Investment Banking Survey 2020

Talent Search Haus’s Investment Banking survey looks at how senior investment bankers are adapting to the changing market and the move towards stakeholder management and talent.

Our survey included various participants at both the CEO, Partner and leadership level.
We sought to learn about the current changes and challenges impacting the industry, and given an opportunity, is there a way to do it differently?
The research covered sizeable global investment banks and international and local boutiques.

Is the current model of global investment banking no longer fit for purpose?

Most investment banks run their operations with a full- service capability – debt, equity and mergers and acquisitions. In Australia, many deals sit in the mid-market and given the infrastructure costs large firms are unable to sustain resources consistently across all market sectors. Australia is small in comparison to other significant financial
markets. The cost metrics often do not work. It will always be challenging for the US firms to hold a top-three spot because of the revenue/productivity per headcount measure. “With the larger corporates, there can be complexity in financing, geographical spread and proactivist considerations. That is when you need the large (investment banking) firms”.

Will there come a time that full-service banks adjust their businesses to play to their niche and focus on where they can add value with clients and win?

The US firms have won the race when it comes to global investment banking. They have an integrated approach to managing their international accounts and have adjusted
their business models post the GFC. The European banks have taken longer to respond to the changed market conditions and adapt to a lower cost base.

Should an investment bank be a trusted advisor, a supplier of product, or both?

There are multiple views on this topic, somewhat dependant on the type of firm – global bulge bracket, international boutique or domestic boutique. Global investment banks budget their senior management to deliver a revenue per head year on year. Individuals responsible (Managing Directors) for fee generation feel pressure from the firm. By its very nature, this impacts on decision making to complete a transaction while also ensuring the bank maximises cross-selling of other products into transactions.
Conflicts arise for a “trusted advisor” who invests resources and time to understand the client’s needs and then provides independent advice.
The international and domestic boutiques argue that there will always be a need for independent advice and some responses from boards of ASX 200 confirmed this. Companies will choose an individual or organisation depending on their situation at the time.

Clients will either choose the organisation because of product and international reach, an individual because of trust and knowledge and of course the success of their prior experience. Regardless of the service provider, the expectation is that everyone will rally to execute fearlessly.
International and domestic boutiques can bring independent advice with some of the international boutiques having full representation here or others, a strategic alliance with a domestic firm.

Survey participants commented that international boutiques with deep industry expertise help local partners have a more in- depth dialogue with potential clients that otherwise might not be possible.
This observation appears to be substantiated by the growth of independent boutiques winning market share in the USA. While the success of some generalist international boutiques is sporadic, those that have succeeded have won so by maintaining a low-cost base. When relationships in global markets deliver to local transactions, the revenue can be substantial.

Talent

Everyone acknowledged that there is a shortage of talent for Managing Directors and Directors. Furthermore, investment banks continue to struggle to retain women at the midpoint of their careers with 7-10 years of experience.

Managing Directors

Investment banks and their clients want Managing Directors who are creative, passionate and motivated. The industry continues to promote people who are often great at delivering transactions, and revenue to a firm; however, are they supported to be great leaders? There is an expectation for the mentoring of Directors and below. A good mentor allows mentees access to boardrooms, observing and learning to deal with the nuances of client meetings. Perhaps a rare time when “hunting in packs” is a good thing.

Sometimes more junior executives find it challenging to invite Managing Directors to a client visit if previous experiences were that the Managing Directors dominated the meeting.

There are only one or two rainmakers amongst the firm’s Managing Directors. Overwhelmingly, quality MD’s who choose to continue to work in the industry establish their boutiques or do something else. They leave their old firms because of the frustration with their inability to influence headcount, allocation of costs, remuneration and often the politics.
Some Managing Directors do stay as long as they possibly can. The industry does not pay as it has in the past.

Directors

Directors with the capacity to move into a Managing Director’s role are few and far between. Investment banking has developed them to be great project managers who, unfortunately, are not given time to develop creativity with a solutions mindset. They are often worked to the bone and as we mentioned before, investment banking expects fearless execution.

All firms have struggled to retain mid-career women as the hours are challenging, and they do not see female role models at the senior ranks. In general, the industry has been poor at mentoring and developing younger talent. Senior executives are too busy to invest time or through their own journey, expect the individual to forge their career in the industry. Also, younger people have less opportunity to learn if firms doing a smaller number of transactions.

Sourcing talent

Most often, Investment Banking sourced people who have performed a similar role with a competitor. As such, the new talent comes from other investment banks or professional services firms, local and offshore.

In the past, some banks were able to differentiate their business by the quality of the brand and remuneration. While brand/platform works for a small number of banks, remuneration has levelled out amongst the global investment banks. When proposing the idea of taking people who left to go to a corporate
strategy/development or CFO role, some were positive. In contrast, others felt
they might have left because they could not succeed or did not want the hours
or culture of Investment Banking.

Challenges for the industry on talent

“We have had to change our business model to meet the demands of our customers and staff.
I do not think the investment banking industry has changed its model at all”,
commented a non-executive director from a major corporate.
The industry is less attractive to young people. Arguably, money is not so important to them and the hours are long. Instead, they look for an opportunity to learn, find purpose/values and what their impact will have on the community.

The industry remains quite hierarchical, and when asking about the long hours, participants consistently referred to work having to be redone as it was not aligned to the MD’s thinking. While time appears to be a deterrent to having the project/deal team gain clarity on specific work to do, could communication and shifting mindset improve productivity, so the team require fewer hours?

Every firm recognises the need for diversity. While some investment banks have better policies around flexibility and inclusion, it is essential to see how leaders show up and commit to developing and supporting women. Other important issues to attract women are mentoring, individual career planning, attempting to deal with unconscious bias and much more. No one size fits all, but it is a journey that requires ongoing commitment and time. Women will go to organisations that can demonstrate this through a leaders’ behaviour

Investment banks look for skills and experience within a finite channel. “If we hire at a certain level, they will have the expertise to perform at a certain level

Will there be room for the two new domestic investment banks if they are different?

Since this survey started, we have seen several bankers from the bulge brackets, UBS, Goldman, and JP Morgan leave to join these new firms.

As a headhunter working with the global investment banks for many years, I have not seen a great deal of change to the global investment banking model or how they attract and ideally retain talent.

While the quality of the investment bank platform and brand helps attract talent and money will work for some, other groups have different expectations from their employer. Skills and experience are always important, but I believe we have to start to look for attributes, motivation, values and competencies outside of the competition. If we get that right, it will give the industry access to a broader pool of talent with different thinking.

Other industries appear to connect better with stakeholders and the new world of work. So many bankers have gone on to become successful NED’s, C-suite executives of major corporation and investment firms. Could a review of existing investment banking processes and changes to recruiting, recapture the talent that it has so successfully grown?.

Sharon Mackie Goh