Investment Banking = Waste of Talent?

Definitely a brain drain from the other industries... But I believe the upper echelons of IB is more about sales and coming from a great educational background helps.

Of course, it's a massive mis-allocation of talent.

Are we really that talented?

First off, not sure how I actually stack up vs. "top talent."...I think one of the biggest drivers of this isn't necessarily the pay, but more that working in IB at a top firm 'signals' success. People who go into IB (generalizing here) are type A personalities who have been chasing success and looking to reach the next best thing throughout the course of their lives. When working in IB you're simply projecting "I'm successful and I was smart enough to break into one of the most difficult industries to be employed." It's driven by superior insecurity and the need to prove your worth at all times. Additionally, going into IB is perfect for Type A college students, because almost none of us know what we actually want to do after two years. What we do know is that we'll be chasing after another top job. One of the best things about IB is that it not only keeps your employment options incredible open, but those options are also at the top-end of industries/employment levels. It's a perpetual cycle to chase success while being as risk averse as possible....Personally I chose to enter IB for three reasons; I enjoy finance/corporate strategy/markets/etc., it projects to my family members/friends/peers that I worked extremely hard and am "smart", and it provides a safety net for the future. I have no idea what I want to do after 2 years, whether it means staying in IB/going to PE/Corp Dev/Corp Fin/Non-profit/Startup/etc, but I do know that IB has the public "stamp of approval" in employers eyes. I had/have a great opportunity to join an startup out of school instead of going into IB but I don't have the guts to risk failing, and that's where the issue lies. We all chase success in a risk-averse nature.

It is a misallocation of talent, but, companies that employ the best and brightest clearly don't do enough to incentivize those individuals to stay away from high finance. Medicine seems to work fairly well at keeping bright people well paid and engaged. But the most inquisitive of minds/problem solvers like engineers almost always are underpaid and not challenged and get stuck in bullshit roles within mega companies and start looking for a way out.

I think at the end of the day, science is science and its not inherently tied to making money at its core; Just like academics is not supposed to be about making money. In many instances some people are okay with that, but others who have busted their ass to achieve specialized engineering degrees say fuck this 150k/year I'm going to triple that.

So, is it a waste of talent, yes. But we will keep hearing stupid politicians who could never handle high level math say "we need more engineers and stem talent," without understanding that the talent follows the money; especially in America where we keep score by one thing - money.

Incredible brain drain. Not just IBD but all of "high finance" and consulting. At least it's beginning to change though. Seems like startups and entrepreneurship are the new cool thing. I hope that trend continues.

They do it only because of prestige and "money",when someone asks you "hey what do you for a living?" and you say archaeologist,Physicist,Mathematician etc. they'll be like "ok",but when you say banker,Inv.Banker etc. thay automatically assume you have money,rule the world etc. see where I'm going with this?

There are so few jobs for PhDs in academia that I completely understand a lot of them going into other industries. And let's face it: some people enjoy finance a lot more than software or physical engineering stuff, especially if they were more into the theoretical aspects of engineering/physics during their education.

Many of the world's smartest people are uber-arcane scientists, or theorists, or whatever, and aside from the outlier who creates a paradigm-shifting masterwork of academia, many of these people will contribute exponentially less to society than the average investment banker.

I definitely agree, talent follows the money and typically the jobs that provide the most benefit to society have some of the lowest wages. Other industries have their own agendas and moral issues (ex: Power hungry politicians, fame chasing journalists/entertainers, prestige/money chasing doctors and lawyers). Why don't doctors and lawyers take pro bono cases or accept medicaid patients if they genuinely picked their careers to help society). I'd rather pursue the career in Finance that I'm most interested in, live well and help others with my spare time/resources.

My guess would be that some going into finance are intelligent enough to have been mediocre scientists/researchers, but very few if any have the intelligence, dedication, and will to have been top contributors in those fields. You probably overestimate the intelligence of people going into non-quantitative finance - by and large, the students at a school such as Wharton do not compare to students at Caltech.

So what's more valuable, a finance guy or a mediocre scientist? I'd imagine the finance guy actually has more of a chance of making an impact on the world.

My wife and her family is full of PhDs. A PhD is a great and noble degree (provided that it's in an actually applied field, and not art history for instance). The issue, however, is that unless it's tech/physics/math oriented or soemthing else that's easily applied, it's IMPOSSIBLE to get a job in either academia or business. Once a professor reaches tenure, he/she won't give it up unless he/she becomes incapable of teaching or dies. So...if you continually have an influx of newly minted PhDs, and fewer and fewer prof deaths, you're stuck with business. And if you're in a non-applied field, you'd be lucky to get a job.

So while their talents may be employed elsewhere and for more noble or better causes, there's such limited opportunity to do so, so they get boned.

http://www.theguardian.com/science/2013/dec/06/peter-higgs-boson-academ…

I'm sorry, but the idea that investment banks hire the "best and brightest" of America's college talent is a bunch of bullshit that HR tells the new analyst classes every year to flatter their egos. Stop drinking the Kool Aid.

PhD programs take the best and brightest that apply. Given what my wife's been through (and the rest of her family), it's the last thing we'd recommend for our children. And she, btw, went to ivies all throughout. As have I.

1) Every job blows in the beginning. If you think entry level engineers or computer scientists are launching rockets day one you are disillusion.

2) I wouldn't call the creators of Snapchat, Angry Birds, or Instagram to be any less of a misallocation of resources.

End of the day people decide what is best for them. Some people are motivated financially, some people are motivated by helping society. If you have a PhD in something nuts and choose to work at a bank formatting powerpoint then you are allocating your resources exactly as you want. Not everyone has to be dirt poor, helping society.

not to be a dick but 99% of ppl in ibd are not that smart. most guys in pe arent that smart either. quant hf guys are rly rly fcking smart and ex quant you still have some smartish ppl at hfs but overall the finance industry is not that impressive.

just because you graduated with a top grade from a top uni you are not the best and brightest lol. the best and brightest is the guy that aced maths without doing any work, not some guy that worked his ass off in a finance degree.

It's a brain and talent drain, definitely.

My degree is heavily focused on applying (advanced) mathematical statistics to economics / finance / marketing. Even in my 2nd -year undergrad projects standard statistical software packages were insufficient and we had to use packages like R to construct our models. This is all good for us as students since we get to develop a very powerful skillset of programming and mathematical statistics. At one point however I asked myself: “Why didn’t anyone just start a company and pre-programmed all this shit?”

Since we develop an area of expertise graduates in our field earn (on average) about 50% more than the average economics graduate. Sounds good right?

Actually the answer is no. Since our study is dubbed the “mathematics meets bizz/econ” study, there’s a huge wave of students (like me) who are drawn by the fancy “haute finance” industry and their gargantuous salaries. Basically, the best students (aside from the nerdy types) are scooped away by M/B/B for SC and GS/JP/MS for IBD. What are left are some super smart nerdy types who go into academia and the sub-top who first pursue IBD/SC and then “trade down” to an expertise job. These still pays ~30% more than your average traineeship at a F500, but a LOT less than IBD/SC.

Hell, if I could convince the smartest kids from my study (and myself) to drop our SC/IBD offers to start a company I’m actually confident we could set something brilliant up. There’s just so much room for entrepreneurship since the people who study my degree are just so risk averse. Somehow it just doesn’t happen though. There is zero entrepreneurial culture here. With my background I know I have a pretty good shot at HF/PE after an IBD analyst stint. I guess I'm also risk averse.

TL:DR => IB/SC offers a LOT more money and (social) prestige than actual development jobs, thus scooping away the best graduates who would otherwise work on technological development.

@ wavingwind Humility is a huge asset to have in Banking / Finance; especially at junior level. Try working on that.

I can't see how this is really a drain on talent. Of course, there is anecdotal evidence, but for the most part agree with leveredarb. I'm not especially smart at all (especially STEM subjects), nor are 90% of the people I work with. In fact, the smartest guys on are desk are definitely market risk (Ivy/top engineering school guys who studied CS and material engineering stuff) which would be mockingly categorized as MO by the majority of this board.

Not many of the "revenue" generators (at least on the sell side), are that smart from what I've seen.

It's important that the topic says: "waste of TALENT" and not "waste of intelligence". Talent can be many things. If someone's talent is staying up all night and doing a lot of work, or being a good salesman, maybe IBD is not a waste of talent for that person.

Besides, some people like to spend a lot of time thinking about ideas and going from there (scientists), and some people like making those ideas happen. For the first group, going into a PhD program is a good start, and investment banking just might be the thing to start with for the second group.

LOL someone is butthurt.

Good post, self-criticism can't be a bad thing.

I think there is some wasting of talent but not that much.

People that leave Academia with a PhD to go into IB do so mostly because they failed getting a good academic job (which is WAY harder than getting into a BB) hence they were not that good.

I was very excited when I landed my top BB gig, then I realized at lest 1k people were doing pretty much the same every year.

Now I am applying for Finance PhD and I hope to become a prof some day.

You're so right about this. IB is a massive brain drain and it's tragic. Imagine if all the STEM PhDs left Wall Street and dedicated their lives to scientific innovation, would we have a cure for cancer by now? I've grappled with this issue in the past. Originally, I'd wanted to go into robotics and work at NASA or Google, then at some point realized that I'd like to earn more than a researcher's salary!

This question is presumptuous from the get-go.....who has the right to tell people where/how their talents should be spent? If the smartest person in the world enjoys tractors and agriculture, then by golly, the smartest person in the world will be a fucking farmer. Looks like someone else will have to further develop string theory. I was unhumanly good at starcraft growing up, but I'm not wasting my* immense* talents by not being a pro gamer.

As talent relates to society - would the world be better off at large if everyone's goal was to advance civilization? Sure, I don't fucking know, but alruism is only a motivator for very few out there. Banks take top talent because lazy people simply don't get into top schools--it's about mental horsepower and work ethic. Some of you people are making humanity sound so utilitarian....one of the perks of not being communists is that we have the free will to do whatever we feel like, career-wise. If your buddy is too "talented" for spreadsheets, tell him to pursue a much more fulfililng career with his PhD; writing esoteric research papers and reading esoteric research reports comes to mind.

Tell him he isn't wasting his brain but rather he wasted his time getting a PHD

Ideally, everyone on earth with leadership abilities and interest in a particular area should start their own business in that field.

But that wouldn't work too well... or would it?

"#1: Your place in history depends on what you do for others, not what others do for you. #2: I want a place in East Hampton, not history." -GSElevator

I think the first step is to identify where your talents will be of most use before determining whether you are wasting your "talent". Just because you are smart does not mean you can do anything. There are many smart bankers who are probably doing what may seem like high school math and can probably use their intelligence somewhere else but if you don't know where that somewhere else is then maybe you you need more time in life to figure that out. I know some very smart people in banking, great schools, great grades, but wouldn't last a day as an entrepreneur because he/she is not talented enough in the skills needed to become a successful entrepreneur. Bill Gates is very talented and smart but does that automatically qualify him to be a talented surgeon? Maybe or maybe not. Can you picture Warren Buffett, who we can probably agree is very talented, coming out with the latest invention at Google? Definitely not. Talent comes in many forms and the most successful people know where to allocate their talents (and passion).

My point is don't look at this time as a "waste of talent", but rather look at this time as an opportunity to discover where your talents can be applied in the future because for some, that comes early in life, others later in life, and still others never in life. And until you figure that out you might as well do something where you can create a nice skill set.

Money is a big reason why super smart people go into IB. One of the smartest/most accomplished people I have ever known (who isn't in IB) has gone to top schools around the world (inc. H/Y/P), has degrees (PhDs) in wildly different disciplines (languages, sciences etc), can speak 5+ languages fluently, has been a national sporting champion etc- currently in academia as well as other things. I asked him about a position in academia he was pursuing (a tenured spot at a very reputable university) and he said he turned it down because they offered him what equates to around half a first year IB analyst all-in comp.

Maybe those engineering/science firms or academia positions should have paid more in the first place. Its kind of insulting to those who busted their ass to get their PHDs only to be earning half the amount as some Econ major who's a first year analyst. Might hurt their pride you know. The outsourcing in engineering/programming fields or bias to fire the old guys for younger ones doesn't really help the job security aspect either

SOURCE: http://www.quora.com/Hedge-Funds/Why-do-so-many-people-want-jobs-in-hed…

Here's a question for you to mull over: What is an industry that commands a ton of capital, where there is boatloads of money chasing human talent, which is attracting a ton of brain power away from other, "lesser", industries, where the overarching goal is to create "products" to serve rich (probably white) people who are members of the global 1%, where the corporate culture is intellectually elitist, arrogant, and immature? What industry am I describing?

Take a look around dude. It's Silicon Valley. These things also used to describe Wall St as well, but I'd say the global recession has at least humbled the people working in finance.

I'm not going to say this is true for you specifically, but plenty of people around here drink the kool-aid where they think places like Instagram or Uber or Dropbox is actually "tangibly" improving the quality of life for "the world at large." Get over yourselves. That is delusional. If that were the case, then my argument that hedge funds abstractly make the world a more "efficient place" by making capitalism function more smoothly is just as, if not more valid. There is nothing intrinsically "good" about creating products like these. Linkedin is not going to change the way people live in the third world, but as a hedge fund investor, I could plausibly invest in water desalinization in the Middle East and ensure people get the water they don't have, make a tangible impact on a huge number of lives, and I also make a decent return on my investment.

So it's true that I don't "create a product" during my day-to-day, but trust me when I say that I think I could live with that.

I think the concept of "smart" is largely misunderstood by most people. Coming from a STEM/ECON background I can definitely say just because you are good at solving differential equations or stochastic process doesn't automatically make you intelligent. The bigger issue here is that people on Wall Street are severely overpaid for decades, and they are probably gonna be severely overpaid in the future. I think if someone can figure out how to make the finance industry more efficient so that a newly graduate college kid would be paid 100k a year doing spreadsheet, they would make real contribution to the world as well.

Just to chime in again on making IB/PE a life long career, if its intellectually challenging, is it a waste of talent and how people on here are crapping on it-it gets fun. It gets far more intellectually challenging (not in a math way) but the challenges of negotiating, etc pits one against (hopefully, or maybe not) bright people on the other side of the table. Doing deals when you're leading them, and if you get to PE as a principal where it's you're money on the line, is exciting. I know while sitting in the analyst penalty box where you hardly get any client interaction, a deal is a deal, you're just an xls and ppt indentured servant, and its cool when a deal closes because you get a nice dinner, but when it's yours and you own it for good or bad, it's the thrill of the hunt. Not many other jobs really let you do deals like we get to do, and most people in this biz become deal junkies. It's what brought me back into it after thinking I wanted the corp roles of actually growing a company. I have friends in and out of the industry and for those that have done well in old school corporate America (such as a friend who's been high up in marketing at p&g and Pepsi-two of the best marketing co's out there), other than getting to go to some cool events BC he heads up Mountain Dew, his job is to sell sugar water. He lives in corp buearacracy, works from 8-6, has regularly scheduled biz trips and can probably tell you the next 3 years of his life. I hardly know what I'm doing next week, traveled around the globe 4x last year, and did something different than anyone else I know outside of this industry. Finance at the upper levels is really exciting.

Your over generalizations are proof positive that IB may not necessarily attract the best or the brightest. Who are you to decide/judge your friend's choice of careers regardless of his/her capabilities/intelligence. Sounds like you find yourself less than qualified to be where you are so why don't you try opting out and make way for the overqualified that self select their career and see how much better/worse the industry fairs.

I firmly believe that IB is a waste of "talent"/human capital. I'm no Einstein myself, but I know many truly amazing people (Harvard over-over-over-overachievers) who go into Finance just because the money is there. Personally, I just want to make a lot of money and enjoy life, and I've known this since the 3rd grade. But I acknowledge the limited "actual value" of IB to the world at large, and often wonder what could these people accomplish if they went into medicine, philanthropy, or academia? That said, I don't believe IB is really where the majority of "the cream of the crop" go....It's a notion that is extremely overhyped by the arrogant douches at BBs. Imo, the really brilliant guys in Finance are the quant HF guys, or the top-performing #1 Trader types at BBs.

Okay let me chip in my £0.02

I've worked in financial services for almost ten years and there is a lot of good comment and some negative comment bandied about on this thread. Each person's choice is very different and personal and we should not insult/shame people for their chosen professions.

I've worked across front office finance (sales/trading), moved across to early stage venture capital, advised family offices (AuM £100-300m) and helped acquire companies in a personal and professional capacity. Each role has required a different set of skills, academic pedigree and in general personal qualities or dare I even say certain bias towards class/ethno-religious factors. I am just reporting on what I have seen so please do not berate me for anything you may take offense with.

The issue I have had with banking and the attitude junior people tend to have is the over inflated sense of self without having done any "real work." Learning how to model cash flows is 1) not difficult with some time/diligence and 2) is only one part of the work equation. In the early days, your bread and butter is largely excel and powerpoint. That is it. After two years most people tend to leave (quit, let go, change industry) and I can count well over 100 individuals who have done this. My point is that excel and powerpoint do not distinguish you in anyway. There are 1000s of kids at every company in the world with these skills.

I can go to an ad agency, a technology startup, a consulting firm, a research house or any other financial services firm and pick someone up with these skills. Believe me there are lots of people I could find tomorrow who can do this. Please conceal your arrogance especially in the early years of your career, you've done nothing of note (yet). Ladies and gents, relying on these bare bones skills gets you absolutely nowhere or will keep you in a very average position.

Real skills do one of the following and do it tangibly and beyond any reasonable doubt:

1) Make money

2) Save money

3) Manage complex process

Ladies and gents, if you are not involved in one of the three areas you are in an ancillary role and your head is on the chopping block. Sorry to be the bearer of bad news but those are the facts.

For the junior employees amongst you, all of you need to figure out how to differentiate yourself. It could be via the dark arts way (aggressive office politicking, this does work sadly), it could be become a fantastic (and by fantastic I mean blow peoples socks off) public speaker/communicator or you just need to be ultra aggressive about revenue or cost saving activities because everyone will love you if you can do this. If you cannot actually do any of the above you will not break past the two or three year mark and just be resigned to the scrap heap.

A note on entrepreneurship. The best entrepreneurs I know and who have mentored me have all been daring/risk takers. There is no over thinking, over analyzing or negative outlook from these people. They are essentially gung-ho i.e do it now and we'll figure out how to correct mistakes accordingly. Or another way of putting it is, we will make 100 decisions, but only 70 will be right and 30 will be wrong. The 30 that are wrong will not kill us.

Several of my mentors started absolutely crazy ideas. But the point is they didn't just talk about it they just went and did it and all did very well. Now there is an enormous amount of survivorship bias here. Most businesses fail, usually for good reasons. I have worked closely/advised around 5 businesses that have completely failed out right or crashed and burned. I've also worked on 10 businesses that have had an exit between £10-20m with one business in our portfolio looking at a £100m exit based on its previous valuation.

The biggest thing I see with bright young things who think they could start a business is they do nothing about it. We can all sit and smirk at Instagram or Snapchat but those are on an implied basis - $1bn businesses. So mister or missus investment banking analyst working for your a McDonalds salary please try talking less and think about what exactly makes these businesses "valuable". If it shatters your world view it tells me several things about your psychology and what you believe to me "just" in this world. Business is a large part based on psychology and not completely down to being completely rational and proving things with excel models.

There was a great quote in steve jobs book regarding this issue of intellectuallism I do see from smart kids out of prestigious institutions. The passage is when Jobs and Obama have dinner with several other titans of industry in the White House

"The president is a very smart man but he keeps giving me excuses/reasons as to why we can't get XYZ done"

I'll leave you all with that final thought.

Your friend's assiduous approach to academics =/= talent

You know, once I heard this line: "I became a lawyer because I love wearing suits".

It's not IB that is causing the misallocation of talent, but rather the cash flow. I believe it will always be that way.

On the other hand, maybe you feel that way because you don't like your job. If you liked it, you would apply yourself truly in it and receive satisfaction.

maybe many smart guys go to IBD because of the following reasons: 1.decent pay 2.high social status 3.secular definition of success but actually i think those who insist in the financial world and eventually work at the top of the whole chain must have: great ambition to achieve themselves in this area, great passion and wide social network. otherwise they will lose patience and also be mad at their work no matter how decent is the pay check. in other words, people have the right to devote their talent to different areas according to THEIR PERSONALITIES and values.

Why does discussion always focus on IB? IB is like the worst front office role in finance.

Restructuring work keeps me guessing, but I could never do straight M&A / private placements.