Where is the compensation in banking? Is it worth taking a pay cut for the long-term prospects?

I'm a little confused about compensation potential in IB. I always planned on going into the field given how much you learn and the exit ops, but as I research more into the pay I'm starting to wonder if it's worth it. As background, I'm an analyst for a long-only equity shop ($1-3B AUM) right out of college in a very low cost of living city (Midwest). I've determined pay for the average analyst here is around $150ish base and bonus of ~100-250k depending on the fund's performance. So, I figure in a low cost of living state I could make around 300k on average working roughly 50 hour weeks (at most). For reference, first year analyst right out of college I'm expecting about $100k cash comp all in (so clearly the progression is painfully slow here, but the starting number is decent).

I'm reading about what bankers working ~80 hours a week make, and I'm starting to wonder if I'm crazy to leave. My issue is that my current firm probably maxes out around $450k on the absolute best years, and I don't like my potential earnings capped around $400k.

My questions are these:
1) Is banking pay comparable to these figures (maybe not associate level, but longer term)? I've looked at the compensation reports, and it doesn't seem much better than these levels, and I know the cost of living is much higher pretty much anywhere outside of where I live.
2) Would it be a bad career choice to leave my current role to go get an MBA and try to get into Banking? I like the fact that the upside to banking seems much higher if you get into f500 management or maybe PE somewhere rather than knowing I'll get ~400k at the peak of my career in my current role. Yes, it's a nice living, but I don't want to limit myself. Although it'll probably be a pay cut when I enter, I'm thinking banking will improve my long term earnings potential... is that somewhat accurate?

I'd appreciate any thoughts. Also, I'm not going to solely make my decision on money, but I feel I should consider it before I leave a cushy job (if it, in fact, is). One more piece of background: I interned in Big4 audit, so I handled 80+ hour weeks for months at a time, so I'm not super concerned about the lifestyle change in banking. And also I saw partners at that firm make probably over $500k, so I kind of feel like I need to get at least that to make up for leaving.

Thanks!

 

I'm pretty sure PMs at my firm make no more than 500k on the best years. It's still very good, but I kind of think I might want to end up in c-suite some day. The pay ceiling is much higher, and frankly I think it would be more fun to maybe help actually run a business. But if ~400k is in line with the bulk of IB exit opps maybe its a dumb idea unless I'm above average (probably not the case)

 

Rough banking comp scheme (for top BBs and EBs with consistently strong dealflow):

1st year analyst - 85k base, bonus pools range a lot but at most bulges it would be between 40-80k. At some of the elite independent advisory firms you're talking more like 100 and some of them start at 95 base (Evercore, Moelis)

1st year associate - Typically 125 base, bonuses are typically between 100-150 so all-in you're talking mid 200s

VP - Varies more, but bases are usually between 150-250 and bonuses are typically at least 100% of base, so 150-300 and an all-in of between 300-500. There are a few rainmaker VPs who can make more, but it almost never happens with the exception of one who originated/did god's work on a huge fee deal.

MD - All-in comp bottoms at 500. Few make 8 figures though. A lot of successful MDs are in the 2-5m range.

MBA hires come in as associates so you'd be making mid 200s if you went that route. Definitely more upside and more comp for sure. But NY is expensive, you'll work double what you're working now, and you may not like it.

 

daenkbro is right. Below VPs have none of these responsibilities. If you're on a lean team you'll interact with clients every day and you may go to pitches and what not, but the seniors will be responsible for getting clients.

VP is the gateway to big money and responsibility in banking. It's an in between role. You'll be helping run the processess for juniors and doing some of that work, but you'll also be expected to do a ton of client facing, and most of the time, you'll be expected to help land clients if not do it yourself. Many people get stuck at VP for long periods of time because they can't effectively do this and can't effectively play office politics. If you make it out of VP, you usually do so quickly, and if you do then almost every Director (many firms don't have these or many) and every MD will be expected to contribute to the process of winning mandates. However, at some very top-heavy firms, you'll not be on your own here for a while. I've seen a lot of client pitches get at least a junior MD as well as a more senior one.

 

I would encourage you to choose what you think you would enjoy doing. I genuinely believe that the money in banking is a red herring, which attracts the best and brightest into the industry. But the reality is that most people don't achieve it and either voluntarily or involuntarily drop out before making MD. For most of them (many of my ex-colleagues), it wasn't at all a matter of will, intellect, or skill. It was because many realized that the money is not worth all of the sacrifices that they would continue to make, especially as they all got older and started families, etc. The people who do make it to MD are the people who genuinely enjoy being a banker, whether it's the money, the prestige, the thrill of doing deals, etc. So that's just something to think about.

 

That's definitely a good thought. Part of my thinking is the concern that I might get bored in equity research, but I suppose that could happen in any job. I also don't ever want to feel like I'm stopping to learn/grow as a person, and if there is continual opportunity for advancement in IB, it makes me think there will always be a new challenge (or a new industry to try to get into and tackle, like PE or even f500). Though perhaps I'm wrong in that thinking too.. Asset Management feels like the growth really slows down quickly though and it get repetitive.

 

IB gets repetitive as well. Sure, there is always something new to learn, but the majority of tasks are repeated as well. The bulk of learning, in my opinion, is from a new industry/company, etc., which you could just as easily pick up in equity research.

You can also get into corp dev from an ER background. ER guys know industries well.

 

If I was you, I would stop worrying about banking period and sit down and re-evaluate your whole life....

If you don't think that you can be happy with $400K per year working 50 hours per week, you really need to sort out what's wrong with you on the inside that makes you feel that way. And look, I'm not against being ambitious, but saying that I won't be happy unless I hit $X dollar amount just sounds really unhealthy.

Go hiking, read some good books, read some spiritual texts, whatever it is that you need to do, but I would get my mind right and my priorities straight before I made any decision on banking versus Asset Management etc.

 

+SB

If you live in a lower cost of living area (relative to NY/LA/DC) and can reach ~250K in a few years and then onto 400K after why would you do anything? Gmonster could not be more accurate. I think you are missing out on the point of life. With 200K+ in a low cost of living area, you actually have the opportunity to vacation. That word is foreign on this website but it's this thing you do when you want to go somewhere and just do whatever you feel like doing..

On a serious note if you can get 400K+ and are complaining about it @ 50 hours a week then I am beyond jealous, and you are beyond needing help.. (No offense I am sure you are actually a pretty cool normal person)

 

I spent most of my weekend reflecting on this, and what I came up with is the ‘long term compensation potential’ is really a proxy for long term excitement and opportunities to grow/learn/try new things. I think I will get bored in Asset Management and need to always be striving for new goals to accomplish, which after PM don’t really exist in AM other than just getting good performance. I also realize if I meet a wife and decide to have kids soon, my current role will be perfect for that, and that’s okay too. But in leu of that outcome, I don’t want to ‘settle down’ yet and need new goals to strive for.

Then again, you all might think I’m full of it, but I truly do appreciate the input and thoughts, nonetheless. I do consider myself a spiritual person and am committed to my family, and when I travel I like to go to more developing countries to get a better sense of the reality for others to better appreciate what I have.

 

For someone who is a long-only analyst you are kind of thinking short-term and small picture. Short-term because although bankers might be making more within the first 3-5 year time frame, AM have significantly more upside down the road, especially with carry. Small picture because AM is the end game for a reason my friend - it has the highest upside in finance. You see any bankers make billions (that's with a B) in one day?

My advice: You need to switch firms once you have gained enough experience (1-2 years). Other firms will have higher 'caps'.

 

Why do you think that you are capped at "only" $500k/year in Asset Management because that's what the top guys at your current firm make? Do you know who has done ok in AM? Warren Buffet. I would view him as the ceiling to your potential earnings if you are shooting for the stars.

Starting over in banking from where you are now seems like way too big of a risk. How do you know that you will even like it? People leave banking to get into AM. Also, making $500k/year in a low COL area is incredibly good and will provide you with the option to do almost anything that you want.

 

I think the issue is that the more I think about it, the more I realize I'm bored. Since passing Level III this summer, I haven't had anything major that I'm working toward (other than just doing well at work), and it's kind of killed my motivation in all aspects of life. Obviously this is a personality issue I need to work through, but IB is attractive to me seeing as there are more other option I could pursue (to keep me striving to new goals/learning).

Am I wrong in my thinking that banking might be more exciting than long-only equity analysis? I'm also thinking it might give me more chances to eventually go into f500 (maybe a corp dev role) or something else like PE if I want to (whereas current role seems like it only really has one option -PM- which I'm not sure I'll enjoy).

Whitebeard, I was actually thinking the opposite: that it may be a short term pay cut (and a bunch of MBA debt) for longer term earnings/career development potential. But maybe that's the wrong way to think of it?

TechBanking, You're right that as far as compensation cap goes, I'm not considering outside my current firm. I completely agree with that opinion, though given the nature of my firm, I'm not confident I could lateral to another firm without a bit more pedigree. Either way it's more a buyside vs IB for me at this point.

Worst case, I assume if I hate IB after this 'experiment' I could probably get rehired in the buyside.

 
Moneykee:
I think the issue is that the more I think about it, the more I realize I'm bored. Since passing Level III this summer, I haven't had anything major that I'm working toward (other than just doing well at work), and it's kind of killed my motivation in all aspects of life. Obviously this is a personality issue I need to work through, but IB is attractive to me seeing as there are more other option I could pursue (to keep me striving to new goals/learning).

Am I wrong in my thinking that banking might be more exciting than long-only equity analysis? I'm also thinking it might give me more chances to eventually go into f500 (maybe a corp dev role) or something else like PE if I want to (whereas current role seems like it only really has one option -PM- which I'm not sure I'll enjoy).

Whitebeard, I was actually thinking the opposite: that it may be a short term pay cut (and a bunch of MBA debt) for longer term earnings/career development potential. But maybe that's the wrong way to think of it?

TechBanking, You're right that as far as compensation cap goes, I'm not considering outside my current firm. I completely agree with that opinion, though given the nature of my firm, I'm not confident I could lateral to another firm without a bit more pedigree. Either way it's more a buyside vs IB for me at this point.

Worst case, I assume if I hate IB after this 'experiment' I could probably get rehired in the buyside.

Yes, you are wrong that banking would be more exciting. If you want more 'excitement' move to a hedge fund. It would be a sensible move from long only AM.

 

Yes, you are wrong that banking would be more exciting. Really difficult to move back to buyside afterwards, maybe impossible, and it will waste time and money in the interim.

Be excellent to each other, and party on, dudes.
 

Banking exit opps (the cool lucrative jobs I assume @Rufus1234" is referring to) are Corp Dev, AM, HF, and PE. You are already in AM, an AM research analyst is more qualified to move to a HF than an IB analyst.... that just leaves PE. You would basically be signing up for garbage hours in a high CoL area in order to move to PE, which this board says is extremely difficult to exit to as an IB associate. This is classic "the grass is greener" mentality. If you quit go ahead and PM me the name of your firm so I can apply. Congrats on finishing level III.

p.s. I forgot Corp Dev, it is even less lucrative than banking and people exit there to get out of the banking lifestyle that you seem to want to jump into

Array
 

I am a little confused about your current age and salary. Can you clarify?

I think most ppl are under the impression that you have a few years of experience and already making 300k+. Rereading the OP makes me think you might be fresh out of undergrad and making closer to 100k all in.

 

That's probably a good thing to clarify. You are correct; I'm currently a first year analyst expecting about $100k all in ($60-70k base). My best estimate is that the $150 base/$300k all in figures I'm looking at won't come for ~12 more years. My rough estimate doesn't have me hitting $100k base for another 7ish years.

I think it's been lost in the post at this point, but the opportunity cost of leaving in a few years isn't anywhere near $300k, it's much lower around $100-150k. I'm not sure if it would change anyone's views, but it certainly means those $400k best case estimates need to be discounted back quite a few years.

 

Most of this thread is irrelevant then because everyone assumes you will be making ~300k in your mid to late 20s.

If I were in your shoes, I would focus entirely on killing it at my job for my first two years. Who knows maybe your firm doesn't think you have what it takes to move up into the ~300k range? Or maybe you crush it and move up faster?

Keep B-School in the back of your mind. If after two years the work sucks and the money isnt as good as you are projecting, put yourself in a position to go to school with 3-5 years of experience while deciding if banking is the route you want. A few years working will definitely change your disposition and thought process so you may decide you want to do consulting or corporate etc which a top MBA can help with.

You may also come across some sweet gig you can lateral to by networking with a bunch of people.

IMO its good to think about what to do down the road but you are way too detailed given you have almost zero experience. I know in my first year working I just tried to not fuck anything up too bad and it wasnt until my second year I felt I was actually learning and contributing at a high level. Then I was able to decide what I wanted my next career steps to be. I think you are getting a little ahead of yourself.

 
Best Response

The problem you have is one of self-mastery. Some people call this 'internal regulation' versus 'external regulation'. Psychologically, this is termed 'self-determination theory'.

Everything you write screams loudly an external locus of control. You're concerned about the outcome and the reward, so of all the branches of extrinsic motivation, you're the most extreme: 'externally regulated behavior'.

Giving advice based on who you seem to be and everything you've said so far, I'd say a move to banking is a major career mistake.

First, your projected earnings of $300k a year are dramatically better than what a banking analyst is going to get in either of his first two years. Same goes for those in their third or fourth year out of school in their first PE role but not on the elite route (MF or strong upper MM).

Even further, your low-COL geography makes this point doubly strong. You are right now effectively taking home what people five or six years out of school hope to.

Third, you're working 50 hours a week, not 90. On a time-adjusted basis you're absolutely killing it.

Fourth, you don't have to get an MBA. That would be an $850k ticket for you (two years of foregone income of $300k, $250k in loan value). Dodging this cost is huge.

Separate from all that, let's go back to where we started. You will be a much happier person when you start asking yourself what brings you fulfillment, not where your best earning potential lies.

When people say "Find something you love and you'll never work a day in your life," or "It's not work if you love what you're doing," or "If you make your passion your work you'll end up way wealthier than working an average job," the paragraph of Terms & Conditions they're omitting is the hugely important thing that [after years of reflection and self-study on what you love, where your abilities lie, and what your lifelong areas for growth will be, you now know what makes you get out of bed in the morning and are now willing to dedicate your waking hours to that thing].

You seem to genuinely like stock-picking, at least as evidenced by your lack of a single negative comment about the work you actually do. Maybe that's not your thing. Maybe it is. Regardless, I suggest you find out where the intersection of your interest and ability is and then optimize your life around that.

If for now you're able to mentally commit to equity analysis being better work for who you are than banking, you need to figure out how to improve your career prospects as an equity analyst.

This means work as hard as you can in your current role to get promoted to senior analyst or PM (whatever title they offer there). If there isn't a clear promotion opportunity, find a way to lateral. There is literally always a bigger firm with more money to spend. Performance lets you claim more of the pie.

I met a guy two years ago who is now the CEO of a long-only shop in a Southwestern city with over a billion in AUM. It is a lean team, and off of management fee income alone this guy is printing seven figures in annual comp before we even talk about performance income. He was not the founder, just grew in the business over more than a decade.

If you're okay with not being in New York (and there's a strong case to be made for that to be a better lifestyle when you're out of your 20s), the formula of high comp, low taxes, low COL, clean air, and easy hours is really hard to beat.

I am permanently behind on PMs, it's not personal.
 

Apparently people are not reading that he won't be making 300K all in for 12 years. Regardless, your opportunity cost is already too high for B-school, especially if you can't do H/W/S.

However, I think you're being a little short sighted on your estimates for the high end salaries on the buy-side, even in smaller long only shops, but especially in larger long only shops. I started my career at a long only shop running over $100B, and we had 20+ PMs all making $2-5M - remember 75 bps with no carry doesn't sound sexy, but on a $5B fund that's $37.5M/year run by a max of 6 people plus back office. Plenty of analysts making mid 6 figures as well. If you have the ability to work into a larger shop, you could go for that.

In addition, staying at a small shop can give you good insights into the entire workings of an AM firm, which could enable you to start your own firm one day. My guess is your firm has 2-4 partners, each of which are making 7 figures. This is the goal of basically everyone I know in the long only AM business, especially those not already at giant shops.

 

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