Wall Street Career Paths

Wall Street Career Paths
Introduction
Michael Herlache MBA
Doctorate of Business Administration Candidate 2020
Introduction

Index
I. LETTER TO A FUTURE WORKER ON WALL STREET
II. WALL STREET PREPARATION
III. WALL STREET CAREER PROGRESSION
IV. INVESTMENT BANKING
V. MERGERS AND ACQUISITIONS
VI. DEBT AND EQUITY CAPITAL MARKETS
VII. SALES AND TRADING
VIII. INVESTMENT BANKING SKILL SET & KNOWLEDGE
IX. INVESTMENT MANAGEMENT
X. BUY-SIDE RESEARCH
XI. SELL-SIDE RESEARCH
XII. HEDGE FUNDS
XIII. PRIVATE EQUITY
XIV. RESEARCH SKILL SET & KNOWLEDGE
XV. INVESTMENT MANAGEMENT SKILL SET & KNOWLEDGE
XVI. PRIVATE WEALTH MANAGEMENT
XVII. PRIVATE WEALTH MANAGEMENT SKILL SET & KNOWLEDGE
XVIII. CORPORATE FINANCE
XIX. CORPORATE FINANCE SKILL SET & KNOWLEDGE
XX. COMMERCIAL BANKING
XXI. COMMERCIAL BANKING SKILL SET & KNOWLEDGE
Introduction

I. Letter to a Future Worker on Wall Street
Dear Future Worker on Wall Street,
Though the nature of financial system continues to change in order to reflect the demands/needs/priorities of the society at large,
there will continue to be a wide breadth of opportunities available for those looking to pursue a financial career on Wall Street. From
investment banking to private equity to research, there are numerous careers available for those willing to venture to the East Coast.
There are however, certain skill sets and knowledge bases that remain critical to your successful performance in each of the
prospective careers. This guide seeks to match the relevant skill sets and knowledge bases to the given Wall Street career in addition
to providing you with a general overview of the respective career path.
Furthermore, in addition to the pertinent technical skills and knowledge, Wall Street employers look for ‘fit’ in their potential
employees. This means that they are looking to understand why it is that you are uniquely qualified to work in their environment.
Now more than ever, each future worker on Wall Street must differentiate themselves in order to gain an edge in the
hypercompetitive recruitment process that defines Wall Street. This means not only possessing the humility, integrity, and tireless
work ethic which characterizes the American Spirit, but ultimately mastering the skill sets and knowledge bases required by the given
career.
It is our sincere hope that this document may guide your efforts in determining your career path on Wall Street and the acquisition of
its respective compulsory knowledge and competencies.
Michael Herlache
Alpha University
Introduction

I. Wall Street Preparation
As you meet with potential employers, you need to be well-informed as possible about the finance industry in general and the employers’ sector within the overall industry in
addition to the specific firm that you will be visiting. When preparing to engage professionals at a Wall Street firm, one must know the following:
CURRENT CLIMATE
• Know the sector within the industry
• Know how the sector is segmented and where the company you are meeting with ‘fits’ within the industry
• Be able to explain the competitive landscape, including the top players/organizations
• Be able to identify the market size (i.e. revenue base, number of clients, number of employees) for the top players/organizations
• What changes in the external environment have had the most dramatic impact on the sector and how has this changed the “business model”?
FORECASTING
• Consider what is likely to happen in the sector over the next three to five years
• How will this sector grow/change?
• Which organizations are likely to benefit or be harmed by these changes?
FIRM
• Know the primary products and/or services offered by the firm and how they are unique
• Know the culture of the organization, how it is different from the competitors’, and how it affects the way work gets accomplished
• Be knowledgeable about significant as well as recent transactions and what the firm’s role was in the transaction
• Be knowledgeable about the background of the leaders of the firm as well as the people that you will be interacting with
Introduction

I. Wall Street Career Progression
While each financial services firm on Wall Street will ultimately have its own unique organizational structure, most follow a common promotional path for their employees
characterized by similar job titles. Thus, what follows is a break-down of the most common career path starting from an entry-level position.
ANALYST
Those first entering the financial services industry typically begin their careers with the title of analyst. While an analyst’s actual job responsibility will differ across industries, time is
mostly spent performing company or sector research, manipulating and updating financial models, and drafting marketing material in effort to help the firm win business.
Analysts can expect to spend approximately three years in this position before being considered for a promotion. It is at this time, the top performers will have the option to renew
their contract with the firm, switch firms or careers, or attend business school.
ASSOCIATE
The position of associate is held by either a former analyst that has been promoted, or a recent MBA grad. An associate’s work involves managing of a team of analysts to ensure that
the work being performed is accurate and timely. Additionally, an associate begins to interact with the client in order to address their lower-level needs. An associate will usually
spend three years in this position before being considered for a promotion.
VICE PRESIDENT
Those holding the title of vice president (“VP”) are typically former associates who have made it to the next level. The role of a vice president involves managing a group of analysts
and associates in order to deliver on business that the firm has won. This ultimately means a higher level of client interaction and responsibility for the given output of the work
process. A VP may spend a number of years in this role as until they are either promoted or change companies.
DIRECTOR
For those steadfast and unique individuals whom can make it this far, the end game is in sight. At this level, the nature of the work changes, as the primary focus of the director is
helping the managing directors manage client relationship. While delivering on business remains crucial, the bulk of the day-to-day minutia is delegated to the VPs whom report to
the directors. The time period until promotion is highly variable at this level.
MANAGING DIRECTOR
The highest level employees in financial services firms typically hold the title of managing director (“MD”). Managing directors are responsible for bringing in new business and
maintaining relationships with existing clients. Thus, they are the ones using the marketing material and research created by the analysts and associates.
Introduction

I. Investment Banking
Investment banking is the business of raising capital for companies and providing advice on financing and mergers and acquisition restructuring alternatives. The field of investment banking does not refer to one function but a wide breadth of activities.
Careers in this field may involve the valuation of potential acquisitions, assessing the credit-worthiness of bonds, company valuation, management of initial public offerings, equity and bond financing, in addition to a variety of consulting services.
Investment banks are usually classified into two categories; Corporate Finance (“Investment Banking”) and Sales & Trading. Corporate finance divisions are tasked with raising capital and providing M&A advisory while the sales & trading divisions perform research and broker financial
transactions on behalf of clients and the firm. It is important to note that although they may exist inside an investment bank; those working in sales & trading are not to be referred to as investment bankers. Rather, these professionals are known as either sales brokers or traders that
work in sales & trading.
Furthermore, within the corporate finance division of the investment bank, there exist groups that are divided along industry- or product-lines. Industry groups include: Financials, Institutions, and Governments (“FIG”); Health Care; energy; Technology, Media, and Telecommunications
(“TMT”); and Consumer Goods among others. Product groups include M&A, debt and equity capital markets, and merchant banking in addition to others.
While many of the largest investment banks have converted to bank holding companies in the wake of the financial crises, a typical full-service investment bank will offer the following services which further segment careers within the field of investment banking:
MERGERS AND ACQUISITIONS
Mergers and acquisitions (“M&A”), otherwise known as financial advisory, is the product group within the bank that advises clients on the strategic alternatives and analyzes the corresponding affects on the firm’s value-creation efforts. This product group includes M&A and
restructurings & reorganizations in addition to other client-specific transaction expertise.
M&A bankers guide their clients in determining which companies and/or divisions to acquire and which to divest (i.e. sell) in order to execute their respective corporate-level strategies. Ultimately, these processionals run what is known as the M&A process on either a seller’s behalf
(“sell-side”) or a buyer’s behalf (“buy-side”). The M&A process involves evaluating the performance of a prospective client, formulating a buyer or target list, facilitating interactions between parties, performing valuation analysis and due diligence, making or assessing bids, structure
the terms of the transaction, ultimately implement chosen alternative.
DEBT AND EQUITY CAPITAL MARKETS
The debt and equity capital markets groups within an investment bank facilitate the raising and placement of capital on behalf of organizations that need capital and those which excess capital to invest. The type of financial instrument (i.e. debt, equity, hybrid) used in the placement
of capital depends on the nature of the investment, the desired level of risk of the investor, and the general climate in the financial markets and sector.
When approaching the public markets for an initial offering, investment banks are said to underwrite the issue when they take possession of the securities before they are subsequently sold to investors. Once the issue has been purchased by investors, the client firm is said to have
“gone public” if the organization had not previously raised capital in the public markets.
On the other hand, when raising capital in the private markets, investment banks are said to sell the securities to investors in a “private placement”. Private placements are subject to less regulatory requirements than public offerings, but may ultimately be more expensive to the
client’s firm since the secondary market (i.e. buying and selling of existing securities) is much less liquid (i.e. able to buy and sell securities without moving prices) when compared to the secondary markets for publicly issued securities.
SALES AND TRADING
Sales and trading refers to the department within the bank that is responsible for distributing/selling all of the financial products developed by the investment bank. Once, the capital needs of a client have been determined and the type, amount, and structure of the financial
instrument identified, the sales & trading arm acts to place the financial asset in public or private markets. While an investment bank may treat this as one group, sales and trading do in fact possess distinct roles and responsibilities.
Additionally, those in sales seek to provide their institutional clients with guidance on new issues of financial products, portfolio optimization, and transaction support.
Sales and trading can be further segmented into investment research, proprietary trading, and private equity/merchant banking.
Introduction

I. Investment Banking Skill Set & Knowledge
Introduction

I. Investment Management
Investment management involves the management of a variety of securities such as shares and bonds, and assets such as real estate, to meet an investor’s goals. Investors may be institutions such as insurance
companies, pension funds, corporations or private investors. Investment management firms provide investment numerous investment options in the equity, fixed income, real estate, and private equity industries.
One pursuing a career in investment management may perform research or portfolio management at an investment bank, mutual fund, hedge fund, insurance company, or with a pension or retirement plan sponsor.
BUY-SIDE RESEARCH
Investment Research on what is termed the buy-side is the primary focus of Investment Management. Investment Management is the stewardship of financial assets (equity securities, bonds, real estate, etc.) in
many organizational forms such as mutual funds, pension funds, and insurance companies. The reason behind the buy-side moniker is that these firms actually purchase the assets that they research to earn returns
for their clients. They make money by earning fees from the assets under management.
The typical career path for individuals interested in a career in Investment Research is Analyst > Associate > Portfolio Manager > Chief Investment Officer (CIO). In the Investment Research arena, individuals typically
specialize in one industry and may make one or two shifts in industry specialization to broaden their talents and overall investment experience as they try to progress to Portfolio Manager and eventually strive to
become the Chief Investment Officer. Pursuing the Chartered Financial Analyst (CFA) designation will also go a long way in advancing your career.
Key skills needed to succeed in Investment Research are finance, accounting, excel modeling, and statistics. Accounting cannot be overemphasized because “scrubbing” of the financials to find a firm’s true value is
paramount and mastery of financial statement analysis is extremely valuable. Too often finance majors overlook the value of sound accounting fundamentals. Additionally, a deft touch in excel will go a long way in
modeling your discounted cash flow analysis quickly and giving you a leg up on your peers.
The primary purpose of buy-side Investment Research is to analyze and purchase financial assets with attractive return potential on behalf of clients. It can be a very rewarding career, both personally and financially.
SELL-SIDE RESEARCH
Investment Research on the sell-side in terms of skills required of the employee is extremely similar to the buy-side. Additionally, sell-side research is also trying to find attractive investment opportunities. These are
the only dimensions where these careers maintain similarities.
Sell-side research will not purchase financial assets. They earn money by selling their research, thus the title of sell-side research. Often a financial firm will have both an Investment Banking division and Research
(sell-side) division. There is supposed to be a clear separation here or “Chinese wall” to ensure no conflicts of interest within the firm. Wall Street has come under much scrutiny recently for accusations of not
strictly following this separation.
The career path here is much different as there is not an opportunity to move into a Portfolio Manager role as there is no portfolio to manage. Again, a career in sell-side Investment Research can be very personally
and financially rewarding.
Introduction

I. Investment Management Continued
HEDGE FUNDS
Hedge Funds have similarities to traditional investment management mentioned in the section on Investment Research, Buy-Side in that a Hedge Fund will analyze and purchase
financial assets on behalf of clients. However, Hedge Funds deal with very little regulation due to the small amount of investors they open themselves up to. They are often located
anywhere throughout the world as opposed to mutual funds that are primarily located in major financial hubs. Hedge Funds may employ as little as 1 individual.
Hedge Funds fall into the class of “alternative strategies.” They have far less restrictions as to what types of assets they can invest in than mutual funds, pension funds, or insurance
companies. The term Hedge Fund originated from the strategy of hedging to attempt to neutralize downside risks. Today, the term Hedge Fund will tell you nothing about the
strategy employed.
The primary skills necessary to succeed in a Hedge Fund are the same as in the Investment Research field. However, due to its unique characteristics regarding asset class choice
availability, unique knowledge of specific asset classes would be very useful. Gaining a position in the Hedge Fund industry is very competitive, much more so than in traditional
Investment Management positions. Additionally, the compensation is very lucrative.
PRIVATE EQUITY
Like investment banks, private equity funds seek to raise capital for entities in need of funding. However, the method by which they raise and place funds is entirely different. Instead
of accessing the pubic markets to broker the transaction, private equity firms first raise a pool of money (i.e. fund) by tapping wealthy individuals and institutions looking for above-
average returns. After raising a fund, PE firms will then take controlling stakes in target companies utilizing moderate to high levels of debt to finance the remaining purchase price.
This allows PE firms and their investors to “lever up” their returns by taking advantage of the favorable tax treatment of interest on debt financing. When the purchase price of a
“target” is primarily funded through debt, the transaction is said to be a “leveraged buy-out” (LBO).
Often, one may hear venture capital and private equity mentioned in the same breath. Venture capital refers to firms solely focused on the funding and development of new
ventures, while private equity firms choose mostly to allocate their capital to established companies.
While it is possible to land a private equity position without prior relevant work experience, the odds are against you. PE firms prefer individuals to have worked for a few years in
banking, management consulting, or accounting (This goes for undergraduates as well as MBAs). This makes sense, as the skills developed in these career fields are highly
transferrable to private equity. So if private equity is your end game, you may have to first gain some “deal experience” before being considered for a position.
Introduction

I. Investment Management Skill Set & Knowledge
Introduction

I. Investment Management Skill Set & Knowledge Continued
Introduction

I. Private Wealth Management
Private Wealth Management is the management of financial assets for high-net worth individuals. Key skills
necessary here would be finance, communication, and relationship building. Even though a Private Banker
must be financial savvy, just as importantly they must be customer focused and be able to communicate clearly
with their clientele, especially during economically turbulent times when portfolios are losing values.
Certified Public Accountants (CPAs) have found success in career switches to Private Banking as the knowledge
of individual income tax laws are valuable in high-net worth estate planning. Pursuing the Certified Financial
Planner (CFP) designation is also highly recommended to be noticed in the Private Wealth Management
industry.
Daily duties of a Private Banker would be the monitoring of client positions, reviewing client performance, and
prospecting new clients. Knowledge of Modern Portfolio Theory is crucial for a Private Banker, as they make
investment decisions in mutual funds and bonds on their clients’ behalf. They must constantly monitor these
positions, move money as necessary, review performance to keep the clients disciplined in the investment
philosophy, and always be looking to grow their book of business. The pay here can be good but the two best
aspects versus all other careers described are a better work life balance, more client focus and interaction, and
more autonomy.
Introduction

I. Private Wealth Management Skill Set & Knowledge
Introduction

I. Corporate Finance
Professionals in the field of corporate finance are employed
multinational firms, and focus on the strategic financial objectives
associated with increasing the value of their given firm to its
shareholders. Increasing a firm’s value includes the decisions that
determine how an organization; raises and manages capital, identifies
suitable investments, apportions dividends returns to shareholders,
and identifies opportunities to merge with or acquire another firm.
Careers in this field require the ability to evaluate investment projects
or engage in capital budgetary management, mergers and acquisitions,
public equity offerings, public and private debt placement,
management of existing debt, cash flow and foreign exchange
management for one’s respective corporation.
Introduction

I. Corporate Finance Skill Set & Knowledge
Introduction

I. Commercial Banking
Commercial Banking is the function where corporations find funding through loans. These loans are provided
by the funds from consumer deposits. Commercial Banking would be closer to the type of banking you and I
deal with on a daily basis through our checking and savings accounts. This is a contrast to Investment Banking
where corporations find funding through the issuance of equity and debt securities in the capital markets.
Before the enactment of the Glass-Steagall Act in 1933 a Commercial Bank and an Investment Bank could
operate under the same umbrella banking corporation. However, Glass-Steagall required these banks to split
these operations. The most notable is the split of the House of Morgan. From 1933 to 1999 when the Glass-
Steagall Act was repealed, J.P. Morgan was the Commercial Banking firm that remained from the original
Morgan family firm. In contrast Morgan Stanley was the firm that emerged in 1933, started by John Pierpont
Morgan’s grandson Henry Sturgis Morgan. The recent financial downturn has brought about much heated
debate regarding the re-establishment of the Glass-Steagall Act.
A typical position at a Commercial Bank would be a Credit Analyst. A Credit Analyst must be able to assess a
firm’s downside risk. They must have strong quantitative abilities as well as the skill to build strong client
relationships. They would move on from here to look over larger loan portfolios as their Commercial Lending
career grows.
Introduction

I. Commercial Banking Skill Set & Knowledge
Introduction

Wall Street Career Paths

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