The past few years have been challenging for many professionals in the financial services industry. One of the most common frustrations we heard from candidates was that they felt as though their hands were tied behind their backs when it came to seeking out new & upward trending career opportunities. Many professionals either thought that it was too risky to jump ship for a new firm or that there were simply no other ships anchored nearby. With the economy improving, however, and the stock market continuing to break records, now might be an opportune time to consider looking. There are not only growing opportunities at the bulge brackets, but there are also many new and increasingly attractive opportunities at boutique investment banks. More and more, bulge bracket bankers are coming to us asking whether it makes sense for them to move to a boutique environment. While there are many good reasons for joining a boutique, the bulge bracket and boutique environments attract very different individuals, and it’s worth taking the time to consider which environment is right for you. Here are a few questions to think about when considering whether you are best-suited for a bulge bracket or a boutique:
1) Am I ready to do some heavy lifting? Some boutiques don’t have the infrastructure that big banks are able to offer. If you like having a support person who will make copies of pitch-books for you, or if you like having a pool of analysts at your fingertips to build the models, maybe a boutique investment bank is not for you. Bulge bracket firms also offer immediate name recognition and brand equity when pitching prospective clients. If telling your firm’s story does not come naturally to you, then you may not flourish in a boutique environment where you more frequently may need to sell your firm to potential clients who are not as familiar with your employer from the get-go. While working at a boutique firm can lead to attractive paydays for senior bankers when they close big deals, the big bucks will only come to those who are not afraid to knock on multiple doors in the pursuit of new clients and mandates.
2) What kind of deals do I want to do? Do you prefer to do big LBOs or debt capital markets deals? In those circumstances, it is oftentimes easier to be with a bulge bracket, where you can leverage the balance sheet to underwrite larger debt deals. For example, we recently conducted a search for an MD in investment banking in which our client was a middle-market firm. Initially, one of their top candidates was from one of the three largest bulge-bracket banks. Early on in the process, the candidate decided to remove himself from consideration because he realized that he liked leveraging his firm’s hefty balance sheet when doing big deals with large clients. On the other hand, the ultimately successful candidate had an excellent bulge-bracket background, but was frustrated by the lack of creativity required in his previous role. He liked working with diverse types of clients and thinking resourcefully in terms of ways to structure deals. This candidate was perfect for the boutique environment and has flourished in a role where he can build a franchise.
3) Are regulations going to impact my ability to get deals done? One of the biggest complaints we hear from bulge-bracket candidates is the overregulated nature of the big banks. The top five bulge brackets can’t and don’t want to take on risk when structuring deals given the costly repercussions that can be levied on firms that don’t comply with new liquidity and revenue regulations. Given this shift in deal-flow, smaller firms are increasingly able to capitalize on more complicated deals that may not have been accessible to them a few years ago. We have seen many bulge-bracket bankers follow their clients to boutiques, and it is worth considering whether a more lightly regulated environment will help you maintain your client relationships. It is important to remember, however, that even in the world of boutiques, reputation and credibility matter. Do your homework and look at the leading partners of the firm, as well as the types of professionals they have hired. Every firm needs some institutional gravitas and you need the leaders of the firm to have it. In an environment where attractive deals are increasingly flowing to the smaller firms, big fees can mean a big pay day for the boutiques, but credibility at the top is still essential for winning those mandates.
4) Is compensation really higher at a smaller firm? The differentiation in compensation at bulge brackets and boutiques typically revolves around the idea of cash versus equity. Smaller firms often don’t have the overhead costs that the bulge brackets do, leaving a greater share of the cash pie on the table for the team. Bulge brackets, however, with new liquidity requirements and larger fixed costs, are increasingly relying on equity and restricted stock to compensate their employees. Boutiques also pay out higher commissions on deals because boutique bankers don’t always have a big employer brand behind them and have to work harder to win those deals. Another consideration to factor in is consistency in compensation. While the cash payout at big firms might be less overall than at their boutique counterparts, it is often more consistent. At bulge brackets, there is a process in place and bankers can more frequently count on making a predetermined amount most years. At the boutiques, there might be larger swings in bonus payouts. An associate at a boutique firm in NYC that we know was given less than half of what he had expected last year because business was down. This year, the firm has doubled its YOY revenue, and he expects a huge pay day with the bonus being paid earlier in the year to make up for last year’s disappointing performance. His firm is also in a celebratory mood and is planning a trip for the entire team to congratulate everyone on having a great year. Big firms don’t have this same flexibility and are often under more media scrutiny not to go overboard on extravagant employee perks. When it comes to which compensation culture is more your speed, you need to think about what mix of compensation liquidity and consistency makes the most sense for your lifestyle.
*5) Is there more security at smaller firms? Unfortunately, these days, security is fleeting regardless of where you are. Evercore, for instance, recently acquired International Strategy & Investment Group, a boutique research and advisory firm. Immediately following the acquisition, Evercore set about firing a number of analysts at all levels. This is just one example that it is a myth that investment banking boutiques are less volatile or less prone to layoffs than are bulge brackets. Very often, those smaller firms are looking to grow and take advantage of acquiring teams or smaller firms to jump start a group or vertical. Instead of the old “last one in, first one out” mantra, it could easily be “first one in, first one out” when rapid changes in firm strategy and structure are involved. While compensation might be more consistent at the larger firms, job security at any firm is no longer a guarantee. The firm with the best security for you is the one in which you are able to be the most successful and drive the most value.
When it comes to determining what firm is the best next step for you to take in your career, there is no longer a “one-size-fits-all” career ladder. The best strategy to take when considering a new firm or role is to be thoughtful about what environment you will thrive in. In what is still a somewhat rocky and rapidly evolving financial industry, the best way to maximize your chances of success is to take the time to reflect upon (and be realistic about) your strengths, needs, and goals, and then devise an action plan that will get you there.
