This Isn’t Your Grandfather’s Investment Bank

Picture an investment banker. You might start with the shoes: a freshly shined pair of calfskin Oxfords. Then the clothing: a navy blue suit, crisply pressed white button-down shirt, and a tie—not too funky, not too flashy. Hair: neatly combed and clean-shaven. This picture is almost as accurate now as it was fifty years ago. Except that on most iBanking floors today, you would find a few less full suits, a more diverse proliferation of hairstyles, and a decent share of skirt suits, heels, and ponytails.

     But don’t let appearances fool you, investment banking jobs in today’s world are not what they were a few decades ago, nor do they take place in exactly the same kind of institutions. Indeed, investment banking is a constantly evolving sector.

     First, the deep history: private banks began providing investment-banking services in the early 19th century, but the true father of the investment bank on American soil was Philadelphian Jay Cooke. His Jay Cooke & Company, in existence from 1861 to 1873, bought and sold securities for clients via telegraph. After the Civil War era, there was a financial service boom that ultimately split the nascent investment banking world into two camps: the German-Jewish one (i.e. “immigrant” bankers) and the “Yankee house” one. That gave way to an early-twentieth-century domination of the market by a tight fist of firms, some of which are still around: J.P. Morgan & Co; Kidder, Peabody & Co; Brown Brothers; and Kuhn, Loeb & Co. The first bulge bracket was born. 

     Then from 1933 to 1999, banks were not allowed to function as both investment banks and commercial ones. They had to pick. This was because of the Glass-Steagall Act, passed right after the 1929 Stock Market Crash, which was appealed just before the turn of the millennium by the Gramm-Leach-Bliley Act. Able to again underwrite securities while also taking deposits, commercial banks entered or re-entered the iBanking game. For example, Morgan Stanley found a new competitor in its once-father company J.P. Morgan, which had gone the commercial bank route in the 1930s. 
Fifty years ago, iBanks focused on advising clients on public offerings and mergers and acquisitions. Come the 1980s, that trend was superseded by proprietary trading, which spans stocks, bonds, commodities, and derivatives and trades on a bank’s own money rather than that of its customers.

     What changed the face of investment banking most of all is what changed the face of most businesses: technology. With computing devices and then computers, trades could happen faster than ever before, at greater volumes than ever before, and in response to more subtle fluctuations than ever before. Investment banking jobs would and never could look the same again.

     But most significantly for current candidates, since your grandfather’s—and since your father and older cousin’s time, too—there has been that still all-too-recent and painful event called the “Great Recession,” or the “Lesser Depression,” or “that terrible thing that happened in 2008.” Those seeking investment banking jobs today are up against tougher standards, slighter chances, and a much larger pool of candidates than their predecessors. And investment banking institutions are still paying for and changing practices because of the mistakes made by those predecessors. Banks in 2008 might have benefited from a history lesson of their own: In 1907, J.P. Morgan (the man) apparently locked top banking executives (from more than just his namesake bank) in his office until they came up with a solution for that year’s famous banking crisis.

High Pay Still Found in Finance

     Though the stock market remains wildly prone to fluctuations and the United States barely saved itself from veering off a fiscal cliff at the new year, the high pay of finance jobs has remained a steadfast thing. And the number of people seeking such jobs has, if anything, been on the rise—even as the amount of spots available moves the other direction on the number line.

     “I’m looking to go into finance” is a common phrase among soon-to-graduate and recently graduated college students. But what exactly does “going into finance” look like? Finance is an industry, and the term blankets a lot of different positions. Finance jobs include everything from being an analyst to being a trader, from being a researcher to being a consultant. When most people think “finance,” investment banking, also called iBanking, is what first comes to mind. Specifically, bulge bracket banks like Goldman Sachs, J.P. Morgan Chase, and Morgan Stanley come to mind. But these firms only comprise a small (if highly profitable and reputable) piece of the finance pie. Job-seekers can also break into the finance career bubble through sales and trading divisions, corporate finance, hedge funds (a harder point of entry for fresh BAs), consulting firms, (McKinsey & Co., Boston Consulting Group’s HOLT associates division), private wealth (Charles Schwab, PNC Wealth Management) management firms, and even ratings agencies (Moody’s, Standard & Poor’s). And within iBanking alone, there is further job breakdown into three types of groups: capital market, product, and industry groups. Basically, “finance” is deceptively simple—there are dozens of ways to wriggle into the finance sector.

     The pay, of course, differs from position to position and from company to company. At a big investment bank, first-year analysts will typically make around $70k base salary plus a $10k signing bonus and $50k to $60k year-end bonus. At a hedge fund, the hiring salary can go up to $90-$100k base plus an even more significant year-end bonus—but generally only analysts with an MBA or prior iBanking experience will make this kind of money right off the bat.Entry-level private wealth management salaries can also be over $80,000. First-year traders bring in similar base salaries to analysts but usually expect less of a bonus—around $20K to $30K. Ratings or credit analysts tend to make slightly less than these other positions, around $55K base salary, but compared to the larger scope of American and international pay grades, that is still a more-than-respectable entry-level salary. And once someone is inside the finance worlds, his/her chances for mobility into different sectors and positions greatly increase.

     Of course, no money comes free, and no one getting into the finance world can expect to get his/her salary without doing a lot of work—sometimes 100 hours a week of it. Analysts joke that analysts don’t have a life, and at times that joke rings all too true. But the applications for finance jobs keep coming and will keep coming. The bonuses may not be as extravagant as they once were, nor is the path to rise through the ranks of a firm as smooth and certain. Yet no other industry can promise pretty much across the board $50k plus entry-level salaries, especially after the recession. High pay has remained a stable fact for those who can say they are “in finance,” and in unstable times, that kind of stability is something for which many are willing to fight.