Disgruntled investment bankers are increasingly looking for exit options, and it’s assumed that a transition across to wealth management, where they can transfer financial acumen and finely honed relationship-management skills, is an easy option.
The reality, however, is decidedly tougher. Not only have most private banks become increasingly sceptical of taking on investment bankers looking for a change of scenery, only to return to when the industry has a change of fortune, the skills are not readily transferable.
“Just because you’re an effective deal-maker, doesn’t mean you can translate that skill to the private wealth arena. Areas in investment banking like M&A, derivatives, for example, are very niche and are not easily transferrable to wealth management,” said Paul Kearney, managing director and head of private investment office at Kleinwort Benson, who previously worked in investment banking. “Structuring skill-sets are more relevant, but by and large you need a stepping stone to make the transition.”
The stepping stone, increasingly, is working with ultra-high-net-worth individuals with a family office or holding company, who have a need for advisory services around M&A, capital increases or IPOs, as well as the more traditional wealth management offerings. Banks like SocGen, Kleinwort Benson and Rothschild have offered these services for a number of years now, but the appetite from investment bankers to move across is increasing.
“I was involved with hedge funds pre-2001, when it was a niche sector, and then suddenly everyone wanted to reinvent themselves as a hedge fund guru. Now, a lot of people in investment banking want to paint themselves as family office specialists,” said Kearney.
Family offices are booming, largely due to the increase in private wealth globally, as well as the tendency for hedge fund billionaires like George Soros and Stanley Drunkenmiller turning to single family offices, and entrepreneurs (particularly in the tech space) looking to raise capital. More banks want a slice of the action.
However, investment bankers who try to make the leap directly into a private wealth management role generally struggle, according to Seb Dovey, managing partner in wealth management consultancy Scorpio Partnership.
“The assumption is that they can leverage the relationships they have with corporate clients and convert them into private clients – most promise to bring in revenues after six months, but the reality is that it takes up to two years,” he said. "That’s a big leap of faith for an employer.”
Then there’s the fact that pay for private bankers is generally smaller than that in investment banking. Bonuses comprise just 30-40% of total compensation, according to the Scorpio Partnership, while salaries come in at £175k even for senior bankers, say recruiters in the sector. Working directly as a CIO for a family office pays anywhere from £100-250k, according to research by headhunters Sulger Buel & Co.
“Despite smaller bonuses in investment banking, there’s a big compensation gap in moving into wealth management and this can be difficult to adjust to,” added Dovey.
The advice, therefore, if you have ambitions to move out of investment banking, is to stick as close as you can to what you already know. “Make sure you have a very thorough understanding of what the new role involves before switching careers,” said Kearney. “On your first day, what will you be doing? And how does that correspond with the skills you’ve developed?”