Tuesday, October 23, 2012

The Investment Banking Hierarchy - The Associates

This is the second post in my series on the investment banking hierarchy which outlines the various roles in an investment bank on the advisory side.  In my last post in this series I covered The Analysts and their role within the firm.  In this post I will be moving one rung up the ladder and covering The Associates.

Overview - The Associates

The associates are the second rung of the investment banking hierarchy and as such their lives are marginally better than the analysts. Whereas the analysts are the powerhouse of the investment bank - in that they do all of the grunt work, the associates are the people that feed the engine.  As I mentioned in my previous post, the associates could probably do the job of an analyst (and usually do in the first year) however don't as they have many more things on their plate (typically) than the analyst.

The associate is e responsible for every piece of work the analysts do and are expected to be on top of everything the analyst is doing and to get the most out of the analysts as they possibly can.  They receive instructions on what needs to be done from above, get the analyst to do it, sense check it as well as checking the more junior analysts numbers to make sure there are no hidden bombs that can later get them into a lot of trouble.  If anything is wrong in a piece of analysis it is always the associates' fault because they are meant to be checking everything that gets done - it probably explains why they are always so stressed.

Where do they come from?

The entry path for associates is not as clear as for analysts and there are many ways of getting into that position.  Broadly, however, they come from three different areas
  1. Analysts who either couldn't get a job elsewhere or want to be senior bankers
    • There are always a percentage of analysts who stay on to become associates.  Clear data is not available but from what I have observed it is usually between 0 - 15% of a given analyst year
    • Some of these genuinely want to be senior bankers and others are biding their time looking for other job offers
    • These associates are prized by the investment banks because they can do the job of an analyst faster than any of the analysts out there and know how the system works however they generally work the analysts harder and are more bitter and burned out
  2. People from other financial professions who get laterally hired into investment banks
    • These include staff from accounting firms, smaller corporate advisory firms, law firms and anyone else that may have had M&A experience
    • They have seen the investment banking hierarchy and for some mad reason, assumed the grass is greener in the investment bank
    • They are generally technically weaker than most of the analysts hired by the bank so they face some serious pain getting up to speed and at the start the analysts hate working with them however they tend to realise there is a life outside banking and so tend to be nicer
  3. People from other professions who have gone back to business school to get an MBA
    • You get all types of people that have done this from engineers to sales people to scientists.  They have tried working for the greater good and then decide to do something selfish
    • They are generally the least experienced but after business school think they know what they are doing and talking about.  For the first couple of months (until they work out that they need to get up to speed) they are a nightmare to work with
The Associate Program

The associate years are not as rigidly structured as the analyst program and so I will not divide it by years.  Generally speaking the associate program lasts for 3 - 4 years depending on the bank. 

The lower level associates, especially those that have just come out of an analyst program are in a weird transition phase.  I was recently speaking to a Director at a bulge bracket investment bank and he told me that the hardest year of his whole career was his first year as an associate - everyone at the bank still treats you like an analyst and working out your place and role is the hardest thing to do.  This applies to wherever the associates have come from.  They are expected to do all the tasks that analysts do and at the same time start to lead projects and guide them forward.

The quality of an associates life is directly correlated with how much the analysts they work with like them.  I can guarantee you that every analyst I know has done the work for an associate they like before an associate they disliked regardless of time pressures.  This 'likeability' is almost directly related to how they treat the analyst both in terms of how nice they are and more importantly how much they teach the analyst what they know. 

The associates are always walking a rather stressful line of having the senior bankers demanding work and trying to keep their analysts onside.  The best associates are both technically excellent and really good people managers, able to manage up and manage down.

As the associates settle into their role and start to build some 'cred' with both the senior bankers and the analysts their role tends to become less technical and more supervisory.  As they become more senior they stop working with first year analysts (whose work needs to be checked line by line) and more with second and third years who need to be motivated but their work is generally good and cursory checks become more normal.

They also start to develop more client relationship skills.  All modelling related tasks and discussions with clients generally go through the associate who coordinates these calls and filters through what needs to be done to the analyst.  As they get to more senior associate levels they start sitting in the place of senior bankers on strategy calls and the like.

Pay / Work-Life Balance / Exit Opportunities

Pay. Associates get paid a lot of money
compared to what they could earn anywhere else in any other industry (with the possible exception of hedge funds and private equity funds).  Everywhere else they move would be a step down in terms of pay.  One difference between associates and analysts is that a significant part of the associates pay comes from deferred compensation - that is compensation that is tied to the performance of the bank which vests over 3 - 4 years.  As the associate stays for longer this really starts to build up and costs them a lot of money if they leave.

Work Life Balance.  The work life balance for associates is terrible and they probably get treated the worst out of all the levels in the bank.  Many analysts go on to become clients of the bank (in buy side roles) so they are always treated a lot better than you would expect.  Associates however are expected to be career bankers and so tend to cop a lot of the grief from senior bankers. 

In terms of hours they typically work similar hours (at the start) to a third year analyst and if they need to go through a first years work they often have to stay until that first year gets their work done and then check it.  The hours get better as they go higher. 

It constantly surprised me, but most of the associates I knew were engaged or married - I have no idea how they made it work because I saw them for more hours in the week than their husbands, wives and fiances did. 

Exit Opportunities. The exit opportunities for investment bankers start to narrow as they become specialised and experienced bankers.  For junior associates it is easier to exit than for senior associates.  Most are committed to becoming senior bankers.  The hardest thing to take for most associates is the massive pay cut that comes with leaving.  Generally the higher paying buy side opportunities are targeted at analysts so many 'miss the boat'.  There are some that buck this trend, however generally those that enter as associates are trying to reach the holy grail and become Managing Directors

You May Also Be Interested In
The Investment Banking Hierarchy - The Vice Presidents
The Investment Banking Hierarchy - The Analysts
Investment Banking - All topics
A day in the life of an Investment Banking Analyst

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