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  • Matt Ting

Why is Investment Banking Culture So Bad?


Overview


Investment banking is an extremely intense and laborious industry. It’s very common to work 75+ hours per week in investment banking because of the culture and job expectations.


If you’re in a top-performing group at a top investment bank, you’ll constantly be on live deals that require lots of weekend work and late nights.


The trade-off is that you’ll then have access to the most coveted buyside roles in the world. You’ll easily earn over $150k as a new graduate if you end up at a top investment bank.


One true stigma that applies to investment banks is how poor the culture is.


It seems almost perplexing that culture could be so collectively bad across the entire industry, right? How is it possible that all of these nasty people end up pursuing the exact same career path?



I think some personality tropes are true and it’s true that many sociopathic folks pursue finance. But I would argue that the structure of investment banks and the core investment banking business model are the primary contributors to its bad culture. Most senior people don’t actively derive joy from torturing their analysts, but the demands of the business can cause them to treat their analysts harshly.


Today I want to talk about a few of the most prominent characteristics of investment banking culture.


And if you're interested in landing a spot in investment banking, check out our Investment Banking Recruiting Course.



Characteristics of IB Culture


Deal-oriented nature makes weekend and vacation work very common


It’s essential to recognize that investment banking is a client-facing industry where speed of service is always an extremely important factor.


If you’re working on a time-sensitive deal, you’ll be expected to get work done regardless of what is going on in your personal life. For example, a lot of auction deals will open their data room on Friday evening. If you’re an investment bank advising a client in that auction, you’ll almost definitely have to work that weekend to see what new information became available.




Maybe there’s a public acquisition that is pending a fairness opinion. If you get put on the fairness opinion, your firm will likely rush to complete it to make sure the deal gets done in a timely fashion. There are many, many credible times when speed is an essential factor to execute a deal. As such, if senior investment bankers want to provide high-quality service to their clients, they often have to be demanding of their junior employees. This is true in other client-servicing roles like law, consulting, and accounting advisory roles.



The short tenure of employees disincentivizes mentorship


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The investment banking industry suffers from very bad attrition. Your typical devoted analyst is going to be at the firm for 2 or maybe 3 years tops. Some good associates will stay in the firm and continue to climb the ladder, but it’s just as likely that associates will leave after a couple of years.


There is so much competition for good talent in finance that star candidates will constantly be poached by other firms. Plus, the huge earning potential at some buy-side firms virtually guarantees that top talent will always be leaving your firm. Other analysts leave to roles with a better work-life balance, a trend seen increasingly throughout and after the Covid-19 pandemic.


This revolving door of employees makes it difficult for seniors to conscientiously invest in mentorship. This causes juniors to be treated more like resources with a finite shelf life. Why would you put so much effort into cultivating a healthy relationship with an analyst if they’re actively trying to leave for a hedge fund?



The disparity in knowledge and effort leads to extreme hierarchy and “star” culture


IB Hierarchy


There is an intense disparity in knowledge in investment banking, resulting in a very hierarchical structure at essentially all banks. A good MD will know years more about process and strategy than a VP. A good VP will know so much more about execution and modeling and industry than a new associate. A good second-year analyst is dependable, while a summer intern is the living embodiment of organizational burden. This knowledge disparity can lead to very hierarchical work processes.


An MD won’t see a work product until a VP, associate and analyst have all tried their best to perfect the deliverable. This can take several iterations, which can be further complicated by the moving pieces of the underlying analysis (price updates, market movements, new data room information).


A very common result of this is that MDs will only trust a select few individuals. Some analysts will get worked twice as much as other analysts due to their “star” reputation. This can lead to resentment between analysts and a general feeling of unfairness. And when a finite number of promotions or spots are available, you’ll see an increased level of competition amongst junior employees.



Fee-oriented nature of the business model can lead to intergroup politics


One more characteristic that heavily influences the dynamics in an investment bank is how different groups and bankers may compete with one another to win a fee. If boundaries aren’t clearly set, senior bankers may go after the same deal or different groups from the same firm will pitch different products to a potential client. When your bonus entirely hinges on the completion of a deal, you will be much more incentivized to play to win.


Culturally, I think this property of investment banking makes people less cooperative and willing to share resources. MDs may compete for analyst time and different product groups may punt work deliverables back to each other.


Conclusion


Investment banking has a reputation for poor culture, but the structure of the industry is typically the root cause of tension in the workplace.