Why do banks hire MBA Associates?
I want to preface this by saying I'm not intending to discredit MBA Associates, but it seems extremely odd to me how focused banks are in recruiting and filling classes with MBA's instead of further incentivizing A2A promotes or picking up Associates from smaller shops.
In my experience, the MBA hires took a year or so to get fully up to speed, and even then lagged behind A2A promotes in actual knowledge and skill - which is natural given the 2-3 year headstart A2A's have.
It particularly puzzles me for the few shops that pay more to MBA Associate hires than their in-house A2A promotes.
To maintain relationships with the schools. Also, MBA associates from top B-Schools have connections from their classes that can help once they reach VP/move up further.
I'm neither but as someone considering going back to school to pivot, part of it might be the analyst pool is burnt out and ready to move on, similar to where many associates will be 2 years down the road (just at a later point in their life). I would also venture to say that, while the MBA associates lack the technicals, they are close to 30, have 3 - 6 years real work experience, and a top education, and are probably more mature and aware. I'm making a generalization, but just a thought.
I don't think anybody argues that MBA associates are better than A2A promotes, but I think the logic for the pipeline makes a lot of sense:
-Natural attrition: they need new bodies to make up for all the analysts who left/jumped to PE. These schools act as a filter to find capable and interested people, then group them into easy to recruit pools of candidates.
-Hunger/ambition: most post-MBA associates took the long route because of a variety of factors, and are often eager to develop new skills and have more clarity about what they are working for.
-Client facing: this can't be understated, because the recruiting criteria is different but won't won't play out until VP+. MBA students are required to meet a technical threshold, but are viewed as potential senior bankers where the technical know-how isn't as large of a factor. Sales-type skills are more important in MBA recruiting than analyst recruiting.
-Network: At any top 15 school you are going to develop a strong network of contacts going into a variety of fields--these are potential clients down the road.
-Credential: Might be silly and self-fulfilling but getting top b-school names offers credibility.
Every banker has support value and option value. Your support value is the value of your work. Your option value is the value of an MD times the % chance that you'll be an MD.
Option value is a big part of your pay, especially above analyst level. Say an MD is worth $20m of profit to the bank over an average tenure after accounting for all the costs of paying and supporting that MD. If an associate has a 5% chance of being an MD one day, that associate's option value is $1m. Over the course of an average pre-MD tenure, up to $1m of that banker's pay is arguably option value. That's separate from the value of his daily work.
So there's an economic case to pay associates something even if their immediate work is useless. And MBA associates arguably have higher option value than A2A's because they are committing to an IB career after several years of reflecting on their career, trial and error, making some life decisions etc. Their odds of seeing it through to the end is probably a lot higher. Though a case can also be made that the A2A has been tested while the MBA hasn't.
Some good posts already, just to further explain the attrition issue - frequently the best analysts are the ones leaving for PE/HF/VC.
If you think about it similar to a sell side process funnel, you start with all analysts. The poor performers get cut/pushed out. The good ones take buy side or other jobs. The average ones are questionable in terms of trajectory and some will sink and some will float to the top.
It's not a huge portion of the original pool though and often isn't the Tier 1 guys.
Case by case basis, but some never seem to really get to the level of an A2A promote. Even a mid bucket Analyst will have 2 years of experience of doing the work for 80+ hours a week. That's a lot of ground to cover. Obviously there are exceptions.
Usually they're up to speed enough and can perform in about 6 months.
I hate to say it, but most analysts aren't cut for associate+ roles. Most people outside of -banking would not consider an analyst to be an investment banker, and even an associate is thought of as a "jr banker". The real banker is the MD, who is a rainmaker. MBAs are more prepared for the rainmaking side of things and have 1-2 years to build up their experience as an Associate (or get canned/moved into strat/ops, etc.). Analysts who graduate to Associate are generally the ones that show great promise at being both analytical and great at maintaining and keeping relationships. However, most 1-2yr analysts are awkward AF outside of the office, don't understand the social ladder, and think they are very smart (note: I was an ibd analyst and was promoted to associate, sans MBA, so I feel for ya).