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Finance as a Career Path
The financial services industry has been around in some form or another for centuries. For as long as there has been business and ingenuity, there have also been greedy, clever merchants looking to siphon off some of that sweet, sweet value.
In this post, we'll look at a few key factors you should evaluate if you're considering a career in finance. The short of it is that finance isn't going anywhere as a career, but it's a very intense field to work in.
You can also check out this video we made to help you figure out whether finance is right for you.
New Finance Categories are Always Developing
There will always be good finance jobs available for smart, hardworking people. The specific finance jobs and opportunities may shift over time as new technologies and strategies are developed, but it's hard to imagine finance as a category going anywhere.
New sub-industries within finance are continually invented as people constantly search for yield and superior returns.
For example:
Private equity wasn't always a big part of the financial ecosystem. The first private equity firms date back to the 40s and 50s, but the LBO strategy didn't come into vogue until the late 80's when KKR bought RJR-Nabisco. Today, private equity is one of the most important sectors of asset management.
Algorithmic trading became increasingly popular in the early 2000's as computer and Internet technology has improved, which is articulated in Michael Lewis' Flash Boys.
Secondaries private equity (buying and selling stakes in private equity funds) has exploded in popularity over the past few years, creating a whole new set of jobs. Many of the fastest growing investment firms today are secondaries funds.
Cryptocurrency investing is essentially brand new, and a staggering amount of funds have been deployed from venture capital.
Chart via HackerNoon
As long as we live in a capitalist society, there will always be a role for capital allocators (investors) and people who make the capital markets more efficient (bankers, trading). I'm would actually bet that finance professionals are also ingenious enough to make a profit in a completely communist society too.
The point is that modern finance and investing is likely to exist in some form or another for the duration of our lifetimes.
The specific assets and strategies may change, but the fundamental tools of assessing businesses, making risk-adjusted bets, and understanding macroeconomics are going to persist. Investment banking also happens to be incredibly popular as an entry point, because it teaches you these skills and sets you up for all of these roles (private equity, trading, secondaries, crypto, etc.)
If you're interested in preparing for a career in investment banking, you can check out our comprehensive Investment Banking course, which covers the recruiting and technical aspects of the job.
The Top Students Still Favor Finance
Relative to other categories in business, finance is still the most popular path at the top MBA programs. Harvard Business School sends 1/3 of its candidates into finance, as does Stanford GSB.
Sure, these bright MBAs are likely saddled with debt and groupthink, but it's hard to ignore the raw data. For comparison, in 2021, Stanford sent 33% of its MBAs into finance, vs. 29% into tech. Even though tech has exploded in popularity and earning potential, much of the top talent is still drawn to finance.
This chart might not indicate that finance is a good career path, but it at least tells us that finance is a popular and sought-after career path. And based on this Stanford MBA data, we can also see that finance also has the highest median salary. If your goal is to make money and achieve things others cannot, finance is a great choice.
Finance Culture and Hours are Pretty Trash
The main consideration people should have when considering a career in finance is that a lot of the best jobs in finance are really intense and have difficult hours. Most investing jobs either require tons of resourcefulness or tons of diligence to be good at. And most sell-side jobs are just Excel-oriented sales jobs, so you have to do a ton of client service on tight deadlines.
What's perhaps hardest to stomach is that the culture in finance can be brutal at certain firms. It's an industry with a dark history of suicide, fraud, and obsession with work. You need to be pretty mentally strong to go far in finance. The famed GS13 survey highlights how horrible some work environments can be:
I do think that this is changing and there are certainly some firms with great culture that treat each other as equal partners.
It's up to you to network and speak with people in the industry to see if you can resonate with the work style.
Finance is the Risk-Adjusted Easiest Way to Become Rich
Without a doubt, I think finance is the "risk-adjusted" easiest way to become rich. Who needs original ideas, bold risk-taking, or unique technical skill when you can be a capital allocator? Specifically on the investing side, the concept of earning management fees generally guarantees that employees will get a certain amount of money. And this amount of money tends to be much higher than what you can make in other industries.
If you run a $1B fund and get 1% management fees, your team will get $10mm annually just for "managing the money". Even if you do a mediocre job, you'll still get those management fees. This fee structure is eroding a bit, but investment managers at large funds still have a very, very high floor of what they can earn.
An example of how the popular 2/20 management fee structure works
You might be able to win big in tech, entrepreneurship, or sales if you're talented and lucky. But if you want to run a stochastic simulation of your own life and solve for the highest expected value, finance is probably the safest bet. It's hard to compete with an asset class like private equity that is designed to safely compound annually.
Artificial Intelligence Will be a Tool, not a Job Killer
As long as humans stay irrational and shortsighted, there will be jobs for live humans to work in finance. I don't think anyone can say with absolute certainty, but I personally think that AI won't be able to completely eliminate all traditional finance jobs. Humans like trusting other humans and I think AI will actually serve as an aid for most people to do their job.
The book, Superforecasting (which articulates how to make better predictions) posits that the best predictions are made by combining human intuition and data tools. I agree with this notion in that people and finance professionals will learn to use AI to improve their investing judgement, but not replace it.
AI will likely eliminate a lot of lower-level finance jobs (e.g., analysts can theoretically work more efficiently) and many back office jobs. The onus is on investors to learn new tools and upskill themselves to effectively wield AI.
Some conventional jobs may be "killed" by AI, but I think it will just shift where and how people look for yield.
Conclusion
I personally think that finance is simply going to continue to be the career that it's always been. Even if the specific asset types or strategies shift slightly, it's very likely going to exist in this form for the next several decades.
Finance is going to be a lucrative, but demanding field for the foreseeable future.