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

¨A bank is exactly like a frat house.¨ Just like a fraternity, there’s hazing, a hierarchy, and certain rituals you must go through to advance. This article will indicate that how much you get paid at each level, how the work differs, the average age range, and the possible exit opportunities.

Margin Call

Footnotes & Starting Assumptions

Let´s assume 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. So 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.

(Know more about A day in Investment bank — to be continued)

  • How You Get In:

You’re recruited from a top undergraduate or Master’s program, or you have a strong network contact. Once you go beyond a few years of full-time work experience, you won’t get in as an analyst because you’re overqualified (Is it a benefit or a flaw to be 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 we’re in a bubble.

In some countries (Australia) the base salary is higher and the bonus is lower, while in Europe and the US base salaries tend to be lower with significantly higher bonuses.

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 these articles on exit opportunities. Out of all the levels, analysts have the most exit opportunities 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.

  • 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’s more limited at this level, and it’s quite difficult to move into something like private equity unless we’re in a bubble economy.

You either stay in banking or move to a normal company and do corporate development there – or get out of the rat race altogether and start an adventure travel company.

It’s possible to get into hedge funds, asset management, and so on but those are all less common at this level. The longer you stay in banking, the harder it is to break out of banking.

 

  • 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.

 

  • 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.

 

Writted by Brian DeChesare

Reference:

Monkey Business, John Rolfe

http://www.mergersandinquisitions.com/investment-banking-hierarchy/

 

The GrowinFinance.com Team

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