The Myth of the Investment Banking Career Path
I’ve gotten a lot of questions about how you can start your own hedge fund, make $1 billion per year in cash, and then retire at age 30 with enough capital to buy several countries.
So today I’m going to give you the exact investment banking career path you need to do all this: all you have to do is copy and paste and fill in a few blanks and you’ll be well on your way toward being the next hedge fund billionaire.
The Short Con
You really thought I was going to share that priceless information when I could just keep it for myself?
Just like when I explained why finance doesn’t guarantee you $10 million and your own beach in Thailand, you’ll want to grab some yerba mate and close your YouTube windows because this will be a long one.
And by the end you might be having a quarter-life crisis.
Although the introduction above is a joke, it was inspired by reality: I get dozens of emails about the best “path” to follow and the trade-offs between different “career paths.”
We’ve begun to believe that there’s a single set of precise steps you can follow to become MD at a bulge bracket bank, a Partner at your own hedge fund, or even the top guy at the SEC.
So where did it start, and why do we believe so strongly in the investment banking “career path”?
We Want to Believe
Sure, there’s an 87-step process you can use to go from student to CEO. You just need to stick to the plan precisely over 25 years and pay really careful attention to steps 61-72.
The last time I published a similar article, something interesting happened: even though the article explained why there is no “perfect” job in finance, many of the comments were from readers looking for exactly that.
What about private wealth management? What about finance in this one city if you keep your hours down by not doing x, y, and z and instead doing things completely differently?
The magic bullet is out there. Right?
Because You Learned It In School
What happens at the end of 1st grade? You move into 2nd grade. At the end of 8th grade, you go into high school – then at the end of high school you start university.
For over 20 years, most of us follow a specific path our entire lives.
So what happens afterward?
We want to keep following a specific path.
That’s why so many kids from Harvard head to Wall Street: there’s a promise of unlimited rewards if you follow a specific set of instructions.
And how bad could it be? There’s greatness at the end:
Elements of Truth
Yes, it’s difficult to move from a hedge fund trading weather derivatives to one investing in technology companies in Israel if you’ve been at your fund for 10 years already.
Yes, you probably do need to be a Governor or Senator before you can become President of the United States (well, maybe not anymore after the 2016 U.S. election…).
If you look at smaller segments of your life, there are “paths” at certain points or at least obstacles you have to overcome to get from point A to point B.
But what happens before you get to point A or after you get to point B?
For all the hype over exit opportunities, no one has a well-defined picture of what happens after you get into PE or after you get into that hedge fund you’ve been lusting after.
Who Wants to Do Any Work, Right?
Career “Path” implies that you can get to your destination without much effort: you can just stroll along, and no matter how slowly you go, eventually you’ll reach the end.
But what if we called it a “career twisty, crooked, spiral with boulders falling down” instead?
Plus, you might actually have to do some work then.
Even in more “creative” or “independent” professions, we still want all the answers handed to us.
What entrepreneur wouldn’t want the exact set of steps needed for a $10 billion IPO? What actor wouldn’t want to know the exact set of movies he needs to star in before hitting it big?
Why do the work when someone else can give us all the answers?
Forget About Career Path, Think About Career Destination
“Path” also implies that the destination is the most important part and that everything beforehand is uninteresting.
I see this all the time when I get emails from readers wondering how they can “skip” being analysts or associates and become MDs directly instead.
Two problems with this:
- You can’t actually do it.
- If you don’t like the work at the analyst or associate level you still won’t like it at the MD-level.
Yes, everything becomes more relationship-driven at the top but you are still pitching and executing the same deals.
It’s not like you suddenly become Ari Gold and start “advising” supermodels.
There’s No Data On Career Success
What percent of college graduates who became investment banking analysts 20 years ago are now Managing Directors?
I have no idea, and neither does anyone else.
Making decisions when data suggests the opposite is dangerous, but making decisions in the complete absence of any data is even worse.
When there’s no data, it’s easy to make statements like, “Anyone who starts out in investment banking or management consulting rises to a high-powered position and becomes a millionaire within 10 years.”
Even though we don’t have the data, you can easily disprove this one: just look at the website of any financial institution and compare the number of analysts or associates to the number of MDs or Partners.
Somewhere along the way, people are falling off the path.
We Would Rather Avoid Loss Than Achieve Success
Most of us are more motivated to avoid loss rather than to achieve what we really want.
That’s why I title so many emails to BIWS members “bad news” – even if it’s not bad news, it makes you curious and prompts you to open it.
What’s the bad news? Are you shutting down? How will I be affected? How can I avoid having something bad happen to me?
It’s the same with the “career path”: it may not be ideal, but it’s better than the alternative of being directionless.
We Like To Blame Other People
Well, you didn’t go to an Ivy League school… you didn’t take the CFA… you didn’t have an internship.
When someone else defines the path, it’s easy to blame external factors or “the rules” when things don’t go as planned.
Having someone else define a path also lets us spend a lot of time on marginal tasks – like getting certifications – while avoiding the larger questions.
So that’s where the Myth of the Investment Banking Career Path comes from.
Just one problem: there’s no such thing as a “career path.”
No one can tell you the exact set of steps you need to follow over 20 years to go from MBA to MD.
No, you “normally” don’t break into finance from law or engineering or real estate or sales or non-profit work, but that doesn’t mean you can’t.
Besides the fact that there’s no set of precise steps you can follow, there’s another big problem: you’ll change your mind over time.
If you go to certain schools, going to work in fields like investment banking (or even accounting) is viewed as mandatory – when everyone around you is doing it, you have to do it just to fit in.
But once you graduate, you’re no longer under constant scrutiny – so following a path doesn’t seem as necessary.
The Real Investment Banking Career Path
So is there any real path over the long-term? Surely you can’t just get out there and do something completely random, right?
There is a “path,” but it’s not the elite high school –> Ivy League school –> investment banking –> PE –> Greatness one that you’ve seen.
Make money, move up. Don’t make money, move out.
Want to earn a lot of money without talking to anyone or doing anything other than crunching numbers?
Not likely to happen.
Despite the obsession with analysis, financial modeling, and how many tabs your spreadsheet has, all of those skills are commodities.
What really matters are relationships and specifically how well you can leverage those relationships for profits.
Where Junior Investment Bankers Get Stuck
And this is exactly where a lot of people get “stuck” at the mid-level: they’re good at execution but can’t bring in new clients or generate profits or ROI on their own.
But that’s exactly what you need to advance to the top, and it’s the actual “path” that no one ever tells you about: make money, then make even more money, and then make even more money after that.
But It’s Scary!
For 2 reasons:
- You won’t know if you’re any good at it until you’re at the level where you can make money through your own efforts.
- No one can “teach” you how to reach the top this way. Some people have a knack for it, while others can never do it even after years of effort.
That might be why you never hear about this “career path”: we don’t like to acknowledge uncertainty.
But wait, do you really need these “relationships” for everything? What about something like trading, where you could just follow a squiggly line around the screen and make a lot of money?
It’s true that relationships don’t matter as much (at all?) in trading, but it’s even more results-driven than investment banking.
If you’re not turning a profit, they won’t hesitate to kick you out ASAP. And if you turn a huge profit, you’ll move up – quickly.
Compare that to investment banking or private equity, which doesn’t become profit-driven until you’re closer to the mid-level.
The Mid-Level Career Curse
A lot of financiers start off as analysts or associates, do well, and assume that it’s a straightforward path to the top: Analyst –> Associate –> VP –> Director / SVP –> MD.
Yes, those are the stages you go through to reach the top but it’s not how you actually get there.
This is what happens when you “fail” in finance: you reach the mid-level but can’t go any further, so they keep you around for a bit and then show you the door when you can’t transition to profit generator.
And then you “move into industry.”
What to Do About It
So there’s no such thing as a specific career path that will get you to the top of the investment banking tree.
At the beginning you need to follow orders from others, but then over time you need to turn into a profit center.
So what should you do, and how can you prepare?
Try Out Everything You Can
It’s much easier to switch “paths” – or invent your own – when you’re younger and you don’t have a 20-year history following you around.
So do everything you can to try out different industries and different roles – school-year internships, pre-MBA internships, and simply talking to as many people as possible.
You’ll probably be wrong anyway, but at least this way you can say you tried.
Take Anything You “Must Do” With a Grain of Salt
There are very few things you “must” do to break in or advance once you’re in.
You need a degree and decent grades but beyond that it’s not like medicine where you need multiple degrees, a residency, and all sorts of other certifications.
Similarly, career advancement rarely requires certifications, specific experience, or anything else artificial: just make them money.
And be glad that there’s far less politics in finance vs. “normal” companies: being results-oriented is great if you can get results.
Stop Making Detailed 20-Year Career Plans
There’s a chance that investment banking might not even be around in 20 years.
At the very least, the industry will be way different and whatever plan you came up with in college will be outdated within a year or two.
If you want to get into a specific type of PE firm you might plan ahead for that – but when you get into specific dollar amounts you want to be make in 10, 15, or 20 years, you need to stop.
Make or Save Them Money… From Day One
This is the most overlooked one: even at the junior levels you need to show evidence that you can one day earn money for your firm.
Most VPs and MDs don’t even remember how to use Excel – but they do understand profit.
You need to strike a balance here because you can’t go in and start asking about cross-border China deals on your first day – but once you prove yourself after a few months of work, you need to make yourself even more useful.
It’s tough to source actual clients at the junior level, but you can suggest ways to find them, methods for saving time or money, or anything else that makes senior bankers’ lives easier.
And if you don’t do that, forget about becoming an MD: you may not even make it into private equity.
Most of all, stop searching for a specific investment banking career path – because there isn’t one.
There are many possibilities, but no paths.
Cast a wide net and try out as much as you can as early as you can.
See what you like the most, pursue it, and adapt accordingly.
And hey, if all else fails, you can always join the circus.
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