Why You Actually Work So Much As an Investment Banker (Yes, Even in a Recession)
“Why do you work so much in investment banking?”
“If you work so much, can’t they just hire twice as many people?”
“How much of your time do you even spend working?”
It’s something I’ve been asked at dinner parties, holiday events, and even by reporters…
But it’s also a question for which I’ve never heard a good answer.
Until now.
Traditional, Bad Answers
Some answers I’ve heard from other bankers before:
“Well, if we hired twice as many people and only made them work 40 hours per week rather than 80-100, we wouldn’t get the type of people who belong in this industry.”
“You get paid twice as much, so you work twice as much.” [NOTE: "Paid twice as much" is not true these days]
“The work isn’t hard, but everything has to be 100% perfect for the clients we work with… so the last 10% kills you and that’s why you work so much.”
None of these is “wrong,” per se, but they don’t exactly get to the heart of the matter, either.
The Real Reason(s) You Work So Much
Because work demands are unpredictable and division of labor is near-impossible.
You’ve probably heard a lot about the first part – everyone knows how investment banking can ruin your Saturday nights (and the rest of your life) because of demanding clients and unreasonable Associates/VPs/MDs.
But the last part of this always gets overlooked – I myself only realized it when I got to thinking about this question the other day after a reader asked me about it.
Unpredictable Demands
Just to recap what you may already know, let’s first look at why exactly work demands are so unpredictable.
The basic reason this happens is that investment banking (along with many other sell-side industries) is a client-service industry catering to huge clients.
Client-Service Industry Catering to Huge Clients
The most important words here are “service” and “huge clients.”
Unlike a normal company that sells products, bankers have to respond to every single request clients have because they’re not selling a product – they’re selling their time and attention.
So if it’s Saturday night at 7 PM and your MD gets a call saying that a board presentation is needed for the next day, you have to do it.
Similar to consulting or law, there’s little leverage because more revenue means more hours and more work.
There are plenty of service-based industries with poor “customer service,” but banking is not one of them – too much money (millions of dollars) is on the line if a single executive gets upset over something.
If banks had a different model – say, earning $50,000 per deal and doing 1,000 of them each year rather than doing 2 deals per year worth $25 million in fees each, this would change.
But that would be far less profitable than what banks actually do, which is why they stick to the “2 deals worth $25 million in fees each” model.
And it’s why they have to do everything their clients ask for.
Unpredictable Demands
What makes it worse is that these demands are unpredictable.
When you’re working on an M&A deal, for example, most of the work happens in the beginning when you’re preparing marketing materials and developing financial projections – and then you get busy when the deal is coming to a close. But the middle part usually doesn’t involve as much work.
That’s almost predictable – but the problem is that in the middle of that process, random events, requests, and problems always come up.
You might get an acquisition offer from a buyer who dropped out but then came back to the table at the 11th hour; maybe your client missed its projections and you need to completely revamp your 22-page model; or maybe the CEO is just having a bad day and he wants to see completely unnecessary analysis, just for fun.
Your team will make unpredictable demands as well. Sometimes you’ll get a VP or MD who asks for pointless work all the time – at all hours of the night – and completely overwhelms you.
So the logical solution is to hire more people to handle this unpredictable workload, right? Right?
Wrong.
Division of Labor Failures
The problem with “hiring more people” is that it’s very difficult to divide work on one particular project/client among different Analysts or Associates, for 2 distinct reasons: accountability and knowledge.
Accountability
If a senior banker needs something done, he wants to go to one person who’s in charge of everything – not 2 or 3 who all have something to do with the project.
Similarly, if an Associate needs a model built he only wants to ask 1 Analyst to do it – he doesn’t want to pick between 2 or 3, each of whom claims he/she is too busy with other projects to help out.
Accountability becomes even more of a problem when there are mistakes or changes that need to be made – if there are multiple junior bankers involved, each one is likely to “blame” whatever went wrong on the others.
So it’s important that only 1 Analyst/Associate be responsible for a particular client in the interest of accountability and actually getting things done.
There are cases where multiples junior bankers will be assigned to large or otherwise important deals – but when that happens, they usually work on completely different aspects of the project and it’s so large/important that you can actually divide the work.
Knowledge
The other problem with assigning multiple junior bankers to a single client or deal is that it’s very difficult to keep everyone in the loop.
One Analyst could start modifying a model… and then not tell the other one about it, which would result in confusion at 3 AM when Analyst #2 is trying to update a presentation with the model that Analyst #1 modified 1 day ago but didn’t tell him about.
It also takes time to get up to speed on what has been happening and the existing material you’ve created for a client – deciphering months or years of work is not something that happens in hours or days.
One deal I worked on years ago fell apart within 3 months of starting – but when it came back to life 6 months later because of a new buyer at the table, I was called back in to help out even though I was already pulling all-nighters on other projects.
Why?
Because no one else had the knowledge of what was contained in the hundreds of files we had, and we needed to put together a presentation in a day. We didn’t have the time to get someone else up to speed.
It’s the same reason why Jack Bauer always gets called on to go undercover – he has way more experience and training than you, he already knows the arms dealer he’s spying on, and that nuclear bomb is going to go off in FOUR HOURS if he doesn’t extract the necessary information.
You’d just get in the way, and that bomb would go off and take out downtown LA in the meantime.
100 Hours Per Week
Taken together, this means that banks need to hire a fixed number of people based on the economy and how busy they are with clients and deals.
If a bank were to over-hire, a lot of new hires would be sitting around doing nothing much of the time because of the unpredictable demands of clients – and because it’s hard to assign multiple junior bankers to one deal.
And if it were to under-hire, the bankers would just work even longer hours than usual – which banks view as a much better alternative than letting their people sit around twiddling their thumbs.
Even in a Recession?
We’ve been referring to “clients and deals” – but does this same rationale hold true in a recession, when there are relatively few clients and even fewer real deals going on?
Yes – but you can substitute in “pitch books” for “deals” and “marketing work” for “clients.”
The difference is that marketing work – pitch books, random presentations, and answering odd requests from potential clients – only takes a fraction of the time that working on actual deals does.
You’ll finish in a matter of days or weeks rather than months – but that also means that you’re more “expendable” in a recession because no specialized knowledge is required.
It’s more like defusing minor assassination threats rather than nuclear bombs.
With the former, you can rely on the rest of CTU. But with the latter, you need Jack Bauer (or an equally capable banker).
But How Much Do You “Really” Work?
Many of those 100 hours will not be spent on actual work. You’re sitting around a lot of the time, and that’s because of unpredictable demands combined with the difficulty of dividing labor.
For more on this issue, check out the Week in the Life series we did last year to see how much you “work” can vary dramatically by the day and by the hour, even within the same week.
Other Finance Industries
Even though other industries in finance are not “client-service,” many of the same principles apply.
On the buy-side, even if you’re not working around a client’s demands 24/7, you’re still working on specific projects: it’s just that they’re investments and portfolio companies rather than clients.
But the same points about accountability and knowledge hold true: you get very busy at different phases of the investment cycle, and often work banking-like hours – even if you don’t represent clients.
The difference is that it’s not always that bad (at least at smaller firms) – the investors can pick and choose what to potentially invest in, so sometimes your lifestyle improves.
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Tags: all-nighters, clients, co-workers, investment banker lifestyle, investment banking, investment banking analyst, investment banking associate, Jack Bauer, understanding investment banking, work hours
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Nice article, although I think you understate the correlation between the size of the fees charged by investment banks and the necessity of immediately addressing each and every client demand. Those who decide what size fees to charge (MDs) are naturally inclined to charge as much as possible while still getting the assignment. The problem with this is that it creates expectations with the client that his or her investment banker is working around the clock and catering to his or her every need. Presumably, if the fees charged were slightly more ‘reasonable’ (a relative term to be sure), client demands would not take precedence over, say, an analyst’s Christmas dinner. As a case in point, corporate executives have plenty of people working for them whom they would not ask or expect to work until 2am on a given night or to come in on the weekend, and the reason is that those people are not paid to do so. Senior bankers, on the other hand make a point of creating those expectations, in effect writing checks with the time of the people under them in an attempt to justify the size of a fee. Now I will grant that there are clients and situations that will demand 24 hour attention for one reason or another (ego, timing, past mistakes, etc.) but in general, I don’t think the correlation between fee size and client expectation can be understated.
Yup that is very true. This is why I never want to go into a business where I charge that much money, it just sets expectations way too high.
Tongue in cheek?
Of course not, I really do feel sorry for my old MDs.
It seems to me that working 80-100+ hours a week are too deeply embedded into the investment banking culture to ever really change.
The only way it could change is for a leader in the field, or an upcoming leader, to change the culture of working ridiculous hours to meet every demand. However, the rewards are many for those that value the money (obviously), prestige, and opportunity to learn more about an industry than they’d ever hope to know.
I’d be willing to work 100+ hours a week for a great paycheck, but that’s just me.
Yeah that’s true… it’s so embedded into the culture now that it would be difficult to change overnight. There’s always that, “work hard, play hard” mentality in everyones’ mind.
Wait…I’m kind of confused.
Didn’t banks overhire in 07/08, and that’s why the industry is facing such drastic human capital dislocation (sorry for the HR speak…gotta get it out of my system somehow…)?
I think that’s part of the reason why there’s so many layoffs, correct?
In absolute terms, yes, there is -less- work that needs to be done in a recession.
But those who are LEFT are still working long hours for the most part – it’s just that they’re focused on marketing rather than clients.
Uhhh… soo much pitch work… brain hurting!!
At least you have this site!
I’m an intern at the moment and am ‘liking’ it so far… but don’t you just get annoyed about being asked to do completely irrelevant and pointless stuff some time?? Does it happen regularly and how do you cope with it? I mean ur already doing 100hr weeks and the last thing i would want to do is make a model that took me 5 hrs just for some fat cat in the middle of nowhere to laugh at!
Welcome to banking!
HAHAHA! I love ur sense of humour
Interned at a large European firm and two U.S. bulge brackets as a SA for IBD, and I think it’s really 50% demand and 50% the team’s culture.
There’s that unpredictable demand and inability to divide work efficiently, but when the team (I mean like SVPs and MDs) wants face-time… whew…
I always did my internship with the principle that SAs should be the first one in, and last one out. And, even though all those firms I worked for had lots of demand, at the European one I only worked about 80 hour weeks, where one of the U.S. bulge brackets, I worked regularly over 110 hours a week. (Sadly, I’m going back to the firm this summer…)
And it’s very very true that the “knowledge” aspects of it plays into a very crucial role. To give some example, I got a call three weeks after my internship was over from my VP about a pitch that I worked on w/o an analyst/associate (directly with VP because of staffing crunch). I was on the phone with him and analysts I worked over the summer from 10pm to 1am trying to transfer all the knowledge and work I’ve put into it so they can crunch out the final draft before a potential meet with the client next day.
Yup exactly. My last week before leaving was fun, I had to tell everyone what was going on on about 10 different projects… argh.
Though no one can deny the long and brutal hours banking analysts work, I have never, ever under any circumstances worked, seen any one work or heard of a single banker spending 110+ hours on a regular basis in the office. So, Summer Analyst, either your exaggerating or you work for a bank who’s CEO is Satan himself and is headquartered in Hell and not Wall Street.
Haha everyone exaggerates I suppose. 110+ hours on a regular basis sounds unrealistic, though it may happen every once in awhile…
I would agree with the above. Would also add that some banks try to run lean (i.e. the real sweatshops), which means that while you may be on a deal that requires late hours, you may also be put on something else. I think this is what really creates the long hours, at least in my case, because you get through the work for a particular client and then you have something else that you have to do that you can’t start until you are finished with work your client requested.
This is what the difference is between 70/80 hour weeks to 100 hour weeks.
Yeah, some places just love to abuse you….
[...] Mergers & Inquisitions on why you work so much as an investment banker. [...]
Nice article. I was just reading Outliers by Malcolm Gladwell. In the book, he brings up an idea about a 10,000 hour rule. This rule, he states, is the amount of time that it takes a person to truly master a subject. Thinking in this vein, and adding to your section on specific knowledge, forcing bankers to put in +100hr weeks helps them to reach a point of mastery much more quickly than if they were to work 40-60hr weeks. Additionally, he discusses the idea of self-fulfilling prophecies in hockey where at young ages kids are selected to receive extra training based, unfairly, on their size (and thus the possibility that they’ll be good). This extra training actually makes them better, so that when the next selection period comes around they really are more likely to be successful than their peers. If we combine this idea with a belief that i-banking is a competitive atmosphere, where people are driven to be more successful than their peers (even in a team environment), it is possible to think of a theoretical game scenario where two players have the choice to work either 40 hours a week or 100 hours a week. If they both choose 40, they will progress at an equal rate, which leaves them equally likely to receive a promotion. If one works 100 hours a week and the other 40 hours a week, the player who worked 100 hours will receive the promotion. If they both work 100 hours a week, they again progress at the same rate, which again leaves them both equally likely to get the promotion. This is an example of a prisoner’s dilemma game, where even though the optimal choice (for the bankers-not the bank) is 40-40, the equilibrium is 100-100.
Maybe, but there’s no way it takes 10,000 hours to master something as simple as i-banking…
This question may be a bit off topic.
How Old is Too Old for Banking?
I keep hearing ppl drag’n about how *old* folks wont be able
to keep up with the pace and 100+ hours in investment banking.
So as a ex-ibanker, what do you think?
How old was the oldest analyst or associate you’ve seen?
See the FAQ. 30 for Analysts, 40 for Associates.
An article about “Staying Alive! or Awake!” must be helpful =)
Maybe a Survival Guide through this body-deteriorating periods.
I have been hired by a large investment bank in Canada as an analyst. I have no real financial or valuation modeling experience, is this an issue or will I be properly trained upon arriving?
If it’s a large bank they will train you
Is it completely uncommon for analysts to drop out before their two years are up? I mean more out of the “can’t deal with it anymore” type dropping out, not dropping out after a year because they only wanted to do it a year.
Plenty of analysts do that, but usually they wait until the 1-year mark rather than quitting early and foregoing their bonus.