MBAs are still hot on Wall Street, but is it really worth the investment?

As MBA recruitment has dropped off among banks in the U.K., banks in the U.S. are still the biggest hirers of MBAs, despite the overall headcount reduction in the industry in recent years. It’s well-known that MBA graduates come into a bank as an associate rather than an analyst and can earn more in the short term and, but then what? What about graduates longer-term career prospects? Is it worth the mountain of debt that most have to secure in order to pay for a top MBA program?

Most people just look at the short-run horizon, thinking an MBA will lead to a giant jump in income and that they can do it quickly. Not everyone does a cost/benefit analysis and weighs the risks alongside the potential rewards.

“It’s something that’s critically important,” said Pam Schilling, associate professor of strategy and finance at North Park University and managing director/founder of career advisory services at The MBA Exchange. “You’re going to make this huge investment of time, money and lost income, so you have to think about the short-term and the long-run games.”

Having an MBA will let you enter competitive fields such as investment banking, hedge funds and private equity, but it is just one way you can get your foot in the door, for example, going the tried-and-true path of interning an a bank, working as a full-time analyst after graduating with your Bachelor’s degree and then eventually earning a promotion to associate. Or you could work in accounting for a few years, switch to transaction advisory and then move to a bank.

Gaining an edge

If there are other ways to begin your career, then why make the significant investment in an MBA program? In the current job market, you need every edge you can get.

An MBA makes for a far easier entry into an investment banking career, according to Roy Cohen, career coach and author of The Wall Street Professional’s Survival Guide. With fewer spots available overall across the industry, those roles will go to a limited pool of candidates, so an MBA is increasingly essential.

“It can take a couple of years if you don’t have an MBA to catch up,” Cohen said. “Say you’re an analyst three to four years before being promoted to associate, and no matter how high you progress, there may be a little bit of a stigma when most of your colleagues have the degree and you don’t.

“On the other hand, if you’re a third- or fourth-year analyst that gets promoted to associate, then you have an advantage over MBAs, because you know the institution and clearly you’re well-liked there,” he said.

Taking steps up the ladder

Schilling said that the true value of MBAs is in the medium- to long-run horizon of your career, giving you more of an ability to rise in the organization, moving from being a technician to someone who is influencing its strategic direction.

“A lot of those skills are developed in the MBA program, so certainly there is value in an MBA, although it’s not the only way to get there,” Schilling said. “There are a lot of good avenues to become an associate at an investment bank, but it has become more difficult to enter a PE or hedge fund firm.”

Cohen compares MBA programs to finishing schools.

“An MBA program provides you with an opportunity to establish significant relationships in school, which can be enormously beneficial in climbing the ladder,” Cohen said. “It’s not like you’re learning rigorously what you’ll be doing in your job, but you are developing social skills, problem solving acumen and a sense of confidence."

Schilling said the idea of an MBA is to teach a level of technical skills and to also give you frameworks for thinking strategically, understanding influencers and working within organizations to get things done.

“I’m not sure I could say it will help you progress [in your career] more quickly, but I do think it is valuable to help you progress,” Schilling said. “The breadth of content in an MBA program should enable you to think at a different level, where an M.S. in finance is far more technical."

Having an MBA makes finding your next job easier

If you’ve never gone to business school, you can certainly get hired and be successful at a financial institution. That said, when there is a headcount reduction, if you don’t have an MBA, then you have one less distinction compared to other candidates in the marketplace who may be just as qualified as you, Cohen said.

“Even if your current employer appreciates your talents and what you bring to the table, once you’re back out in the marketplace you may be at a disadvantage,” he said. “Investment banking functions like corporate finance and M&A where relationships are critical tend to be MBA-heavy."

While getting an MBA is an excellent foundation for an investment banking career, the reality is than an increasing percentage of individuals considering going to business school and thinking about a career in financial services don’t see themselves working at a bank long-term; they see it as a stepping stone.

“There is a lot of strong interest in private equity – they see banking skills as foundational, whereas they see PE as having a lot more upside and an opportunity to gain more operational experience,” Schilling said. “People see it as potentially a way of getting into hedge funds, and other people have an interest in venture capital, but the bottom line is that more and more view banking as a strong credential for their second, third or fourth [career] move.

“An MBA is a great fit for individuals interested in a corporate environment, M&A, corporate development, and many want a credential from [experience working at] a bank,” she said. “It’s very different for those who want to do asset management and want to be managing a portfolio, whether they stay in traditional asset management or go to a hedge fund – they are looking to go into a bank to get a lot of training and really understand the markets and investments.”

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