Every other interview guide out there teaches you how to “break into Investment Banking” promising you all the secrets. We all like to discuss salaries, bonuses, work hours and exit options. Everyone looks at the most obvious things first. People are drawn to Investment Banking because of the money and the perceived “prestige” that comes along with working in “high finance”.
However, nobody really asks the real question: is Investment Banking still a good career choice today? Back in the days, the question was pointless because finance jobs just paid the most – end of discussion. If you are going to work hard, you might as well get paid. Those glory days are over. M&A has become a commodity while other entry-level options seem to offer more intellectually interesting paths, such as Management Consulting or Tech. With all this happening you might ask yourself whether “high finance” is still a good career path.
Just to be clear, we are talking about M&A Investment Banking. If you have the choice, stay away from ECM or DCM – but that’s a topic for another entire post. We explicitly only mean Mergers & Acquisitions. All other roles adjacent to M&A, such as Private Equity, Hedged Funds or Corporate Development, are highly unlikely to break into as an entry-level position. We are sticking with the most common path for your average finance student.
Here is your TL;DR: M&A Investment Banking at a high-quality firm with solid deal flow is still a stable career option. It is resistant to automation because you are dealing with confidential information and managing relationships for very large transactions. None of this is going to be automated any time soon. The stakes are too high. Companies will always be sold and bought. The outlook as a Junior Banker (1-5 years) has not really changed. Still, a solid path to start your career with a high salary. You will learn a lot of transferable skills keeping your options open. You will, however, work incredibly hard for your bank. It gets trickier if you want to take the leap to become a Senior Banker (i.e. +5 years). Getting there is not an easy feat and takes a lot of time. At this point, you are seriously considering to fully commit to Investment Banking for life. At the Senior Banker level, you must generate revenues to survive. However, M&A is largely a commodity and the industry is not competing based on the best product, but rather on brand and reputation. All the above explains why you see most people join the Street for a couple of years and then leave for other options. Only a few stick around long enough to become Managing Directors.
Short-term career outlook
Let’s look at the short-term career outlook, which is probably the most relevant for your average finance student on the verge of entering the workforce. By “short-term” we mean anything from 1 to 5 years on the Street aka a “Junior Banker”. This is the rough time frame from Analyst to Associate or from Analyst to buy-side. With 5 years, you are on the verge of making the cut to VP.
You will still get a good entry salary better than ca. 95% of other opportunities. Yes, you have read correctly. Although finance jobs no longer pay huge premiums to everything else, the pay is still better than most of your other options. Think about it. What are your other options? Management Consulting, Controlling, Engineering, Tech or a trainee program at a large corporate? We are talking about entry-level jobs. Investment Banking pay is still competitive if you include the bonus. However, the choice is not exactly clear because of the highest stress level and work hours. Yes, you are getting paid more, but you are also working a lot more for it.
Your job is relatively safe. With tech eating the world and the pandemic only accelerating this, you might be tempted to dismiss Investment Banking for being a “dinosaur”. Look closer and you will find that deal flow has remained resilient throughout the pandemic. Finance has been less affected by the pandemic and lockdowns compared to other industries, such as retail, restaurants or travel. Yes, bonuses are down, banks have slowed down hiring or even fired some staff. But Investment Banking will not disappear. Companies will be sold and bought. You will need a middleman to manage relationships, confidential information and complexity associate with selling a fully established company. Investment Banking is relatively safe in that it is resistant to automation. Yes, you are not working on the technological forefront, such as blockchain technology, but you are a far cry away from being automated away by an army of programmers.
You will have multiple exit options. The diverse exit options are true although they will not be flying at you. You have to work hard for them. All the PowerPoint and Excel grind will be worth it. You will be able to put together a pitch deck about whatever topic there is out there. You will be able to figure things out using Google or any type of database, write emails, structure a resume, analyze legal contracts, pick up the phone and talk to clients. After compiling all those company profiles, you will understand how a company works. You will be able to do all the above with incredible work endurance. Where do you want to go with this skill set? Private Equity, Venture Capital, Corporate Development, a finance role at a company or maybe the start your own business? It is up to you, your transaction background and network you’ve built as a banker.
You don’t need to be super talented to break into Investment Banking. Yes, Investment Banking may be “high finance” but it is not rocket science. The skill threshold is a lot lower compared to let’s say software engineering. You don’t need to be incredibly good at math, statistics or programming, which contributes to the appeal on the surface level. A simple business major is good enough. You can teach yourself all the major finance concepts. However, you need to have incredible work endurance and pain tolerance. The long work hours are true (60h to 80h per week on average). You also need to develop incredible attention to detail to catch every single typo and formatting error. Mixing up EUR with GBP or USDk with USDm will make you look like an idiot.
All in all, the short-term prospects have remained unchanged. You get above-average pay. The bank will make you work very dearly for it. Your job remains relatively safe and you learn a lot of transferable skills for possible exit options. If you don’t know to how to code, Investment Banking is still a solid choice as an entry-level role.
Long-term career outlook
Let’s now look at the long-term career outlook. By “long-term” we mean 6 to 15 years on the Street based on your career progression. This is enough time to gradually move from Vice President to Director and having shot at becoming Managing Director. You have moved past the ranks and are now a “Senior Bankers”.
You will be making a lot of money. Gone are the days of grinding and doing all the nitty-gritty work yourself. You have Analysts who do the grunt work and Associates who check that work for you. As a VP or Director, your job is to execute the mandates given to you. The more you inch towards Managing Director, the more you are expected to bring in business vs. just executing. You are becoming a walking business. In digital terms, you are an affiliate marketer for your bank – just that you don’t own the brand nor the clients. This is where the money is. In terms of total compensation, the sky is the limit. The more fees you bring in, the more you get to take home as a bonus.
Your job is relatively safe and resistant to automation. The same point applies to Senior Bankers as well. The core skill of Senior Bankers is network and client relationship management. The bigger the deals, the less automation is likely. In other words, yes, you can sell a website generating EUR 500k online without the help of Investment Bakers, but you can’t sell a EUR 50m revenue SaaS company just like that. There is just too much at stake. Investment Banking will always stay around. Companies will be sold and bought. It’s not cutting-edge technology. It’s resistant to automation. Just keep that in mind.
Making Managing Director is not an easy feat. Advancing from Analyst to Associate is easy. But then at the VP to Director-level you are seemingly hitting a glass ceiling. You try to scrap retainers and a small deal here and here. Maybe you get your big deal of the year executed. However, it’s never really enough for the big breakthrough to make Partner. You are stuck. To be blunt, it’s unlikely that you will make Partner. Making Partner does not require some sort of secret sauce. The overall M&A market only supports so many Managing Directors at so many Investment Banks in a region. There are a ton of incumbent Directors and VPs playing the politics game managing their books waiting to get promoted to manage a larger book. This is not Wall Street during the 80s, where everyone was Partner after 5 years. Nowadays, it just takes too long to get there. You are not going to make Partner just like that. You have to stick around long enough at ONE firm while being liked to inherit the business. The M&A market is not growing so much in terms of number of transactions for a young upcoming VP to just hustle his way up to Managing Director by simply working harder than your boomers. You inherit the business rather than capturing an underserved market share.
M&A has become a commodity and competition is intense. Have you ever wondered why your deal team lost that pitch you all were killing yourself for? It wasn’t because of a typo or a formatting error or an unaligned logo. It was not because your pitch was factually bad. It was not because you delivered a bad product. Your M&A shop would have been very well capable to execute the transaction. All potential buyers can be researched with enough effort. Your competing M&A shop just had better transaction records and demonstrated more established relationships in that niche. The bank is competing with its brand name and not product quality. Every small-cap boutique wants to compete with mid-cap shops. Every mid-cap shop wants to compete with bulge bracket. Your competition is only getting tougher the higher you get. It’s really who “owns” the client. Once you make Partner, your role is to make it rain. You may be able to go home earlier, but you will be stressed out whether you won that mandate or whether that deal goes through. Gotta hit your fee target!
So yeah, the honest long-term outlook is a lot more mixed compared to a Junior Banker. Yes, you do make a lot of money. But Investment Banking is also a very high-stress job. You have to stick around long enough and be liked to get a shot at having a seat at the table. Once you have your seat, you have to make it rain to keep your seat. You are expected to deliver on a regular basis. Be careful what you wish for because it might become true.
Where does it leave us?
So there you have it. The short-term outlook as a Junior Banker (0-5 years) has not changed much. M&A Investment Banking is still a solid career option to get started with. You get a relatively high-paying and safe job straight out of college. However, the bank is going to make you work very dearly for that money. Continuing down the path and becoming a “Senior Banker” (+5 years and more) things become tricker. Yes, you make a lot more money – this is where the money is at (assuming you get there). It usually means committing yourself to Investment Banking for the long run. To get there, you have to wait it out year after year longer than your fellow Junior Bankers hoping you are liked at your shop. The market for M&A is simply not growing fast enough. Executing an M&A transaction is largely becoming a commodity, where banks are primarily competing with brand and reputation vs. product quality.
Now comes the big question: “Should YOU do Investment Banking?” We often get questions asking something along the lines of “What’s better? Consulting vs. Finance? This is my background. Give me the blueprint!”
The short-term outlook did not change. It is still a high-paying career where you have to work incredibly hard. If you don’t have an offer, all the above questions are irrelevant. Your actual decision at this point is just whether you want to commit yourself to preparing and applying for IB interviews and give it all you have got. You can increase your odds with proper preparation. Then, the bank decides who receives an offer. Then, it is your turn to decide. Until then, you are still on the sell-side. So might as well start hustling.
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