Usually, investment banks hire for the upcoming fall when conducting on campus recruiting. This means that analysts will undergo training and orientation the following summer (anywhere from 2 weeks to 2 months for global capital markets franchises). Incoming analysts will usually use the gap between graduation and starting the job to travel, with popular choices including backpacking around Europe or Southeast Asia or taking an immersive Chinese class at a C9 League university.
However, investment banking teams may occasionally ask if incoming analysts want to start early if they finish their courses the semester before their convocation (all examinations completed in December when graduation is in May). Sometimes, when they are very eager for more hands on deck, investment banks may even ask for analysts to consider starting immediately after graduation instead of taking a summer break.
Usually, this means that the team is short staffed either due to employee attrition or because there is a sudden uptick in dealflow – which one of these two is important. We are frequently asked by incoming investment banking analysts whether they should take on the offer to start their career early. In most cases the answer is no.
Don’t Start Investment Banking Early
Investment Banks Do Not Give Credit for a Longer Stub Year
Most prominent investment banks have rigid schedules for promotion – the analyst class gets promoted at the same time. As such, most competent peers may be promoted in 2-years or 3-years depending on the bank, but analysts starting early may find them selves being 3 or 4 year analysts. Conversely, sometimes late hires may be promoted as early as 1.5 years as they are on the same track. Other than being more experienced than other analysts when they start, this is meaningless – IB work is not that difficult. For associate-to-VP promotes, promotion scheduling is more pragmatic, so this may not apply.
Performance is Not Reflected in Stub Bonus
Analysts start mid to late summer depending on the duration of the orientation and training while variable compensation payouts may not align perfectly. Usually there is a “stub” bonus for the first incomplete bonus cycle. This stub is usually the same for all analysts across the board and will have a set number pro-rated by months worked. Working hard as an AN0 (the usual denotation for an analyst’s stub year) may not translate into anything more on a per month basis. Accordingly, if the stub for three months is $12,000, an analyst that starts six months early may get $36,000 for nine months. Definitely not worth it from this perspective.
Opportunity Cost of Missing Training, Orientation and Outside Pursuits
Training is a time for firms to get new hires to drink their Kool Aid via presentations, a lot of good food and open bar events. This is a great opportunity to network over drinks with the starting class across the globe as all new hires congregate at the training location – be it New York or Chicago. Many analysts forge lifelong friendships here that are useful later regardless of which person goes to megafund private equity, a startup or becomes a C-suite executive.
Training is a paid vacation to some extent – but also extremely useful from a learning perspective as there is a comprehensive overview of technical skills needed to succeed as a financial professional. Top-tier banks will have anywhere from one to six weeks of Excel modeling training going over comparables analysis, manipulating data sets, operational financial modeling, leveraged buy out modeling and merger modeling. Bulge brackets will also have class which reviews accounting and finance concepts – these may be very helpful for non-finance majors.
Before analysts officially start at their assigned desk, they are not to be touched during training. However, for analysts that have already started, they are seen as already integrated into the team and senior bankers do not like it when analysts get time off when there is work that they are needed for. As such, there may be an expectation that outside of the modeling training analysts are expected to be back at their home desks, thus forgoing all of the networking and social benefits. Off-cycle hires also suffer from the same fate.
Also, the time after graduation should be used constructively outside of finance. Once an analyst begins on the desk, there is a limited amount of time outside of the 70-100 hours at work. The time off before banking should be spent traveling, or better yet learning a language or skill in an immersive environment.
Higher Chance of Burnout from Starting Early
Investment banking has one of the highest burnout rates of any industry. Analyst years are the worst years, so being a 4-year analyst lacks appeal.
When to Start Early for Investment Banking
A Better Chance for Private Equity Recruiting
Private equity recruiting at large funds starts early – sometimes before any real investment banking work really begins. However, this means that an analyst cannot have been adding meaningful value to any major deal that they may have grazed immediately after getting on the desk. Analysts that are set on private equity can consider this as a longer window to possibly get staffed on a marquee deal for a meaningful amount of time. This is not necessary, but can improve the probability of landing a good private equity job early.
Lateraling to a More Prestigious Bank
For mid-market bankers who may have wanted a Bulge Bracket or Elite Boutique, this makes sense as six months of investment banking work experience make a candidate stand out to fill any vacancies caused by early attrition at other banks.
This may also be best in terms of not forgoing a considerable bonus or giving up a year as the more prestigious bank may be reluctant to give equivalent credit for time worked – for example, a 2nd-year analyst at a mid-market may be asked to start as a 1st-year at the Bulge Bracket.
Broke and Destitute
Analysts that are saddled with large amounts of student loan debt or have frivolous spending habits may not have an option other than to work.