Is the investment banking party over?
While it may not be “over” yet, recent data suggest that IB, historically seen as the “Royal Path” for a successful career in finance, is losing its appeal among younger generations.
According to a recent survey from UpSlide, 72% of bankers are thinking of quitting the industry to avoid burnout. Despite a 30% hike in compensation offered by top investment banks, the industry is bleeding junior talent.
Many young bankers, in particular, are leaving the world of IB behind them to launch their own businesses, join startups, or find jobs offering a better work-life balance.
This massive quitting trend not only applies to finance but to the overall economy. The impact of the pandemic and remote work has caused an historic surge in resignation rates, with 4 million Americans quitting their jobs every month in 2021.
Of course, economists jumped on the opportunity to create another grand term to encapsulate their views, calling this phenomenon “the Great Resignation”.
I’ve had many discussions with students and recruiters alike over the past year, and I identified a few key reasons that explain this unprecedented talent exodus.
Is investment banking dying? That’s what we’re going to see.
When you give a taste of “freedom” to someone for the first time, this person will find it hard to go back to her previous life.
It’s like having the privilege of enjoying a very big, bright garden for several months, before getting locked down in a tiny room with no view and bad lighting: once we get used to a high degree of freedom, we don’t want to let it go!
That’s what happened with Covid. For the first time, employees had the opportunity to work from home, work in their underwear, take a one-hour break whenever they felt like it, and manage their time as they wished.
They still had to work hard and send deliverables to their employers, but at least they didn’t have to wake up at 6, take the tube in a cold morning, and painfully sit in a cubicle with neon lights along with their other disgruntled coworkers.
Work from home enabled unprecedented flexibility, and temporarily removed one of the greatest pain points for corporate employees: the duty to go to the office and stay there for the full day, regardless of how much work there is to do.
That’s why most people enjoyed working from home, and that’s why there was so much resistance when big firms asked employees to come back.
When top investment banks ordered a return to the office, about half of employees obeyed, meaning that a lot of employees were willing to risk their jobs to continue to enjoy the benefits of working from home.
WFH has created a point of “no return”: employees who have tasted it don’t want to go back to the way it was before. Many of them would prefer to lose their job or change jobs, which offer greater flexibility, than be forced to go to the office 5 days a week.
And that’s one of the reasons why so many young investment bankers want to quit.
Another reason that helps explain this “great exodus” is the fact that covid years have been especially demanding for bankers, in terms of work intensity.
The pandemic coincided with booming financial markets and elevated M&A activity, leading junior bankers to feel enormous pressure.
High deal flow often translates into longer, more intense hours for bankers, and it’s true that working conditions were particularly tough over the past two years.
Everybody heard of this now-famous slide deck prepared by a group of first-year analysts at GS, describing how 100-hour weeks were taking a toll on their mental and physical health.
This is not the first time that young bankers are whistleblowing about the excessively harsh working conditions of IB. But covid years have been particularly tough, which led numerous young recruits to have a “wake up” call.
There was a time when investment banking was largely perceived as the ultimate social gold standard for bright university students.
The royal path was this: bachelor or master’s degree at a target university, then investment banking role at a bulge-bracket bank (or management consulting, then MBA at a top graduate school, then private equity.
A lot of students still want to follow this prestigious, socially validated path. But things have changed…
By talking with students, I noticed that many of them have doubts about their future careers. Their mind tells them to have a successful, lucrative career in finance, but their “heart” is not really into it.
I can tell that some of them are ONLY doing it for the money and social prestige, but they’re not genuinely interested in the nature of the IB job itself (which is a big mistake, in my view).
Some of them, however, had a near existential crisis after Covid. They realized, deep down, that they didn’t really care about the “prestige” of a job. They mostly care about doing something that makes them genuinely excited, AND that can enable them to make good money.
The appeal of money still is and will always be there. We all want to have more resources, to enjoy a better lifestyle, to have more financial security.
But as cheesy and predictable as it may sound, it looks like people are looking for more meaning in their lives.
Not saying that every student wants to build a school in Nepal and solve the world’s hunger. But more and more young graduates are definitely looking for jobs or ways to make money that don’t make them feel like s***. Jobs that they would actually be happy to do, and that give them a sense of purpose in life.
In other words, the equation “prestige + money = fulfillment” appears to be progressively replaced by the new equation “meaning + money = fulfillment”…
The good news is: there are many opportunities to make as much, if not more, money than in investment banking today.
Another factor that explains why fewer and fewer students want to work in IB, is because there are more and more opportunities to make good money outside of banking, without having to sacrifice your twenties.
Anyone who opens Instagram is bombarded with ads about how to make money online, often accompanied by cleanly-shaved business gurus posing in front of rented Lamborghinis…
If we look at social media, it seems that a lot of people are enjoying a luxurious, dream lifestyle, and these people do not appear to work in investment banking.
They’re usually selling services: real estate investing, marketing agencies, tutoring programs, self-development coaching, etc.
So the question that runs through many students’ minds is: why the hell am I putting myself through so much pain, while these guys are living the dream life while making 5 times the money of an investment banking associate?
While not all these people are living the lifestyle that they show on social media, some of them are indeed successful, and some of them do offer quality products or services.
These “Insta flexers” are just the exaggerated expression of a very real phenomenon: it has never been so easy and accessible to generate income without going through the traditional route of corporate employment.
That’s why so many people in finance are either quitting or reconsidering their options. They start to realize that they could make $100k+ online while enjoying a much better lifestyle than in IB. This is not a guarantee (in fact making it work at this level is very hard). But this is at least a possibility, and a very alluring one.
These income-generation possibilities didn’t exist 20 or even 10 years ago. So the game has definitely changed. The current investment banking MDs who are in their 40s and 50s, who keep saying that IB is one of the best possible career choices you can make, appear to ignore the fact that the game has changed.
Money can be made elsewhere. If their younger selves had the opportunity to get rich without having to go through the grueling hours and restrictive lifestyle of IB, they would probably have reconsidered their options as well…
My prediction is that the finance industry is going to continue to bleed talent because of these reasons, unless it finds a way to offer its young recruits a more flexible, less restrictive lifestyle while continuing to pay them well.
Aurelian Tran is the founder of Alpha Lane and an ex-Goldman Sachs analyst who has spent 4+ years working in the investment banking industry.
He founded Alpha Lane to help students and young professionals achieve their highest professional ambitions, by securing offers at top-tier financial institutions.
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