Your Route into Investment Banking
Getting into investment banking can appear a daunting experience, with many candidates feeling like the odds are against them. When Goldman Sachs claims to only hire 4% of people, the competitiveness appears undeniable. However, as former recruiter, Clive Smith, mentions:
"Those excellent students with a first in economics and ten internships? They're not the ideal. When I was at Goldman, we were actually fairly anti-hiring these people, whom we referred to as "plug and play." Yes, they've got the track record, but they're not exciting."
Yet, statistics do not lie- ‘64% of Goldman’s locally-educated staff come from private colleges and 21% come from the Ivy League [America’s eight most elite universities], compared to just 24% and 2% respectively for Charles Schwab, which runs a large retail brokerage operation.’ Together these two testimonies bring potential candidates closer to the reality- yes, some factors are important but the seeming ‘winning combination’ might not win you the race. The diverse options available means that deciding which path is right for you can become even more difficult than the outcome in mind.
To understand which factors to combine and to which purpose, it is important to distinguish between two things: your resources and your target. Keep in mind that investment banking is a multi-faceted work environment- from front-office operations based on ‘direct interaction with the client and customer’, to risk-management roles found in the middle-office positions.
Additionally, although the industry’s glitz-and-glamour (JP Morgan Chase, Deutsche Bank, etc.) are attractive, they are only the tip of the iceberg. As the post-2008 market increased fragmentation, boutique banks (smaller banks dealing with fewer operations for a specific part of the market) are making headway- as ‘banks such as Citi and UBS, which were both in the top 10 of the 2008 Most Prestigious Banking Firm Rankings, have fallen behind these little guys ten years later. Elite boutique banks are officially under the spotlight now.’
As boutique banks increase their ‘share of global M&A volume to 40.9%, equating to $1.37tn’, it is vital to stay aware of all possible targets and all lucrative options. Wanting to be part of ‘investment banking’ is not narrow enough for an industry as dynamic and competitive as this. Knowing your target as best as possible- focusing on position, as opposed to company- will guide you in understanding the potential and limitations of your resources.
To judge your resources we suggest the 4Cs model:
Competence, Credibility, Communication, and Competitiveness.
Each ‘C’ represents a range of skills that you should aim to combine concerning the role in mind and in proportion to your starting position.
Communication differs from networking- it is a range of personal skills and attitude (e.g., confidence without arrogance, conciseness, etc.) that personalise your applications, enhance your performance in interviews, and essentially differentiates you from other equally well-performing candidates. Additionally, some positions with more face-to-face contact (like front-office roles) will necessarily need people with an ability to interact with potential clients in an engaging and successful way. However, middle office roles- though not as communication-heavy- will still need some ability for interaction for the team-working environment to remain efficient.
Understanding the culture and having a feel for the room are essential skills to communicate to a bank that you are both a good asset and a safe investment for them. As a testimonial from Deutsche Bank pointed out ‘There was the same kaleidoscopic mix of nationalities speaking in various accents of fluent or broken English; the same feeling of urgency to do deals’. Showing this drive, this passion, and confidence must become second nature to how you present yourself and communicate.
Competitiveness is where you might break or make it in the industry. Returning to Clive Smith’s quotation from the beginning, you can tell that competence and credibility alone will get you so far- but a competitive element (e.g., an MBA, a new skill that can shape the industry like machine learning, etc.) might give you that edge that the rest of applicants lack. Judging your sector, your role, and your region thus become key in evaluating where your competitive spark might lie.
To understand how these components interact further, we consider three plausible ways into investment banking. Though some might be more obvious than others, it is worth assessing each at face value and choosing based more on your strengths than the perceived ease of the route.
Undergraduate and Internship Route: The Standard
The often ‘standard’ route for going into IB is by completing an undergraduate course and internship. Given how early recruitment begins, the competition is often more intense. Standing out with fewer qualifications and experience can make it more challenging to attain the ‘stepping stones’ needed for an entry-level job. However, first-year internships, known as ‘spring weeks’ in Europe and ‘sophomore internships’ in the US, are a good way to start directing your efforts. When it comes to this route, the most important word of caution is not to get complacent- attaining one internship is incredible, but it doesn’t mean it’s enough.
As interns struggle to convert their internship into a full-time job (in some cases the conversion rate can be as low as 26%.), completing and applying for as many internships as possible is key. Before applying for these positions, it is important to assess what your undergraduate course is offering you as help. machine learning, etc.) might give you that edge that the rest of applicants lack. Judging your sector, your role, and your region thus become key in evaluating where your competitive spark might lie.
To boost your chances, you should consider your long-term prospects. Analysis of investment banking directors found that ‘finance and business students are hired in far greater numbers than anyone studying softer subjects’. More than half of those sampled had studied economics, accounting, and business or finance. This is where ‘differentiation for differentiation’s sake’ might hinder rather than help your competitiveness, for it undercuts your credibility. However, humanities are not entirely locked out of the investment banking world- 15% of bankers at HSBC have an arts or humanities degree.
It is worth noting though that most of those candidates came from Oxbridge, which means this route is highly risky and not representative of most successful candidates- as a reputable school might make up for the ‘riskier’ subject choice. Across the world, different cultures might place more or less emphasis on brand- with places like Hong Kong being more ‘brand-oriented’. According to Michael Tanenbaum (a former JP Morgan employee): ‘Most front office jobs were similar: it was mostly people originally from China or HK who had attended the top schools in the US, UK, or Australia.’
However, investment banking internships are tough to land. Although you should remain positive and proactive, you need to have alternative plans. Sending out applications as early as possible is essential, but you must also focus on a strong, rather than chaotic, Plan B. Do not make the mistake of jumping back into education to improve your competence without a good reason as to why more or differentiated education will benefit you. Remember that your CV will need a ‘Work Experience’ section, and if all you have is education then your lopsided engagement with the industry will make it harder for you to appear credible. The most important thing to consider when deciding what your alternative plans will be is ‘What will benefit my career?’. For example, if you are looking to work at a front-office position, a back-office internship at Goldman Sachs is less likely to be of use as opposed to a front-office internship at a boutique. Although brand matters when it comes to the same position, when you have to choose between different roles and experiences, go for the one that will suit you and support your long-term plan.
Another important safety net to weave into your pattern of applying to internships is networking. This is one area where your communication skills can be tested. Most universities will have some form of networking association, even LinkedIn can provide a wide-range of means through which to get in-touch and expand your network. Yes, this might appear like a ‘needle in a haystack’ approach, but given the vastness of global networking, getting a foot at the door through contacts is more important than going at it alone.
This route has perhaps wrongly been painted as the most unidimensional one. Do a finance degree, get an internship in the ‘Big Four’ and then join the big league. Yes, this does happen but it is not the only way to use this pathway. Instead, remember that every bank will want a diverse labour force; humanities students and interns from a wide-range of backgrounds can and will be considered. Though the numbers might be fewer, and the competition even harder, you are not a ‘lost cause’ just because you did not intern at JP Morgan or did not study accounting. Even with this path, it is better to play at your strengths and finish at the top rather than play safe and finish at the bottom.
MBAs, CFA, ACA Route: The Quest for Qualifications
When choosing whether to do an MBA or not, the most important question to ask is ‘Will this help my career?’ Firstly, an MBA is more likely to benefit you if your first degree lacks a strong economic, finance, or quantitative-prone academic background. The exceptions to this rule (e.g. Credit Suisse has hired history graduates and Deutsche Bank has often favoured chemical engineers) frequently come with the ‘label boost’ of recognisably elite universities (namely, Oxbridge, LSE, etc.) where the calibre of a candidate is anticipated, or for roles out with the front office.
However, suppose your undergrad was from a university that does not stand out to employers and your field of expertise lacked a strong finance background. In that case, an MBA might be the credibility boost needed for employers. However, an MBA should be mainly considered by people who either already have experience of the industry but want to advance their position and pay (only 11% of Analysts have MBAs compared to 20% of Associates, the biggest difference between positions suggesting this is a credible way to move up faster) or by those who are working out-with IB and want to ‘pivot into the industry’.
Recently, some have cast greater doubt on the benefits of completing an MBA. In the past, MBAs used to hold three core functions, whose influence appears dwindling:
- provided perspective employees with useful skills
- illustrated a strong commitment to investment banking
- provided a wide network for becoming accustomed with the industry
However, with emphasis now gearing towards code and machine learning, many might view MBAs as outdated to the needs of modern investment banks and an ever-changing industry (as of 2021 Deutsche Bank is ‘overhauling the way it hires junior bankers, expanding jobs typically reserved for elite MBAs to professionals with experience in a range of other industries’). Machine learning is becoming an increasingly competitive skill to hold as automation becomes a key buzzword of the industry. Even as early as 2015, articles pointed out Goldman Sachs’s decision to ‘have a London-based machine learning team. Trung Huynh, a software engineer, joined the bank as a strategist in January’.
Although the network element might still be there, some view this as an expensive benefit with very limited rewards. The numbers are not too promising: in 2016 just 8% of MBA students from London Business School went into investment banking, in 2005 that number was 19%. Although MBA grads in 2020 could expect to make around $20,000 more than those with just undergraduate business degrees, there remains a steep decline in overall applications and expectations of having an MBA.
However, it is too early to call time of death. To remain competitive, you must choose an MBA that suits an ever-changing business. Indices regarding ‘top MBAs’ inflate ‘reputation’ as the most important factor (QS World University Rankings, a reputable annual publication, measured top MBAs through five components, the most important one being reputation at 30%). However, this is fundamentally flawed. Reputation goes a long way but it does not go all the way. For example, the places Goldman visited the most to recruit students were Rutgers (New Jersey) and Bocconi in Italy. Yes, Goldman hired from Harvard and Oxford and LSE, but they were looking to hire from somewhere else too.
Interestingly, neither Bocconi nor Rutgers makes QS’s top 20 Global MBAs for 2020. So what makes them stand out to Goldman in ways that indices forget to mention? Accreditation. It is no coincidence that certain MBAs (i.e., those that dominate despite not being the most traditionally ‘elite’ schools) have attained accreditation from many prestigious bodies.
Accreditation is a way for business schools to prove that their courses remain of the highest quality across a wide-range of fields. The ‘gold-standard’ of accreditation for business schools, namely AACSB, evaluate and ‘ focus on mission, strategic management, and innovation; support for learners, faculty, and staff; and thought leadership and societal impact.’ The most important accreditations to look out for when choosing an MBA are: AACSB, EQUIS and AMBA.
Attaining all three is a long, expensive, and rewarding process for business schools- and very few have managed to get the ‘triple crown’. AACSB has been granted to just 5 percent of business schools around the world. The results speak for themselves: Goldman’s favourite – namely, Bocconi – ranks 23rd for QS’s world rankings but it is one of the few business schools to have the ‘triple crown accreditation’. This is not to say that Goldman seeks ‘accredited’ schools. Rather, accredited schools are likely to have developed the right features and infrastructures to attract the best recruiters. Choosing an accredited school will place you ahead of the race, as these are the MBAs that evolve enough to remain relevant and provide you with more competitive qualities.
Since accreditation needs to be renewed, schools that preserve their accredited status will most likely be the most exciting to discuss at IB interviews and to use in the workforce. As the industry embraces a more global perspective, programmes like Beijing International MBA (BiMBA), which allows students to pursue joint programs between PKU-University College London (UCL) or PKU-Vlerick Business School (in Belgium), could grant a unique competitive advantage. The trend to notice and follow remains accreditation, as BiMBA also holds the ‘triple crown’.
When it comes to your chances of getting into IB, accreditation becomes even more important as you move away from ‘pure investment banks’ that have a higher tendency of recruiting from elite universities (e.g., 70% of UK-educated staff at Goldman Sachs were from Russell Group universities [24 of the UK’s most academically-oriented universities], compared with 31% at Lloyds Banking Group). So when you ask yourself what will benefit your career, consider an MBA by favouring accreditation over merely reputation, decide whether your position (front, middle, back office) favours MBAs, and whether your long-term commitments are within this area of work.
The latter question becomes important for investment bankers, as many choose to move towards private equity (a sector which is currently employs more MBA graduates than IB), which has become the most popular exit strategy. So if you want to crack into an incredibly competitive field, while leaving your long-term plans more open, an MBA based upon the above recommendations could suit you most.
If you still feel that MBAs might not be for you, remember that the industry values several qualifications. Many regions value a variety of qualifications and provide different degrees of flexibility for breaking into IB. For example, in China the Chinese Institute of Certified Public Accountants (CICPA) is considered more credible than an MBA, with an impressive 101,376 practicing members. Given global competition (the US has 664,532 actively licensed CPAs) the need for more skilled accountants is likely to remain high and increase your competitiveness in this industry, including for IB. Similarly, in South Africa and India, “Chartered Accountants” (CAs) often complete their training, work for several years, and then move into investment banking.
For the US, the most worthwhile certificate is the CFA. The CFA is an exceptionally drilling experience- from 4,000 hours of relevant work experience to six-hour exams- making their attainment even more noteworthy. Attaining it means demonstrating ‘expertise in financial research, portfolio management, investment consulting, risk analysis and risk management’. However, as testimonials from charter-holders have pointed out, the CFA does not necessarily make you competitive. In an article by Sarah Butcher, three out of four interviewees gave similar responses:
“When you work in sell-side research, having a CFA charter definitely helps your credibility. When you're looking for a job, no one will actually ask whether you have a charter, but there are definite benefits. ”
Furthermore,
“being a charter-holder does help a lot in conversations with my buy-side clients. They see the CFA stamp on my business card and I think it brings me more respect. For this reason, I'd say it's worthwhile. ”
Interestingly, one of the testimonials highlights how qualifications credibility status will vary regionally:
“there are always jobs for ACA qualified accountants in London. I suspect that the CFA Charter is more worthwhile if you’re working in America, or in wealth management in Asia.”
So, if you have some competitive advantages but want to increase your credibility then the CFA might give you this boost. However, as articles have highlighted it is important to know your qualifications’ purpose and reach- what makes you credible will unlikely make you competitive. When ‘it comes down to the CFA vs. a 3.9 GPA, or the CFA vs. Harvard, or the CFA vs. a series of private equity internships, the CFA loses every time’. So, although you should know your strengths from your weakness, you must also learn that your strengths have different purposes that may alter the place and position you are seeking.
The Career-Changer Route: A Game of Catch-up?
Although the above pathways are most common, there are still some ways to break into investment banking after graduating and being employed at a different sector. Career-changers are fewer and harder to pull off. For example, suppose you have graduated as an engineer and are only just considering getting into IB. In that case, chances are you have neither an academic nor an experience-based background that would allow such a transition. If you are looking to work in finance, it is worth remembering that IB is one of many sectors in this field, if you have experience in tech then equity research might be more suitable. The problem is that a lot of advice as to how to change careers often includes doing MBAs or seeking internships and positions in finance. This basically means playing a game of catch-up where the odds are against you.
If you are set on this, the most important thing to start considering is your transferable skills. Unsurprisingly, those who are more likely to be successful tend to come from an engineering background- as their mathematical skills means that picking up calculus and programming used by banks can be simple. When considering transferrable skills, the most important thing to do is to learn the world of investment banking as thoroughly as possible. An engineer’s skillset is more likely to land them roles in M&A or GCM teams.
The problem of transferable skills is that realistically the pool of plausible career-changers narrows. Engineers, lawyers, programmers, and even accountants have to work exceptionally hard to beat the odds of changing careers. Even then, the whole process can feel like a race against the clock. On top of that, location and culture also matters. For example, lawyers find it easier to transfer into IB in the US as opposed to Europe, where such career moves are more ‘commonplace’. Given all these factors, if finance remains a sector of interest, it is worth taking a realistic look at all the factors and using a process of elimination to choose the sector within this field, and the line of work, where you will most likely gain an advantage from your existing experience.
Perhaps the upside for career-changers is that the finance sector is large and ever-expanding. Covid, coding, and automation will be new challenges and exciting opportunities that will invite new talent, new skills, and new jobs within the sector (See Section 1). This could perhaps give the next generation of career-changers an advantage, but changing careers years after graduation will likely remain a challenge whose magnitude is hard to estimate.
Conclusion
Returning to the 4Cs model- competence, communication, credibility, competitiveness- these three pathways have aimed to provide a rough sketch of where your planning should start based on your aspirations, the skills and experience you already hold, and the environment you are likely to face. Though communication has not been explicitly dealt with, it is the ‘magic factor’ that weaves itself throughout these paths. Regardless of your choice, you will have to communicate why you picked a CFA over a Masters, or how an internship has made you more credible or why your engineering degree makes you competitive.
You will have to communicate when you network, when you try to turn your internship into a permanent position, and when you are finally working at the role you wanted. To get there, the other three Cs should be attained and balanced in proportion to three factors: Position, place, purpose. The position is the role you are seeking in a bank. The place is the regional impact on the competitiveness of your skills and qualifications.
Finally, your purpose is your long-term aspirations which may be best served through different ways. Keeping all these in mind along with the three paths we have discussed should help you plan and adjust your rough Plan A and keep you informed on how to approach your Plan B. As Roy Cohen writes, ‘When you fall off the wagon, you lose valuable time and you also make room for someone else to take the place that belongs to you. Don’t let that happen’ (Cohen, 2010).
So although falling off the wagon is part of the journey, this piece should remain a fundamental guide of how to persevere and position yourself on a path suitable to your success.
