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.
Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews
Positioning Yourself for Business School, Part 1: The Financier
It’s a question on everyone’s minds these days:
“How can I get into the Harvard, Stanford, or Wharton MBA programs?”
“If I don’t get into finance or consulting right now, should I go back to business school instead?”
“How can I stand out from everyone else who’s applying?”
With the markets still in turmoil, more and more people are thinking of heading to business school. Even those who actually have jobs are thinking of going back to school to insulate themselves from layoffs and get a 2-year vacation while they’re at it.
Regardless of your background, though, you’ll face a unique challenge getting into business school and then using it to get into finance:
The criteria to get into business school is different than the criteria to get into finance coming from business school, and the two often contradict each other.
So here’s how you solve that problem…
The False Promise of Re-Branding?
Here’s the paradox that crops up when you apply to business school and then try to leverage it to get into finance:
- Top schools like a diverse student body – they don’t want everyone to have done two years of banking followed by two years of private equity. Especially in recent years, these schools have become biased against students with pure finance backgrounds.
- Banks and financial firms, on the other hand, don’t care nearly as much about diversity and would love to recruit only students with previous finance experience. Someone with previous experience represents reduced risk, and is more likely to stick around past their first all-nighter creating a pitch book.
In late 2007, recruiters were still trying to convince me that two years of banking followed by two years of private equity was a “guaranteed” ticket into top MBA programs. It’s funny how quickly things can change.
One of the key selling points of MBA programs is a chance to “re-brand” yourself. And when banks desperately need people (see: 2004-2006), they’ll open up to your story of personal transformation from traveling bard to the next Gordon Gekko.
But when they’re not so desperate (now), they start to consider only those who have done finance before.
So this selling point is highly dependent on market conditions and often turns into disappointment for MBA-level applicants without some type of finance experience.
This past recruiting season, I spoke with many talented business school students who had started companies, nonprofits, and had all sorts of other impressive accomplishments. But even with those credentials, each one faced an uphill battle getting interviews and job offers if he or she had not done finance previously.
This brings us to a curious conclusion when looking at both of these points together:
If you’re already in finance, you need to find a way to stand out amongst the crowd and tell an interesting story if you want to get into business school. And if you’re from a different background, you still need to worry about that – but more importantly, you need to find a way to show banks that you can do the work.
In this article, we’ll address anyone in the first category: anyone from a finance background thinking of business school.
Standing Out From a Finance Background: Got Prestige?
I received an email from a reader the other day asking, “I thought it was basically the prestige of your firm that set you apart in MBA admissions?”
My response: While brand-name recognition matters, admissions committees don’t view you dramatically differently based on where you worked within a specific industry. They’re not going to look at someone and say, “Aha! He worked at Morgan Stanley so he should definitely get in, but that guy only worked at Houlihan Lokey so he is obviously unqualified to join us!”
You do gain an advantage by working somewhere well-known, but keep in mind that people from all sorts of different backgrounds apply to business school – so the “prestige” arguments people often get in on message boards become even more pointless in this context.
After reading thousands of applications, anyone in admissions starts to view most banker types as… pretty much the same.
So basing your entire application on the “prestige” of wherever you worked is a losing proposition, especially these days when tons of laid-off financiers are applying to business school.
The Real Way to Stand Out
Alex from MBA Apply hits the nail on the head with the real way to stand out in admissions:
“Build a life, not a resume.”
This is not a new concept for anyone who’s been reading this site over the past year. Regardless of whether you’re applying for business school, university, or even going through investment banking interviews, your chances of success depend largely on your “story.”
One small problem: if you work full-time in finance, it may be almost impossible to find the time to do anything outside work.
How to Develop an Interesting Story Even If You Have No Time
You don’t need to spend 20-40 hours per week on something to make yourself stand out.
But if you’re in banking or at a large PE firm, you probably don’t even have five hours per week to spend on other activities.
If you’re still thinking about business school and have absolutely no time for outside interests currently (Wait, how are you reading this article then? Hmm…), here’s what I’d recommend:
- First, decide if you’re actually interested for the right reasons. If you’re planning to stay in finance for the long-term and you’re already in it, an MBA usually doesn’t make a big difference (exceptions apply). Being “interesting” therefore matters far less.
- If you are interest is sincere, reduce your work commitment by moving into a different firm, group, or industry. A word of caution: in most cases the only move that “guarantees” a better schedule is leaving finance and moving into “industry” in a business development or corporate finance role.
- Once you have the time, develop some of those forgotten interests and hobbies… or find new ones. Even something that only takes up a few hours per week can be spun into a good story on your applications.
Before exiting or entering different industries, you really need to weigh why you want to go to business school in the first place. My own personal view is that the “2-year vacation” plan is a bit silly given the expense, opportunity cost, and the fact that you’ll actually be quite busy (programs have become more rigorous).
That’s especially true these days, when everyone has the exact same plan and admissions are more competitive than ever before – you need better motivation than just wanting to take a break.
Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews
Damn, It Does NOT Feel Good To Be A Banker: Investment Banking Apocalypse
For those who weren’t paying attention over the weekend, top government officials in China and the US reached an agreement whereby China has agreed to acquire all outstanding stock of the United States at $1.00 per share, with an implied valuation of $1 trillion.
Although the US GDP is close to $14 trillion on paper, analysts have said that extreme exposure to subprime mortgages and a failing financial system pushed its value down to only $500 billion. China made a last-minute rescue, acquiring the country at a 100% premium.
(This is a joke, but I wouldn’t be surprised to see a headline like this soon.)
Ok, so in case you were on vacation, Lehman and Merrill both failed over the weekend, and the US financial system continues its descent into bankruptcy as banks and hedge funds spiral into a bottomless abyss.
So what can you do about it?
The Effects Of The Apocalypse
The collapse of 2 bulge bracket banks will have a big effect on you, but probably not in the way you’re thinking. Most commentary has focused on how the absence of 2 huge banks will reduce job openings and summer internship opportunities.
While this is true, the larger problem is that you’ll now be competing with everyone who will be laid off from Lehman and Merrill (and BoA, of course) – thousands of newly unemployed bankers in the system, also looking for work.
What The Unemployed Will Do
From what we’ve seen earlier this year, my guess is that a good portion of the unemployed – especially at the junior levels – will simply forget about finance altogether and just “move into industry.”
But the truth is a lot of them will also stick around and go for positions at middle-market and boutique firms.
Especially at the VP-level and up, anyone working at one of the failed banks is in a “limbo” where it’s too late to make a career switch altogether, but where it’s tough to find anything within banking – unless they get really lucky.
Bottom-line, though, is that you will be competing with a sizable pool of newly unemployed bankers.
Wait, But Won’t The Boutiques Get Bigger And Take Over?
No, I don’t think so.
I’ve seen some questions around whether the smaller banks will grow and take over the spots once occupied by Merrill, Lehman and Bear.
I think this is unlikely for 2 reasons:
- Deal-making is slow. It’s tough to grow a major business in a terrible market, and investment banking revenue is down over 50% from last year.
- This crisis proved that the pure-play investment banking model doesn’t work so well. So I doubt that these boutiques have any ambition to grow and replace the failed bulge brackets.
What You Should Do
So, what should you do in the face of apocalypse?
Sadly, there’s not a whole lot you can do – a broken financial system in the world’s largest economy is a big problem and one that’s well beyond your control.
Earlier I wrote an article on how to boost your recruiting chances in a tough market, and I would reiterate that advice here.
By now, if you’re seriously looking at bulge bracket banks (well, the ones that are left…) and have no previous finance experience, you’re basically crazy. Focus all your time and energy on smaller places.
However, even that strategy is problematic because everyone knows about it – so you have to consider some alternatives.
I think one of the best options is going abroad to find work – especially in the Asia Pacific region.
Yeah, everyone says you should start out in New York, but these days you’re more likely to run into laid off bankers jumping out windows than you are to run into a job.
One of the questions I’ve been getting lately goes something like this:
“Hi, I want to make a lot of money, not work a lot, have no risk and be able to do whatever I want all the time. How can I get into investment banking?”
I hate to shatter your dreams, but nothing’s perfect – every profession has a downside. Just refer to the graph below for the downside of working in finance:
Source: Bureau of Labor Statistics
It’s incredibly cyclical – and therefore far riskier than other industries. Over 100,000 will probably lose their jobs in this downturn.
So if you can’t get exactly what you’re looking for, you have two choices: either wait it out or compromise.
And with the state of the economy and all the news over the weekend, compromise is the better option.
Update: It’s not all doom-and-gloom just yet, guys. Looks like Credit Suisse and Moelis & Co. are both “on the prowl for bankers” – which just goes to prove what I wrote above about opportunities still existing at smaller firms and outside the US, especially in the AsiaPac region.
Update 2: Looks like Barclays is buying Lehman’s investment banking and capital markets divisions, saving between 9,000 and 10,000 jobs – so it’s not the end of the world quite yet.