by Brian DeChesare Comments (171)

From Analyst Monkey to King of the Jungle MD: The Investment Banking Hierarchy

From Analyst Monkey to King of the Jungle MD: The Investment Banking Hierarchy

“This is not a fraternity house,” my staffer explained as he hauled me into a small conference room.

“Some of the MDs have complained about how messy your desk is, so clean it up.”

Genuinely curious, I replied, “Were you referring to the empty Red Bull cans or to all the papers too?”

Not a good start to your 3rd week on the job.

I told this story to a few co-workers afterward and they all laughed and responded the same way:

“He’s lying, a bank is exactly like a frat house.”

They were right – just like a fraternity, there’s hazing, a hierarchy, and certain rituals you must go through to advance.

While this site has been analyst-focused in the past, today you’re going to learn all about this hierarchy, how much you get paid at each level, how the work differs, the average age range, and the possible exit opportunities.

And if you’re curious about hours please stop reading this site right now.

Footnotes & Starting Assumptions

As with the analysis of where your paycheck goes, here I’m starting with the assumption that you’re in a developed country in a major financial hub like New York, London, or Hong Kong.

At the end you’ll learn how this hierarchy might differ outside banking, outside those cities, and in other countries.

These pay figures are not exact – I used recent salary and bonus figures, data from the Careers-in-Finance compensation listings, and other sources like that to get numbers.

So yes, there are exceptions and sometimes you see more pay or less pay – these are rough averages.

Let’s dive right in and start with the bottom of the hierarchy: the analyst monkey.

Analyst

What You Do: You’re a monkey, and your chief responsibility is to collect bananas for the bigger monkeys higher up in the food chain.

You do most of the Excel and PowerPoint work, take notes, send emails and call people, and even take care of random tasks like fixing printers and picking up dry cleaning.

Most of this site has been focused on what analysts do, so see all the day in the life and week in the life posts for more.

How You Get In: You’re recruited from a top undergraduate or Master’s program, or you network like a ninja and get in from a lesser-known school. Once you go beyond a few years of full-time work experience, you won’t get in as an analyst because you’re overqualified.

Yes, some people pull this off anyway but it gets exponentially harder the longer you’ve been working.

Age Range: Most analysts are just out of school, so 22-27; in countries with military service or with 5-year undergraduate programs (Europe) the upper end of the range is more common.

Pay: This varies by region and the state of the economy, but most 1st year analysts make at least $100K USD all-in (base salary + bonus) and that may go up to $150K or more if the economy is good.

2nd and 3rd year analysts see increased pay, usually closer to $200K in a good year for a 3rd year analyst, and maybe $150K or a bit less on the lower end in a bad year.

Time to Get Promoted: Usually it takes 3 years to become an associate.

Possible Exit Opps: See our comprehensive article on IB exit opportunities.

Analysts have the most exit opportunities out of all bankers because they’re young and haven’t had “too much” experience in a certain field yet.

Associate

What You Do: If the analyst is the monkey, you’re a bigger and better-groomed monkey who’s much smoother in social situations.

You may still do Excel work if the model is complex, but mostly you are checking the analyst’s work and making sure he doesn’t screw up. You spend most of your time managing the analysts and making sure the VP’s orders get executed.

Much of your time is spent talking to clients and seeing what they need when you’re working on deals; analysts are too busy cranking away to have much client interaction, at least at large banks.

You get to attend more meetings and pitches than the analyst, but you will always have a non-speaking role unless the MD needs a number from you.

How You Get In: You either work as an analyst for 3 years and get promoted, or you get recruited out of a top MBA program after working full-time for 3-5 years in another industry.

Theoretically you could get recruited for an associate position if you’ve already graduated from an MBA program and have been working in industry for a while, but this is rare – your chances are 100x better when you’re still in school.

Age Range: This one varies more than the analyst age range because associates come from more diverse backgrounds; 25-35 is the safest estimate because some associates are promoted directly from the analyst pool while others get recruited out of business school.

Getting in when you’re under 25 would be virtually impossible unless you graduated college early, and having 10+ years of experience pre-MBA makes you overqualified.

Pay: Again, there’s more variation here than with analyst pay because the bonus takes up the bulk of an associate’s compensation and that’s heavily dependent on the economy.

In a bad year, a 1st year associate might get between $150K and $200K USD all-in, while more senior associates (3rd and 4th years) might get closer to $400K or $500K all-in in a great year.

If your group is just OK and the economy is neither great nor terrible, your pay will be in the middle of that range.

Time to Get Promoted: Usually it takes 3-4 years to reach Vice President, and it’s harder to get that promotion than it is to go from analyst to associate – you need to show more leadership and client management skills.

Possible Exit Opps: It is more difficult at this level, but the same exit options that exist for Analysts also exist for Associates.

There’s less of a structured process, and you have to be far more proactive in reaching out to recruiters and networking.

Beyond buy-side roles, other common destinations include corporate development at a normal company or corporate finance.

Vice President

What You Do: Moving up the pyramid once again, you are an even larger and more intimidating monkey, and you’ve got lots of barrels to throw down at the chimps below you climbing up the ladder.

You make sure that deals and pitch books get done – you interpret what the MDs and Directors want, and ensure that whatever pops out of your analyst’s cubicle resembles it.

You get a lot more client interaction, and may call buyers and directly pitch a company that you’re selling.

And as you move up, you have to start shifting over to relationship development and winning clients – which is incredibly tough and one of the most difficult transitions to make.

How You Get In: You get promoted after working as an associate for 3-4 years.

It’s extremely rare to break in as a VP coming from outside banking, and I’ve never seen it happen. To have the skills required to run deals and win clients you need to have been in banking for a long time.

Age Range: Since you must have been an associate first, we could say the age range is 28-40, with the average somewhere in the middle.

Pay: There’s even more variability since the bonus takes up such a high percentage of your compensation; base salaries do not increase that much as you move up (even MDs might see only around $150K-$200K base).

Most VPs will earn between $300K and $1MM USD, with the upper-end of that range for more senior VPs in a good year and the lower end for more junior VPs in a bad year.

Time to Get Promoted: Probably another 3-4 years to reach Director / Principal / SVP, though it varies and you may do it more quickly depending on performance.

Possible Exit Opps: Even more limited than associates – either stay in banking or go to a normal company in corporate development.

Moving into PE from this level would be “challenging” to say the least, and even in other fields of finance you would have too much experience to have a good shot.

NOTE: Again, though, in practice people can and do move around – so exit opportunities do still exist even at this level

Director / Senior Vice President / Principal

What You Do: This one is a mix between what VPs and MDs do, and the role differs depending on the bank and group.

Sometimes you focus more on developing relationships and winning clients, and other times you do more execution work and project management like VPs.

But no matter what your role is, you will have to move closer to winning clients if you want to advance to the next level – Managing Director.

How You Get In: You’ve already been an associate and a VP, and you get promoted to this level after a few years of being a VP. I challenge you to find a single example of someone who was not already in investment banking and entered the industry at this level – it doesn’t happen.

Age Range: Sometimes you could get promoted more quickly (2 years rather than 3-4), so we’ll say 30-45. 45 is on the high end and you’d see that only if the person did something else for many years before getting into business school and then investment banking.

Pay: This one’s hard to pinpoint because it’s somewhere in between VP and MD in terms of pay; we’ll say $400K – $1.5MM USD to reflect that range.

As with the other pay numbers here, you should expect the lower end of the range in a bad economy if you haven’t performed well (your closed deal count is low or nonexistent) and the higher end of the range in a good year.

Time to Get Promoted: Similar to the others, a few years to go from here to the next level: Managing Director. We’ll say 2-3 years to get a specific number.

Possible Exit Opps: Imagine a blank screen with no visible life forms. Now imagine seeing this every day after you quit or get fired.

In all seriousness, you could always move over to the corporate side but it would be tough to move into other fields of finance from this position unless you happen to be a serious rainmaker and you have enough contacts to make yourself useful to a PE firm or other buy-side firm.

Managing Director

What You Do: You’re King of the Jungle. All the other chimps answer to you, and you move them around much like a chess grandmaster would move around pawns, bishops, and knights.

90% of your time as an MD is spent winning clients, meeting companies, and developing relationships – you fly around to conferences, meet with PE and VC firms, and position yourself to advise CEOs and win deals.

Occasionally if there’s a massive deal and it’s too big to fail, you get involved with the negotiations. Or if you have a special relationship with an investor or buyer, you may pitch a client to them.

But otherwise, you are sitting back and bringing in new business while everyone below you executes.

How You Get In: Most of the time, you’ve been a banker for life (or close to it) and you’ve worked at all levels in IB before – often across many different banks.

Sometimes you do see MDs who get into the industry from other fields (e.g. a Partner at a law firm that focuses on corporate and securities law, or a PE Partner who has lost his sanity and wants to move back to the sell-side).

But those scenarios are rare even at this level and you don’t see them much at large banks.

Age Range: This one is impossible to define precisely because some MDs really do stay in it for life, or at least until retirement age – for most bankers it is the highest they’ll ever go.

We’ll say early 30’s is the minimum age here, but on the upper end of the range there’s no limit – you rarely find MDs who are past their 50’s, though, so maybe that’s the limit.

By that time they are either burned out and retired on a beach somewhere in Thailand, or they’ve advanced further within the bank (see below).

Pay: This is where compensation has the highest “beta” (this is a finance site, so I am allowed to whip out finance jargon when convenient).

In a bad year with no closed deals, an MD might not make much more than his base salary – maybe the $200K – $300K USD range.

In a good year, they might make in the low millions USD ($1MM – $3MM) depending on how the group is set up, how many deals they’ve closed, and how well they’re playing the office politics game.

Time to Get Promoted: Yes, there are levels beyond MD at large banks (Group Head, C-level executives) but there’s no set path to reach them – you could get lucky and get there in a few years, or you might be there for a decade and never see the light at the end of the tunnel.

Unlike other levels of the banking hierarchy, it’s not “up or out” at the MD-level – it’s more like “make lots of money for us or out.”

So as long as you keep producing, your position will remain intact.

Possible Exit Opps: If you’ve been a lifelong banker, it will be very difficult to move into a completely different field – but you do sometimes see financiers at the top moving around to other high-level positions in the industry.

Some MDs may also just retire and do something completely different – business coaching, angel investing, writing, and so on – especially if they are worth tens of millions of dollars and don’t have a pressing need for cash.

Wait, What About Other Levels?

Note that in some regions and at some banks these levels have different names – VP might be labeled “Director” and SVP might be “Executive Director,” for example.

At firms with a partnership still in place (Goldman Sachs), there is also a difference between normal MDs and Partnership MDs – the Partnership ones make a lot more money.

And then beyond MD, there are Group Heads (e.g. Head of M&A Europe or Head of Capital Markets Asia) and the C-level executives at firms.

With those, the potential compensation is even more variable and could range into the tens of millions (or higher for C-level in a good year) – or the bank might slash its CEO’s pay to $0 in a symbolic gesture if they’ve had a bad year and caused economic Armageddon.

Differences at Boutiques?

Boutiques tend to have fewer levels than bulge bracket banks, so you might not see as many VPs and Directors/SVPs.

Advancement may be faster depending on the firm’s size, but pay will also be lower since the deal sizes are smaller – regional boutiques might pay 50% of the bonus that bulge brackets do (very rough estimate).

This does not apply to the “elite boutiques” (Evercore, Lazard, etc.) which pay more in-line with bulge brackets.

What About Trading?

On the trading side there is a flatter hierarchy and you may reach the MD level more quickly.

Pay is also extremely variable and the top traders might make tens of millions even if they never advance beyond the MD-level (ok, it’s questionable how true that will be post-crisis and financial regulation).

The Buy-Side: Private Equity and Hedge Funds

This one is impossible to cover fully here (maybe in a separate article if someone has good data), but let’s give it a shot:

The private equity side is similar to banking, but you will make more at each level; as a Partner in PE you could make significantly more than MDs in banking (hundreds of millions if you’re Henry Kravis), but at smaller firms you’ll see compensation closer to what banking MDs earn.

The main difference is that you get carry at the Partner-level as well, so that opens up the possibility of earning into the stratosphere if you’ve invested well over the years.

On the hedge fund side, there’s so little reliable information that it’s hard to say anything concrete.

You hear stories about people making hundreds of thousands or millions at young ages, but the average case is probably closer to the compensation levels above for banking.

And while hedge fund managers making billions of dollars a year get a lot of attention, that is far from the average case: the majority of funds out there are much smaller ($100M – $1B AUM) and it’s impossible to earn anywhere near that amount.

In short: hedge fund pay has the highest ceiling of anything here, but there is a massive difference between the founder or the portfolio manager and everyone else in the fund, and pay is almost 100% dependent on fund size and returns.

Other Countries

Developed countries (Western Europe, Hong Kong, Japan, Australia, etc.) see similar pay levels and have the same sort of promotion timelines.

In emerging markets, it’s more chaotic and you might advance far more quickly – but also make less in absolute dollars, even if you have your own palace and a harem or two.

The investment banking culture is not as well developed in the BRICS of the world, so you will see many deviations from the hierarchy above.

But in most of these places you have a 0.0% chance of breaking in as a foreigner with no connections: they are looking for locals who have studied or worked abroad and who are now returning to their home countries.

How Do You Move Up the Ladder?

Please see this article on investment banking promotion.

Key Takeaways

So, what does all of this mean?

Stop Assuming That Investment Banking / Finance in General are Guaranteed Paychecks

Especially as you move up, your pay is based almost entirely on your performance and the economy. A VP who has several closed deals may make more money than an MD who has nothing and gets a bonus of $0.

I’ve attempted to estimate pay ranges above, but to get there in the first place you’ll have to work 80-hour weeks for years and sacrifice your social life and maybe your first-born son or daughter.

Most MDs are Not Mega-Wealthy

Look at the Forbes list of richest people in the world, and you’ll see that there are very few (no?) banker-types on there, unless you count Warren Buffett as a banker (he’s not).

After you’ve taken into account taxes, recessions, the cost of living, and so on, a 10-15 year veteran MD might have $10 million or more saved up.

That is an enormous amount of money to most people, but you will not become a billionaire in finance unless you’re on the buy-side and you’re one of the best in the world like John Paulson.

Forget About Breaking Into Banking in the “Middle Years”

You either get in as an analyst or associate, and if not, you’ve missed your chance unless you have highly relevant experience, the market is frothy, and you trade down (i.e. go from a F500 to a boutique).

Even getting in at the top from other industries is uncommon – you see it more often in VC or PE where operational skill sets are valued.

If you’re in this position, you’re better off looking at other industries or starting your own business.

Expect Your Role to Change Gradually, Not Rapidly

Even though banking has a rigid hierarchy, what you do at each level is not as narrowly defined.

When you move from analyst to associate, you won’t instantly start dating super models or get your own reality TV show – sorry.

Your hours might improve slightly and you won’t have to do as much grunt work, but the pressure to perform will be greater than ever as well.

And…

Oh yes, and please reduce your expectations of $10 million and that beach in Thailand.

By the time you get there as a banker, you’ll be old and wrinkly and probably can’t stay out in the sun for very long anyway.

A frat house, on the other hand, might be well within your reach long before that.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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by Brian DeChesare Comments (93)

Bottles and Bottles? How You Really Win Clients and Land Mega-Deals as an Investment Banker

Bottles and Bottles? How You Really Win Clients and Land Mega-Deals as an Investment Banker

Why does the mainstream media hate Wall Street so much?

You can think of dozens of reasons, but one of the biggest is that they don’t understand what bankers really do to earn their fees.

They see news of million-dollar bonuses and assume that financiers earn those bonuses by sitting around and playing Monopoly.

But you don’t earn massive fees by playing board games all day – it’s a process that takes years, which is one reason why bankers make the money they do.

And the infamous “pitch” has very little to do with it.

It’s All About the Pitch, Right?

The most common, wrong suggestion I’ve seen before is that “Bankers win clients by pitching them.”

But that’s like saying that you got into Harvard or Oxford by submitting a really good application – technically true, but not the full story.

Yes, the application is critical and if your essays suck, you’re screwed – but you got into a top school because you spent years developing the skills and experiences to do so, and you then presented them in the best possible light.

It’s the same with winning clients as a banker: your pitch needs to be on-point for you to win the deal, but the process of putting yourself in the position to pitch for the deal starts long before that.

What Really Happens

As you move up from Associate to VP and beyond, gradually you’re tasked with more and more sourcing work: finding potential clients, getting to know them, and then pitching for a deal when the time is right.

Managing Directors spend almost no time on deal execution – unless it’s a massive transaction that requires their involvement – and instead spend most of their time on finding new clients and serving existing ones.

If you already work with a company on all their M&A deals and your bank has been advising them for the past 20 years, you’ll probably continue to do so in the future.

Like legacy admissions in university or Roger Sterling and Lucky Strike, it’s a good bet that you’ll receive the benefit of all that history unless you make a colossal screw-up.

So it’s more interesting to look at how you find new clients – companies your bank has never worked with before.

This entire process is more applicable to smaller firms than to bulge bracket banks, because there the “legacy” factor is high and you mostly work with huge companies that everyone already knows about.

But even at huge firms, you still need to find new clients because existing companies get acquired, merge, and go out of business all the time.

Lead Generation

In sales, a “lead” is just a potential customer – someone who might sign up for the products or services you’re offering.

It’s the same idea in banking, but since your leads are fewer in number and are worth much more, some strategies don’t work so well.

What Doesn’t Work

Strategies like online marketing (paying for ads on websites, Google, Facebook, etc.), TV/radio/direct mail advertising, and posting flyers would never work.

It may sound silly to even point this out, but I’ve actually seen some banks use Google AdWords to market themselves to clients and I have no idea why they bother.

All these methods are too impersonal – it’s like walking into Armani and having a robot display a list of recommended clothes for you rather than having a real live person greet you, chat for a while, find out what you’re looking for, and then suggest something good.

When the number of clients is low and the per-client value is high, you need to get very personal to make deals happen.

PE / VC / HF Referrals

One way to do this is to go through your friends on the buy-side, see what portfolio companies they have, what sectors they’re interested in, and who else they’ve been speaking with lately.

Let’s say you’re an MD who has worked with a private equity firm for 10+ years. At your next catch-up meeting with them, you might casually ask how their portfolio companies are doing (translation: are any of these companies ready to sell, refinance debt, or go public?).

If the PE Partner likes you and wants to give you business, he might refer you to the CEO or CFO and say, “Hey portfolio company, this banker’s good – you should get to know him.”

Or if a deal is imminent, he might tell you directly: “They’re going public next year, and the pitch is coming up next month – we’ll be sure to include you.”

In tech and healthcare groups, venture capitalists are arguably more important and bankers get referrals to startups via VCs.

Cold-Calling/Emailing

Just like with your own networking efforts, cold-calling is less effective than meeting in-person first or getting referrals – but sometimes it works.

You’re far more likely to see cold-calling at smaller banks where you have to fight for every deal – and if you’re a summer analyst there you might get tasked with poring through lists of companies and finding contact information.

Cold-calling is also more common at small and middle-market private equity firms, some of which are notorious for making their newly hired associates cold-call companies all day long.

Conferences

Bankers also spend a lot of time on the conference circuit, meeting with executives at events (CES, Davos, etc.).

These are like information sessions: if you can stand out from everyone else and then follow-up appropriately, your chances of success go way up.

The real action at conferences happens offstage, so bankers skip keynotes and panels and schedule as many 1-on-1 meetings as possible during the day.

Inbound

Wouldn’t it be nice if banks just called you when they wanted to hire someone?

When companies want to sell or raise capital, they sometimes contact banks directly – this scenario is much more likely when a lesser-known company wants to work with a bulge bracket bank and has no other way to get on their radar.

Sometimes investors also contact bankers directly and provide the introduction, especially if they’re pressuring the company to sell so they can realize their returns.

Wining & Dining: Building the Relationship

Once you’ve contacted or been contacted by the executives at this potential client, you need to build the relationship.

If it’s an inbound contact and they urgently need to sell or raise capital, you won’t do this and you may be asked to pitch for the business right away.

But if the deal is further off in the future, you need to take time to build trust and convince the CEO that you’re not just another Gordon Gekko or Patrick Bateman character waiting in the shadows to decapitate him and steal all his money.

You do that by:

  • Coming up with acquisition ideas and meeting with the executives to discuss what areas they might want to expand into.
  • Giving market updates to the executives and telling them what’s going on in the M&A or capital markets.
  • Meeting casually for lunch or dinner to catch up on what the company has been doing and their future plans.
  • Being “on call” to answer whatever questions they have, whenever they have them.

The tricky part is that you don’t get paid for any of this – and the entire process could take years before you see any revenue.

Sure, making $10 million on a single deal sounds great – but if it takes 10 years of relationship building to get there, the NPV is much lower than $10 million.

This is the slowest and most extended part of the “client-winning” process, and if you’re not interested in relationships, this is where you’ll fail.

But if you like meeting and greeting and can’t stand Excel, then you might make a great MD – even if you’re a lousy analyst.

Deal Time

How does a company decide when it should sell, buy another company, go public, or raise capital?

Sometimes it’s forced to sell by investors who want to realize their returns (Amazon / Zappos) – going back to our theme of NPV, the longer an investment stays unrealized, the harder it is to get solid returns.

Other times the executives reach the decision themselves – the CFO looks at their cash flow projections and realizes their burn rate is too high, so they decide to raise debt or equity.

And still other times, bankers “plant” the idea in the CEO’s mind.

While you don’t have to plant this idea in a dream within a dream within a dream within a dream, you do have to be subtle about it – going out and blatantly pitching an LBO won’t work even if you really want a PE firm to buy the company you’re speaking with.

Instead, bankers are more likely to make casual references to private equity firms and leveraged buyouts elsewhere in the market when they meet with the company to discuss other topics.

Over time, if the CEO and Board buy into the idea or show interest, the bankers keep selling them on it and gradually start to reveal more and more information.

The best bankers – the true rain-makers – are the ones who are best at “selling” the company on a transaction, even if the management team had no interest initially.

Regardless of whether the idea was planted or original, once the company decides it’s ready to sell or raise capital, it then pits bankers against each other in a bake-off.

The Pitch

Sometimes if a company has a special relationship with just 1 banker and has never spoken to others, it will skip the pitch and give the business to that banker.

But that’s more common at private and smaller companies where there’s not as much oversight from the Board of Directors – at anything bigger the Board usually requires the management team to solicit competitive offers.

At this point they would contact all the bankers they’ve gotten to know over the years and tell them what they’re planning, send over relevant financial information, and invite them to pitch for the deal.

The number of banks invited depends on the deal type – IPOs have many banks, whereas in M&A deals there’s just 1 or 2 advising the buyer and seller – and whether or not the company wants to stick with the bankers it knows best or go for a broader set.

Who Wins the Deal?

This must come down to whether or not you’ve dotted all the i’s and crossed all the t’s in your pitch book, right? And whether or not you remembered to change the font size on every single page, right?

Nope – most of the time the pitch book itself is irrelevant to winning the deal, even if you pulled 4 all-nighters to create it.

What matters is how much the company likes the senior bankers, what the senior bankers say, and how they say it – and what they say compared to the other bankers pitching for the deal.

Let’s say you go in and claim that the company is worth $500 million and that you can complete the sale process in 6 months. Then another banker goes in and says the company is worth $400 million and that the sale process will take 12 months.

You might assume that you’ll win since your claims are more aggressive and will result in a better price for investors – and sometimes that’s true.

But the CEO and other Board members/executives could also look at your pitch and think that your numbers are unrealistic and that you’re not being honest – especially if everyone else there is predicting lower valuations.

So you need to use a careful blend of salesmanship and pragmatism to win deals.

After the Pitch

There may be a clear “winner,” but more often than not, the company will follow up with multiple banks to see what the fee structures are like and what their recommendations are in more detail.

For smaller companies and deals, the fees make a bigger difference and sometimes a bank will win the deal by promising lower fees or a structure that rewards them for better results (e.g. 0.75% under $500 million and 1.5% for the amount above $500 million).

Most of the time, though, it comes down to all of the above factors and the company considers everything when making a decision.

This is not a rational or logical processjust like selecting which applicants will receive interviews, it’s random and fraught with emotion.

If you think executives are rational just because hundreds of millions or billions of dollars are involved, nothing could be further from the truth – sometimes the more money that’s involved, the less rational the deal (AOL / Time Warner).

Sample Timeline

Putting everything together, here’s an example of how you, after you become a Managing Director, might meet a CEO, develop the relationship, and then pitch for the deal:

5 years ago you were having a catch-up meeting with a local VC and he mentioned that a tech startup in their portfolio was hot and would change the world of online media.

He gave you an introduction, so you met with the CEO, learned about his vision for the business, and got an idea of the company’s financial performance.

A year later, you caught up with the CEO once again and gave him an update on the capital markets and what IPOs were pricing at. The company was not yet cash flow-positive, but they had killer revenue growth.

The next year (3 years ago), the IPO markets were closed but the CEO wanted to use his stock to acquire smaller competitors – so you ran a buy-side M&A process for him over the course of 6 months. It never went anywhere since they couldn’t find anything good and got distracted by other issues.

Then, 2 years ago, the company finally turned cash flow-positive and started thinking about an IPO, which they told you about during your quarterly meeting with them.

You made your analyst monkey stay awake for 60 hours straight to prepare a 200-page pitch book laying out all the nuances, but then the CEO decided to hold off until the market got better.

Finally, a few weeks ago the CEO contacted you again just before another meeting and said that they are now serious about selling and want to hear your thoughts – so he invited you in to pitch for the deal.

Got Risk?

Not only did this process take 5 years, but there’s no guarantee that this planned sell-side M&A deal will even happen – or that the mandate will go to your bank.

Maybe no one will be interested; maybe the CEO will change his mind yet again; or maybe investors will pressure them to go public instead.

And you ran a failed buy-side M&A process for them a few years ago.

This is why investment banking is such a tough business: you could do everything right for 5 years and still lose the deal because your fees are 0.1% too expensive, or because the CEO gets emotional and happens to like an unknown banker more.

Wait, This Sounds Boring!

One time I was explaining this process to a friend who was still in university and he said, “Wow that sounds boring – I’d rather do modeling and analytical work.”

If your IQ is higher than your EQ, it may not sound too appealing to develop relationships like this and constantly pitch for new business.

But as Jonathan Knee points out in The Accidental Investment Banker (highly recommended), all deals start to look the same after a while.

You learn a lot at first and valuing and modeling companies seems exciting when you’re new, but they become routine and boring once you’ve done them 500 times.

We’re more interested in stories and inter-personal drama than we are in staring at Excel all day – so even if the process above doesn’t sound interesting right now, you may change your mind in a few years.

You might assume that you should move to the buy-side if you’re not interested in any of this, but that’s only partially true – in PE and VC you still do a lot of relationship-building, meeting with new companies, and so on.

So if it’s really not your cup of tea, think about hedge funds or trading – where you can make bank without talking to people or leaving your 8 computer screens.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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by Brian DeChesare Comments (172)

The Myth of the Investment Banking Career Path

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

Just kidding.

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.

Why?

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:

The Myth of the Investment Banking Career Path

Elements of Truth

Yes, it’s very difficult to get into private equity unless you’ve been an investment banking analyst before.

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?

Dangerous.

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:

  1. You can’t actually do it.
  2. 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

Why couldn’t you break into investment banking?

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.

The Problem

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.

You can break into investment banking even if you started off in a different field, switched to banking, switched back to yet another industry, and then gave it a go again in round 2.

Even CEOs of banks have started off in other industries before switching over.

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.

Headhunters can explain in even greater depth why this is true.

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:

  1. 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.
  2. 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.

Exceptions

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.

Finally

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.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

Break Into Investment Banking

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

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