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.

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Comments (33)

Most Helpful
Feb 4, 2020 - 12:08pm

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.

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  • 12
Apr 23, 2021 - 6:49pm

This, specially the second part. Analysts mostly know other analysts, whereas MBAs know a) the people in their past industry and b) other classmates. 
 

Given how banking is a people's business, having the right contacts makes all of the difference.

Feb 4, 2020 - 3:36pm

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.

  • Associate 1 in IB - Gen
Feb 4, 2020 - 3:55pm

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.

Jun 15, 2021 - 12:08pm

This describes me currently (except not at a top-15 school). Getting my MBA and am very hungry for IB opportunities. While I will lack the technical prowess of a 2nd or 3rd year analyst, I bring a lot of things to the table that analysts can't simply by being in the workforce for 7 years and developing soft skills.

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Feb 4, 2020 - 4:33pm

I think b/c banks know most analysts will leave in 1-2 years to PE, MBA or corporate dev and won't stick around to promote to associate. That leaves a big gap at the associate level if it weren't for MBA recruiting. Also, as we all know, banking is a high turnover job, especially at the junior ranks. Banks need to recruit all the candidates they can get b/c the churn and burn for analysts and associates i crazy high.
Just had a VP alumni tell me that out of his graduating class of 16 summer associate interns, only 3 were still in banking including himself.

  • 1
Feb 4, 2020 - 5:00pm

There will always be analyst attrition. After 2 years, to retain an analyst that could be up to par with the MBA associate they may hire, it could require overstaffing their analyst by 20+ analyst. Maybe 25% bottom bucket, 15 left. Maybe 5 rockstars who will leave for PE anyways. 10 left. Maybe 5-7 burn out. 3-5 left. Maybe a few of those want to go to a completely different industry. So to get 1 "Slight better than post MBA associate" they have to staff 20 extra analysts on for 2 full years of pay.

Or maybe pay an MBA student a little more and be ok with them being a few years lagged since they're more likely to stick around at the VP level and onwards. The opportunity cost kind of decides for them.

Feb 4, 2020 - 8:54pm

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.

Feb 5, 2020 - 9:54am
Associate 1 in IB-M&A:

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.

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.

Feb 5, 2020 - 10:51am
Bullet-Tooth Tony:

Associate 1 in IB-M&A:

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.

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.

Well, I will sound egotistical by saying I was one of the "best analysts", but I was top bucket and the go-to analyst for more intensive pitches / deals.

I may be the exception to the rule but I've never been interested in the buy-side. Maybe I'm an idiot, but the linear career progression in banking (and not coming from a background where I can afford to not have an income for 2 years getting an MBA) turned me off from ever taking even an introductory call with a PE firm.

Feb 5, 2020 - 9:55am

Generally, how long does a post-mba associate take to be as good at technical and modeling as someone who is an A2A in your experience?

Array
Feb 5, 2020 - 10:49am
bb_monkey2018:

Generally, how long does a post-mba associate take to be as good at technical and modeling as someone who is an A2A in your experience?

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.

Feb 5, 2020 - 12:40pm
amonkey_1:

bb_monkey2018:

Generally, how long does a post-mba associate take to be as good at technical and modeling as someone who is an A2A in your experience?

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.

Would agree... I am one (post-MBA) and never will be as good as some of my good analysts at modeling. Then again, that's why we have them, so I don't need to be.

Feb 5, 2020 - 9:56am

Analyst's want to jump ship, even if promoted to associate. MBA associates are more likely to take a VP role and they also have stronger soft skillset to execute as a VP.

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  • 1
Feb 5, 2020 - 12:37pm

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).

Feb 5, 2020 - 6:38pm

I think it's a question of learning and maturity more so than analysts not being "cut out" for the job - your typical analyst is still a college kid mentally. They're not operating on the same wavelength as more senior people (or clients for that matter). MBA associates may lack the technical chops, but make up for it with more life experience that translates into stronger soft skills.

Feb 5, 2020 - 10:46pm

Good point. I didn't mean to say that analysts couldn't be up for it. However, I do kind of think that the high level of competition required to get an analyst role makes it harder for the person who gets it to pivot. I think this is why banks are rethinking the way that they recruit and are trying to change the nature of the analyst role a bit to fit in with the idea of making the analyst fit into the i-banker continuum. Just my thoughts.

Jun 3, 2020 - 8:30pm

The raging hard-on this forum has for IB A2As (I used to be one, FWIW) is laughable, especially given the simultaneous obsession with and push for non-target recruitment.

Yeah, being nasty at excel is helpful for a year or two, but the form and function of the role shifts dramatically before you even reach VP and the A2A benefit shrinks pretty quickly. And the intellectual gap between MBA associates and analysts is also disappearing, as the kid who networked his way in from GoodFootballU simply doesn't have the horsepower of the Princeton kid who sat in his chair 15 years ago (note: IB is easy, and both can do the job). In fact, it's pretty likely that the MBA associate went to a similar undergrad, worked for 4 years, then went to Kellog. The days of analysts generally outclassing MBAs from an IQ standpoint are rapidly drawing to a close.

State-school kids with a 3.5 and a job at UBS, downvote away. You're lucky that Stu from Stanford wants to work at Snapchat now, but that doesn't make you smarter than your MBA associate like he would have been.

Jun 5, 2020 - 2:02am

Because the job is more than technical skills. They matter for the first few years of the job, after that soft skills (including managing a team) are way more important. It's a safer bet to take a more mature MBA grad for the associate role, even if the technicals aren't there for the first few years.

Also you have the turnover aspect. Have to think paying A2As enough to keep them from buy side is more expensive than hiring MBAs.

Apr 23, 2021 - 3:35pm

It's been covered in more detail above, but I think you can simply boil it down to supply and demand. If I ran my own investment bank I would love nothing more than to stuff my associate ranks with nothing but top bucket A2A promotes. That's about as likely as what I would actually love nothing more in real life, to have been born a billionaire and be married to Scarlett Johansson with Margot Robbie as my side hoe....

Apr 23, 2021 - 3:41pm

It's a supply problem, not a demand problem. Most analysts aren't ready to sign up for additional years as an IB junior for a comp increase that doesn't justify the hours increase (relative to the buyside) + all the incertainty it creates in your personal life being beholden to clients.

MDs/senior leadership aren't ignorant to the fact that the obvious fix would be to increase base pay for associates - I suspect that they're not willing to shrink the bo us pool any further to do so though.

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Apr 23, 2021 - 4:47pm

It's not like there's a huge pool of actually competent people to fill these roles such that everyone can be easily replaced with a lateral hire.

My bank and everyone else I know has had so much attrition in the past year that were now understaffed and struggling to hire enough decent candidates.

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