Diversity Recruiting: Your Secret Weapon for Breaking Into Investment Banking?
“Can you tell me exactly what I have to do to get into finance?
There must be a combination of grades, certifications, internships, and activities that will guarantee me a spot at Goldman Sachs, right?
Give me the magic bullet solution for breaking in!”
Ah, another day, another email.
And if you don’t believe that questions like this come in all the time, just take a look at some of the articles here that have hundreds of comments asking for similar answers.
Sometimes I’m tempted to say, “Yes, just pass all 4 levels of the CFA and you are guaranteed to become an investment banker,” but I can’t always bring myself to have that much fun.
The truth is that there isn’t a magic bullet for getting into the industry.
Or is there?
Diversity recruiting may just be the best, most “secretive” way to get into the industry that you’ve been ignoring up until now.
So read on to learn how you can use it, what to do if you’re not “diverse,” and just how effective it was for a reader who won a bulge bracket internship offer and who’s sharing her story here.
I expect that this story will cause some controversy because:
- You might view diversity recruiting as “unfair” or know someone who abused it before.
- It may not apply to you.
I understand where you’re coming from with those 2 points, but I would still encourage you to consider the strategies here – if only to learn about alternate paths to break into finance.
Also, you should do whatever it takes to break in as long as you’re not breaking any laws or doing something clearly unethical like forging documents or lying about an offer.
So yes, maybe this won’t apply to you 100%, but as you read think up other ways you could put your own “unfair advantages” to use.
Feel free to disagree but be civil about it – comments that add no value will be moderated.
Q: Let’s get started with where you were coming from – what type of school did you attend and what experience did you have?
A: For undergraduate I attended a liberal arts college that was well-known but certainly not a “target” – only 1 bulge bracket bank recruited here and a few others had a resume drop, but rarely called students in for interviews.
I was completing an economics-related major, which you pretty much have to if you’re coming from a liberal arts college – it’s hard to convince banks that you’re serious if you major in French Literature and also have no finance experience.
This was my first attempt at internship recruiting so I hadn’t had much experience – just a few informal internships in other industries.
Q: OK, so you’re at this non-target liberal arts college and you don’t have relevant finance experience – how do you go from there to winning a bulge bracket investment banking offer?
A: By using the strategies you’ve recommended before: networking extensively and playing to my strengths.
In my case, I used my uncommon background to my advantage by attending lots of women’s recruiting events put on by different banks, as well as more specialized diversity events.
The advantage of going to these “diversity events” is that you can build much stronger connections with bankers than if you blindly cold call places or email alumni.
The more you have in common with the person – especially when you’re from a completely different background than most others – the better your chances of getting interviews and offers.
Q: Right, so what exactly are these “events”? Do you just apply for them online?
A: It varies by the bank and the region you’re in – some of these diversity recruiting events are more like first round interviews and some are more like standard information sessions where an MD or other senior banker will present first and then you get time to network afterward.
At some banks you can just apply online and get invited to the event – for example at Goldman Sachs you can do that and get invited to events like their “Women’s Road Show” (a half-day event) in Boston and New York based on your resume and online application.
At other banks – like JP Morgan – you had to pass a phone screen to be invited to their events, so there it was just part of the process and I had real interviews with several bankers at the event.
Q: So far you’ve been mentioning women’s events – what else do banks do for diversity recruiting?
A: You do see events for other groups as well:
- Minorities (defined as anyone who is under-represented in banking, for both men and women)
So you can still get in even if you’re not female.
M&I Note: While not diversity-related, there are events for people in other categories – for example if you want to work in Japan and know the language, there’s the Boston Career Forum; for China and Hong Kong there are events like SuperReturn and AVCJ.
Q: Out of curiosity, how strict are they about letting people in? For example, could I show up to a women’s recruiting event even though I am male?
A: They are not strict at all about screening people.
When I say “not strict,” I mean that they’re not going to do a full background check on you or hire a private investigator to look into your past and see whether you really qualify.
You would probably not get into a women’s event if you’re male – I haven’t seen anyone get away with that before – but for the other groups it’s much harder to verify whether you qualify.
I’ve seen plenty of people attend minority and LGBT events who shouldn’t be there – then you get those who are 1/64th of a certain ethnicity and use that to claim their minority status.
And when events are held at public places like hotels, I’ve seen people who didn’t even apply or who weren’t accepted show up and walk in – sometimes HR kicks them out, but if it’s big enough they may not catch on.
I’m not advising you to abuse the system, but as with resume writing and spinning your experience in interviews, there’s room to stretch the truth.
At the Sessions…
Q: So let’s say that you either legitimately qualify for an event, or you’re a borderline case and you show up anyway.
You mentioned that there are different types of events depending on the bank and the region you’re in – can you give us an overview of what you went through?
A: As I said before, the JPM event was more like a real interview or Superday since I met with multiple bankers.
They also had another event just for the LGBT community that was called “Proud to Be” – at that one they flew in people nationwide and everyone there (around 60 people) got first round interviews.
I mentioned the “Women’s Road Show” event for Goldman Sachs – that was more of a standard networking event where they gave us all the recruiting deadlines and a special code we could use when applying that would get us placed in a separate pool.
GS has another event called “Foundation” that is for minorities across genders and also students at non-target schools.
UBS had one event that was more like a trading competition, and then a more traditional networking session with a panel presentation, networking, and a reception at the end.
Credit Suisse had a “Women’s Day” event, which again was more like a prelude to first round interviews – for summer internships that one usually takes place in December/January.
Q: Those are quite a few events. What do the numbers look like? Is it similar to information sessions where you get 20 people crowding around 1 banker asking what it’s like to be an investment banker?
A: The numbers are much better at these events – there are at most 50-60 people total, and more often it’s in the 20-30 range.
Of those 20-30, 10 might be bankers – so unlike a traditional information session there are only 1 or 2 students per banker at these events.
Sometimes it goes up to a few more than that, but it’s never the 20-30 crowding around 1 banker that you see at information sessions open to the general public.
Q: So it sounds like everything is more personal and you get to have more in-depth conversations with everyone?
A: Pretty much. Also, unlike panels at normal information sessions where the questions you ask don’t matter so much and it’s all about the networking afterward, questions to the panel matter more.
So looking up everyone’s background and preparing intelligent questions is a good use of time.
Beyond just being more personal, these sessions also have more alumni and alumni from neighboring schools – especially if you’re in a region of the country with lots of non-target schools or lots of women’s colleges, for example.
And if you can’t find anyone from your school or nearby schools, you can always just ask the HR reps there for alumni contacts – since it’s such a small and specific group, they are more likely to help you out.
The vibe is also much different at these events – they are not as stuffy and formal as the usual information sessions at schools, and people were more relaxed, especially at the LGBT-type events.
The more specific the group, the more direct the answers they gave were – if you asked about something like work/life balance at a normal event bankers would give diplomatic/uninformative answers, but at these events people were more honest.
Success or Failure?
Q: So you made extensive use of these events – how effective were they? Do you have numbers on how many attendees actually won interviews or offers as a result of attending?
A: I don’t have exact numbers there because I didn’t follow-up with every single attendee, but:
- I got first round interviews at almost every bank (and eventually an IB summer offer).
- At many of the events, they’d give first round interviews to pretty much everyone there, but then only a few would win offers.
- This year most females and minorities who got into GS from non-target schools (not necessarily just in IBD, but more in the back and middle office) came from these events.
- 80% of the LGBT bankers I met were willing to help me in some way. I don’t care how good a networker you are, you will never get that ratio via alumni informational interviews.
The overall offer rate may not seem that great, but look at the alternative: if you’re at a non-target school and you don’t go to these events, your chances are minuscule. It’s better to get the interview and at least have a shot at winning the offer.
And as I’ve mentioned, you get special codes at these events that you can apply when submitting your resume and online application – they will then review your resume in a separate pool from everyone else, which also gives you a big advantage.
Q: What about the downsides of going to these events? Let’s say you go to a diversity event and you make a huge mistake that results in everyone there disliking you – would that hurt your chances in normal recruiting?
A: Yes, it could, and that is a risk. If you apply via these events and don’t win an offer, it may be harder to get a real interview later on if you go through the normal channels.
I applied all of those strategies, only in the context of diversity events rather than the standard information sessions.
You still have to be interesting, follow-up, speak 1-on-1 with bankers, and so on – it’s just that you’re working with a more specific set of contacts here.
Q: That’s true, but I’m sure there are still some common mistakes attendees make – what have you seen before?
A: Some girls would wear really short skirts or boots or dress up looking like they were about to go clubbing – but it’s still a formal business setting, even if it’s more relaxed than usual.
Other people looked really good on paper, had high grades, and completed solid internships, but then did no work to prepare so they had no idea who would be best to talk to, or which alumni were attending. You still need to be proactive even if it is a smaller event.
Then, other people were horrible at following conversations and reading social cues. Sometimes the banker speaking with us would start talking about lighter topics or activities outside of work, and the other students there would immediately jump back into asking about EBITDA.
One mistake I made was not recognizing someone at an event when I had seen the person previously – right after the event ends you need to write down all the names you can or at least get business cards and make sure you can match names to faces (easier these days with social networks).
Q: You used diversity events very well to get all those interviews and win your offer – did you run into any problems or awkwardness when interviewing?
Even though you met lots of female bankers, it is still a male-dominated industry, so did you run into any resistance?
A: No, not really. I went through dozens of interviews and felt it was more about chemistry with the interviewer and your performance than gender.
I can’t say whether being female hurt or helped me in interviews, but I didn’t see much of an effect either way – going to all those events was essential for getting interviews in the first place, though.
Q: Right, if anything I think you probably had an advantage since most bankers would prefer more diversity in the industry.
But you were also a liberal arts major at a small school – did that present any challenges in interviews?
A: Not really – I don’t think they treated me much differently from anyone else without a finance background.
I never received extremely difficult technical questions, but I got the usual math and brain teaser-type questions for S&T interviews, and for IB got the usual questions on valuation, DCF, how the 3 statements link to each other, and so on.
These were all covered by relevant guides so I never felt unprepared.
Finance or accounting majors would probably get more difficult technical questions, but these days you must have a minimum level of technical knowledge no matter what your background is.
I also ran into the usual interview scenarios that banks like to use – for example the “good cop, bad cop” deal where one interviewer constantly interrupts you and objects to everything you say, and the other one is more laid-back.
Q: That makes sense – you’ll still get the technical questions, but not quite as many as if you were from a finance background. Any more tips or advice?
A: One other point I didn’t mention: try to shadow bankers or traders – this is more common on the trading side, but at a lot of these events banks will let you follow a trader around for a few hours and see what they do.
Take that opportunity to be proactive and meet other traders/bankers there – don’t be shy, just go around introducing yourself and explain what you’re interested in doing.
Also, don’t be afraid to ask for what you want. This sounds silly, but many people complain endlessly about their situation and never take action to fix it.
I never hesitated to follow-up with people, and in one case I wrote a quick email to a Director at a bulge bracket bank who I hadn’t even spoken to in a year – and got an interview from doing that.
In another case, when I was assigned to shadow traders I said I was more interested in sales so a Director there switched my role and let me shadow someone in sales instead.
Q: Awesome – thanks for sharing your story, that was very informative.
A: No problem – enjoyed speaking with you.
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How to Break Into Finance in London Coming from an Unknown School in Eastern Europe
When this interview series started awhile back, I expected most submissions to come from Europe since the UK is the second biggest country in terms of readership.
This time around, though, we move back toward Europe with an interview from a reader in Eastern Europe (Poland specifically) who broke into the London finance scene.
Read on to learn all about Eastern Europe, why you might want to go to London anyway even if there are hot emerging markets out there, and how you can use ruined travel plans and flight delays to impress bankers.
Introductions & Eastern Europe Recruiting
Q: Can you tell us about your background and how you first got interested in finance?
A: Sure. At the time I was in my final year at a top university in Poland doing a Master’s in Finance and Accounting – a 5-year program, which is common in Europe. I had also done a combined investment banking and corporate banking internship at the Warsaw office of a French bank.
In my first 3 years at university I did a lot of volunteer work, had roles in a lot of student groups, and had lots of other activities and hobbies.
Even though I said “top university” above, it was not well-known outside the region and very few banks actually came there to recruit. You’re at a big disadvantage in Europe if you’re not at one of the top schools in the UK.
Q: So even though it was well-regarded in the country, not many banks came there. Does that mean the recruiting environment in Eastern Europe is not that good? Or is there not as much of a need for bankers there at the moment?
A: Overall the recruiting environment and the investment banking market here are completely different from what you see in the US/UK.
Most large companies in Eastern Europe are still state-owned, so most foreign investment banks that come here advise governments on how to take their holdings public and divest companies.
So, for example, when the Polish government announces plans to sell a large number of companies, the international banks come over here and start pitching themselves while increasing the number of Polish-speaking graduates they recruit (they do still recruit a few candidates each year regardless of the government, but you’re likely to get pigeonholed as the “Central / Eastern Europe banker”).
Since the market is dependent on government announcements, there’s less of a consistent recruiting cycle than in developed countries.
In terms of the market as a whole, Poland and Eastern Europe still felt the effects of the credit crunch and financial crisis and lots of banks with Warsaw offices had hiring freezes, with very few graduate opportunities available.
Q: Right, so that’s what motivated you to move to London rather than staying at home?
A: Yes – there just aren’t that many investment banking or even corporate banking opportunities in Eastern Europe. The main banks in the region are retail banks, and most of the big M&A and IPO deals are done in London instead.
Sometimes London-based banks have local partners (for example, a co-lead manager on an IPO) with more specialized expertise – so there are a few investment boutiques and investment/corporate arms of local banks here. But they work on smaller deals, there are no established internships or graduate programs, and the same opportunities don’t exist.
Salary is also important, and as a graduate you can earn up to 5x the local pay in London. And most of the successful senior guys who are doing deals in Poland right now have international experience, mostly in London.
Non-Target University to Internship
Q: So how did you get an internship in London if banks didn’t recruit at your school?
A: In Europe, you can still get interviews by applying online without doing any networking. It is not easy and your application really must be perfect for you to have a chance. And I don’t recommend doing this, especially if you’re in the US or another region where online applications go into a black hole.
To stand out, you need to have previous experience, have an interesting personality, and get lucky – I had the previous banking internship at the Warsaw branch of the French bank and a lot of activities, and all of that came across in my application.
One additional point is that since most people study for 5 years to get a Master’s degree here, they have more time to “build” an interesting CV by getting internships and by being more active in student groups.
Q: Right, so you had the previous experience and an interesting personality… but what about the luck factor?
A: The day I flew to London to attend an assessment center there, my plane had to make an emergency landing and so I was late by around 2 hours.
But that actually worked in my favor – everyone was impressed with how I stayed calm and how I was still able to complete all the numerical tests and group exercises as if nothing had happened.
HR also told everyone about my situation, so bankers heard my story before I even arrived at the office, and then when I arrived they were asking me about it. So that helped me stand out from everyone else there and showed how I could handle stress and deal with the unexpected.
Q: I can already predict that someone will take that story and post a comment below this interview saying, “But that’s ridiculous, that hardly ever happens and he just got really lucky. How can you possibly say that applies to me?” Any thoughts?
A: Obviously, you’re not going to make emergency landings and be late to the assessment center all the time. But you can always focus on what sets you apart from everyone else.
As you’ve mentioned before countless times, plenty of people are good at math and can work 24/7 cranking out pitch books – but hardly anyone has an interesting story to tell.
So if you don’t have anything that sounds cool – study abroad experience, an unusual activity or hobby, or a good set of student groups – then fix that right away.
Sure, that kind of story gave me a bigger advantage going into interviews, but even without that I still could have talked about all my activities and hobbies and made them remember me like that.
Q: Most people would also say that it’s impossible to go to London and get even an internship offer if you’re not from a well-known school and you’re not doing a lot of networking.
How many recruits from continental Europe get in each year, and do you have any tips on how to stand out?
A: Truthfully, it is extremely difficult to get into London full-time if you’re not at a top university in the UK (Oxbridge, LSE, Imperial College, Warwick, etc.). You need to get a summer internship first, as the conversion rate from summer interns into full-time hires is quite high.
To give you some numbers, there were around 115 interns at my bank across the front office, middle office, and back office, and only around 10 were studying in continental Europe.
To actually get that all-important summer internship, it’s pretty much what I said above: get local finance experience in your own country, be interesting, and hope for some luck.
One other point: don’t try to compete directly against everyone else. There are lots of people who claim to be finance wizards or who say they’re smarter than everyone, but that’s a poor way to stand out because everyone else is saying the same thing.
Rather than doing that, I focused on my background and internship in Eastern Europe and how I could help the bank expand its business in that region – not many other interviewees were using that angle, so it worked well.
Q: Speaking of internships, what was yours like?
A: It was a rotational program, so throughout the summer I got to see different desks, from sales through trading and research. Each week we presented to bankers based on what we learned that week – for example, a new trading strategy, thoughts on a new bond issuance, or where interest rates were going.
I was never bored at work, and didn’t have to do (too many of) the “coffee-fetching” tasks that you hear horror stories about. Everyone also had their own individual projects, from developing complex spreadsheets to be used by traders to analyzing business opportunities to writing research notes.
Q: So it sounds like this was more of a capital markets / sales & trading-oriented internship, even if technically it was a rotational program.
What about the working environment, culture, and hours in London?
A: I’m not sure these are universally true, but my observations were:
- Markets-based groups and European banks have a better work-life balance. I usually started at 7 AM and left by 6:30 PM, with the senior guys leaving even earlier. All weekends were free.
- M&A / ECM had longer hours. But you still get at least one day off in a week, and you may only have to come in for a few hours on Saturday.
- DCM Origination hours were somewhere in between – it’s still very client and relationship-driven but it’s not quite as intense as M&A.
- American banks have much worse hours, with the exception of Sales & Trading. The culture is much different and free time isn’t valued as highly.
My social life during the internship was great: the bank organized once-a-week networking events with free drinks, the hours weren’t bad, and on Fridays we left earlier and hung out with the other interns.
People were friendly and helpful if you had a problem, though as you’ve mentioned before you don’t want to ask the same question twice or take a simple question to someone who’s high-up on the ladder.
Internship to Full-Time Offer & Beyond
Q: So how did you make the move from internship to full-time offer? Was it at the same bank?
A: I stayed at the same bank but got an offer from a different group. Since it was a rotational internship, we moved through a number of desks in the first few weeks there – that actually worked out well because interns could decide whether or not they liked desks, and desks could say “no” to interns if there wasn’t a good fit.
If you have this type of internship, you need to work hard to impress the specific desk where you want to work – don’t spread your efforts too thin or try to become best friends with everyone at the bank, or no one on the desk will push for you to get hired.
I liked the people on a research desk the most, so I spent a lot of time analyzing a market for them and then wrote the industry section of a real equity research report that the bank issued. That was above and beyond what others did, so based on the quality of the work, their feedback, and everyone liking me, I got an offer to work for that desk.
Q: So do you think you’ll stay in London for the long-term, or will you move back to Eastern Europe or go elsewhere eventually?
A: During my internship, one of the senior bankers said that if you want to be really successful in the industry you should “go abroad” to gain experience. He suggested a rotation between New York, London, Tokyo, and Hong Kong, so I’m considering doing that and will try to get a placement in one of those locations.
London is definitely the best place in Europe to learn finance, so I do want to spend most of my time here over the next few years.
Q: What about a Master’s in Finance or MBA program? You already completed the Master’s degree in Poland, but do you think there’s any value in going to a better-known school?
A: Given that finance is prestige-driven, I do want to try for a part-time Master’s in Finance program at LSE or LBS after working for 2 years. An MBA might be interesting but at the moment I think a Master’s degree from a better-known school would have more leverage.
I don’t think I would learn much about finance in those programs; it would be solely for networking and a prestige boost.
A lot of high-level bankers and CFOs in Poland followed this exact path: they worked for a few years in a large financial center, got a well-respected degree, and then went home. At the senior banker level, the salary difference is much smaller and when you take into account lower taxes and the lower cost of living, you might actually come out ahead.
Q: Awesome, thanks for your time. Good luck!
A: Sure thing, I enjoyed speaking with you.
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Traders and Brokers: Bud Fox vs. Gordon Gekko?
Assuming you’ve seen Wall Street (the awesome, original one, not the watered-down sequel) – it is a requirement to work in finance, after all – you know something about traders vs. brokers.
The traders are like lone wolves who go in and make tons of money by making quick decisions…
But supporting every successful trader is his/her broker – the one who actually connects buyers and sellers and makes trades go through.
Both traders and brokers are linked to the market and need to stay on top of everything that’s happening – but beyond that, they’re quite different.
So, what do traders and brokers actually do?
Which one is a better match for your personality? How do you break in?
And most importantly, who makes more money?
Definitions and Types of Traders
You might remember from the guide to fixed income trading that we defined 2 types of trading: agency trading, where you simply execute orders for the client, and prop trading, where you invest the firm’s own money and make your own trading decisions.
But the outside world has no idea what those terms mean, so they usually refer to prop traders as “traders” and agency traders as “brokers,” which is what we’re sticking to here.
Prop traders exist at dedicated prop trading firms and hedge funds, and they used to exist at investment banks before the US government banned them (the verdict is still out on other countries).
Brokers exist at both banks and at independent firms called brokerages; the difference is that these smaller agency-brokers are pure middlemen and only fulfill orders while large banks have a lot more going on.
There’s more to it than that and as with other areas of trading, the dividing lines can get blurry, but that’s the basic difference and how we’ll be using the terms here.
- Gordon Gekko – Trader
- Bud Fox – Broker
OK, back to how they’re different…
What Do Traders Do?
Traders are at the top of the food chain – entire teams in the back and middle office support all their trades and fix annoying IT issues for them.
They analyze equities, derivatives, fixed income, forex, commodities, and anything else they might be trading and decide on what to trade, what strategies to pursue, and how to invest the firm’s money.
If the trading floor were a jungle, traders would be gorillas who pound their chest constantly while stealing bananas from everyone else.
Everyone wants to be a trader, but it’s tough unless you have the right education, background, and personal connections.
Brokers – Support Staff?
After a trader decides what to buy or sell, he would call the broker and say, “I want to buy/sell XX of XX – can you make it happen?”
Technically, brokers “support” the traders but they’re completely different from the back and middle office crew.
Unlike the back and middle office, brokers generate revenue – they connect buyers and sellers and make a commission on each successful transaction.
The more shares that a trader trades through the broker, the more money the broker makes – and the more traders the broker services, the more money he makes.
Personalities – Traders
Traders are judged almost 100% on performance – it’s one of the few professions on Wall Street where you can excel even if you show up without shaving for a week or two.
If you bring in massive profits for the firm, you’ll be rewarded.
Traders spend most of the day in front of their 8 or so computer screens – they might discuss ideas and market news with other traders, but overall there’s less teamwork than in management consulting or investment banking.
So the trading profession attracts more introverted individuals who are good at math and great at working independently: think math and engineering majors, with a few random frat boys thrown in for good measure.
Brokers: Got Extrovert?
For brokers, it’s all about relationships and networking: you’re judged based on your ability to bring in traders and keep them on board.
Profit still matters, but the quality and quantity of clients you bring in also plays a big role.
If you’re a good schmoozer and you’re always the first to hear about rumors and gossip, you’d be a great broker.
If Malcolm Gladwell were writing a new column about traders and brokers, brokers would be part-maven, part-connector – they know everyone, and they track of tidbits of information to entertain and inform traders.
If a client really liked Turkish food, a broker would know all the best Turkish restaurants within a 5 km radius.
There’s a lot of back-and-forth with traders on the phone during the day, so brokers often invite traders out for food, drinks, and sports (and sometimes “other forms of entertainment”) after work.
It’s nothing like the back office-trader relationship where they barely acknowledge one another unless given a reason to work together on a project.
Breaking In: Trading vs. Brokering
Large banks do take sales & trading summer interns and make S&T full-time hires, but the numbers are lower than what you see in investment banking.
With the 2010 financial reform, those numbers will shrink even further as banks disband their prop trading groups and everyone migrates to hedge funds.
For networking, resumes, and interviews for trading, check out this podcast Jerry recorded – recruiting is similar to investment banking but there are significant differences, especially in interviews.
With brokers, there’s even more of a focus on experienced hires: on-campus recruiting is rare, especially for smaller agency-brokers, and you pretty much have to network your way in from related fields.
Some brokers also post ads online and if you have the right experience, applying online might actually work – that’s because they’re looking for very specific experience and as you move up, you get more and more specialized.
Resumes and interviews are similar to trading at the entry-level, though there may be more of a focus on relationships and sales skills – similar to sales itself – at dedicated firms.
Advancement depends on how business is going: if your desk is profitable, wants to expand, and everyone likes you, then they might give you your own portfolio or trading book once you’ve proven yourself.
Note that even as you “advance” within trading, your actual work may not change that much – you’re still trading all day.
It’s not like investment banking where MDs are wining and dining clients and analysts are pumping out pitch books – you just get more responsibility and a higher percentage of the profits.
On the brokerage side, advancement and upside depend on how many new clients you can bring in and the commissions you generate – just like with trading, the work itself doesn’t change dramatically as you move up but you work with higher-volume clients and earn more.
Work hours are roughly the same for traders and brokers – they get in an hour or two before the market opens and leave an hour or two after market close.
Brokers might try to get in earlier than traders and leave after the traders leave just to make themselves available at all times.
Both are completely different from investment banking: no all-nighters and no 100-hour workweeks.
Think 60-70 hours per week rather than 90-100.
Who Makes More Money?
And now to the $50 million (or should that be billion?) question.
Most people would say, “Traders make more money!”
After all, some traders make tens of millions per year, and then there are special cases like John Paulson – he made over $2 billion in cash each year in 2008-2009 by betting against subprime mortgages and CDOs.
No one noticed or cared what his broker made.
The problem is that everyone focuses on these once-in-a-lifetime success stories rather than the average trader: for every profitable trader, there’s a trader somewhere else that lost money.
Meanwhile, the broker in between made decent money even if one of the traders did not.
Multiply this by dozens of trading clients and you can see how broker commissions can add up to a comfortable lifestyle, all with far less market risk.
Specific Numbers, Please
Numbers are tough to verify, but most brokers start in the mid 5-figures range and the most successful brokers might be in the mid 6-figures range – it’s not like trading where the stars could make in the tens or hundreds of millions or billions of USD each year.
If you want to believe Salary.com, they have a nice graph here.
Keep in mind that the average (prop) trader makes nowhere close to that each year – some small prop trading firms don’t even pay you a salary and instead base everything on your trading performance, so you could end up with a “paycheck” of $0.
The maximum pay for traders is a completely different order of magnitude, but the standard deviation is also much higher – so the median pay may not be much different between traders and brokers at the entry-level.
And don’t underestimate how much you can make as a broker: brokerage firms often make more than trading firms that are suffering from a lackluster year.
Are the Machines Taking Over?
You’ve probably read about how trading is becoming more and more automated – should you even bother getting into the industry if computers will take over anyway?
Keep in mind that there will always be a human element – someone needs to program algorithms in the first place and continually test the programs.
So it’s not as if the industry is dying – it’s just shifting in more of a quantitative direction.
There’s no denying that trading itself has become more of a science club over time – so unlike with investment banking, advanced math and programming skills would be helpful here.
Even on the brokerage side, more and more agency trading activity is becoming computerized as well – there will always be a need for the outgoing broker who knows everyone, but the math nerd might not be far behind him.
This article was guest-written by Zeke Lee, a Stanford graduate, former management consultant with Booz & Company and former derivatives trader on Wall Street (Oh yeah, he’s one of my friends from school as well).
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