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The investment banker of the future: Compliant, entrepreneurial and cost-effective

There’s no shortage of research into the future of investment banking, but most focuses on the needs of institutions to retrench from various business lines and continue to cut staff. However, with compensation falling and job security shakier than ever, banks may also struggle to attract the employees they need.

Since 2010, investment banking compensation has dropped by 25%, according to new research from Boston Consulting Group. The gap with other sectors has narrowed and banks will struggle to attract talent away from tech firms, social media companies and the buy-side.

All of this is framed within a need to attract a different type of person into the industry. Away from the ‘cookie cutter’ approach to bringing in academically exceptional team players with a passion for finance, banks will instead look to hire people who have an “entrepreneurial and innovative spirit”, says BCG, while also possessing a “deep cultural sense of compliance, collaboration and client service”. Oh, and you’ll also need great tech and data analysis skills.

This may seem a little vague, but BCG has some other interesting views on where the industry is heading.

1. Pay is still heading down

Predictably, when cost-cutting is still a priority, banks will continue to reduce pay for their employees while keeping other expenses consistent.


2. Derivative specialists will require much hunting down

BCG breaks down the investment banking world into six core business models, as we’ve pointed to previously. The ‘haute couture’ firms – providing specialist structured and derivative products to hedge funds, private banks and sovereign wealth fund – will need people not just to develop these products but to provide “end-to-end, time to market excellence”. The result, says BCG, is that these firms will need great HR people to attract top talent.

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3. Rainmakers will be highly fought over

We’ve seen it with the emergence of investment banking ‘kiosks’ in recent years – one man advisory bands which have secured some big deals – but the importance of ‘rainmakers’ will only grow for those boutiques wanting to compete with the flow monsters. More advisory work will shift to niche players – largely down to shrinking volumes at the larger firms – but this doesn’t mean a need for larger teams. “We expect more commoditization of M&A execution (some of it being taken over by corporates), lower value added in DCM distribution (with many issues oversubscribed by investors), and little innovation in ECM structures,” it says. The emphasis, therefore, is on a select band of big-swingers.

4. Relationships will win out

We’ve pointed to a split between banks employing ‘worker ants’, ensuring all systems are working, and senior bankers with deep relationships. BCG emphasises this, but also says that specialism is key to success: “leverage proximity and customized knowledge to build deep, long-term ties with their clients” are all integral, it says.

5. Even big banks will specialise

Investment banking is getting more boring. Bulge brackets are moving away from execution of trades and towards “clearing and collateral management” as well as gaining competitive advantage through creating synergies with other business areas like asset servicing and payments.

If this sounds all a bit too exciting, the other thing to bear in mind is that – in line with what’s already happening – the large investment banks will stop trying to compete on all product lines, and instead focus on “product areas in which they can achieve true, scale-based competitive advantage”. In other words, you need to specialise and there’ll be fewer alternative employment options available.

6. Despite this, it all looks a bit samey

Wondering where you can position yourself in order to work in a growing business line? BCG’s estimates point to revenues remaining pretty similar across all divisions for the foreseeable future.


AUTHORPaul Clarke

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