee that the candidate will remain gainfully employed with the client for a certain amount of time.
Elizabeth,
You may be right on the compensation – I’m no expert. 20% was an estimate to illustrate just how well they get paid.
On the second point, you’re right that some more reputable recruiters will not urge you to accept if the offer’s not right – but my point is that many recruiters are NOT in fact reputable and will do this.
To be more specific, I had a recruiter at one of the top 3 firms in the PE recruiting industry (obviously won’t mention name here) try to get me to accept an offer that I didn’t like.
There are many firms and headhunters that do not employ best practices however there are also many of us that do. While I enjoyed many points in the article it is not fair to “lump” us all together. There are many of us that encourage our candidates and clients to make the right long term decision rather than the easy money making decision. It is unfortunate to read bad press on headhunters as a whole, as many of us work heard each day to destroy these stereotypes.
I’m sure you are reputable and yes, this article is somewhat of an over-generalization as it is introductory rather than comprehensive in scope.
As I said in the article: I strongly, strongly recommend that everyone consult with recruiters as they think about next steps in their career. As with anything else, though, there are some things to be cautious of, especially given the market/economy we are currently in.
I attempted to stay “fair and balanced” here (and not in that Fox News way) and show the good and the bad, so sorry if you considered this “bad press.”
Congrads for reaching the 500 readers mark!
Thanks Mark! Now just have to keep going until I hit 5,000…. :)
Thanks for the post. One “rookie” question:
Assuming that I’m alright with dedicating 20 to 33.33% of my base, is using a headhunter a realistic option for me? I ask because I am looking to get INTO the business with little financial experience. It sounds as if headhunters may not even look at me if I don’t already come from one of the firms that gives them an attractive commission. Thanks again.
Not sure I understand what you’re asking for here – you can’t really “retain” a headhunter, at least I’ve never heard of such a thing. I was just illustrating above what % of your salary they get from the hiring firm when you get hired.
If you’re trying to break in with little financial experience, I would start by getting some kind of finance/business experience (even small places are fine – you just need something) first, then going the headhunter route – will be very difficult to get them to pay attention to you if you don’t have the finance experience.
I’ve really enjoyed your article, and I thought it was fair and balanced. Refreshing! Most articles bash recruiters unfairly. Usually written by people who are unemployable and looking for an outlet :(
I would like to establish – there are a few truths in this document which aren’t universal (perhaps you’re refering to the US market specifically? I think bankers globally will be interested in what you have to say, however).
Three points as a prelude:
1. Yes, search firms will charge up to 33% of the candidates package (and charge this to the EMPLOYER, which I believe has been clarified – in most countries it’s not legal [or at least not ethical] to charge the job seeker) and contingent agencies charge anywhere between 15-25% globally.
2. It may sound like the recruitment agency is making a pretty penny … and they are … but they’re certainly working hard and absorbing a lot of risk on the employers behalf – not to mention the hard-to-measure value of the introduction.
3. As further distinction, search firms also charge part of their fee to the employer up front, while contingent firms are ‘paid on delivery’.
SO: to my main point. The above definition between Search/Retained/Headhunting firms and Contingent/Selection firms isn’t entirely acurate.
I would argue that relationships with employers (the client) is equally as important to both types of agencies. This is merely a distinction in methodology, and doesn’t necessarily denote the quality of the service, or the longevity of the relationship with either the client or the candidate. From the candidate perspective, it shouldn’t make a difference.
Search firms will often be engaged for high-end executive headhunting, while contingent agencies will generally do middle to upper management, where a faster turn-around solution is required.
The key difference is not the amount paid or the relationships formed – it’s purely a headhunting V database/advertised search divide. Clients use each different agency depending on the methodology they wish to engage for the particular procurement needs they have.
Let’s face it – headhunting isn’t required for every job (even in a small market like IB/PE/HF etc… there are still bankers actively seeking jobs, and not waiting around to be tapped on the shoulder!!). PROACTIVE job seekers find contingent agencies to pair up with, in order to gain valuable information regarding their market positioning. When it comes to finding a new job, you can’t afford to let your ego get in the way – being headhunted isn’t that flattering!
Headhunting suits candidate-short markets (for example, at the exec level, and previously in the ivy banking sector) however due to the changes in the world lately…. we’re no longer candidate short… headhunting is out and contingent is the new black.
Just like any market turns and goes through cycles, so too the recruitment methodologies of the world change. All those who were waiting to be headhunted, will now we approaching contingent recruiters to join ther databases (this doesn’t have to be as cheap as it sounds – being on THE RIGHT database is INVALUABLE as the employment landscape changes… being refered to one of those good quality recruiters like Elizabeth could be the best thing that happens to you this year :)
So – I agree with the author – you DON”T need to pay your recruiter, but you DO need one. The value your resume had last year has all but gone down the drain this year… and there are thousands of others like you, I’m sorry to say. Basic supply and demand: there are too many bankers on the market right now, so being paired with the RIGHT consultant could be your make-or-break. On the other hand – you can’t expect them to pull a rabbit out of the hat – please don’t take your frustration at the world markets out on them!
(Also, as a side note – moving to Asia is not an option unless you have native Mandarin/Cantonese/Other skills. I’m not sure how this myth originated).
Good luck – contingent, search, or otherwise :). There are still jobs to be had – we just all need to work harder and making ourselves stand out above the crowd.
Thanks for the long and (very) detailed response. I’m glad I’m not in the job market anymore. :)
How do you actually contact headhunters?
Find their names online, then call or email them…