Ten years ago, young people in banking expected to work a 15-year stint. The precarity and ageism inherent in finance careers were offset by unlimited bonuses and the potential to earn very big money, very soon: by the age of 36 you could be done and dusted. Nowadays, banking jobs are still precarious and still ageist (70% of Goldman employees are millennials), but pay is generally less than before. If you don’t attain the seven-figure pay packages enjoyed by a few people at the top of the industry, how can you still ensure you’re prepared for an exit before you hit 50?
It’s a question that bothered one former trader at J.P. Morgan in London. He spent over a decade working on trading floors in the City and saw many of his colleagues struggling to find the time to manage their savings. We’re (unfortunately), unable to give his name for regulatory reasons, but we’ll call him ‘Jim’.
“When I worked in banking I was always very proactive with my personal finances,” says Jim. “I invested my money across all kinds of products including equities, bonds, mutual funds and start-ups. But when I looked at my colleagues, I found that most of them were struggling to find the time to do the same.”
People in banking are the archetype of ‘cash rich time poor’, says Jim. “You’re working 11-hour days and you often barely have time to spend with your family. There’s no way you’re also going to have the time to think about how to make your savings grow in the most tax efficient way,” he says.
While he was still working as a trader, Jim used the experience of managing his own money to start managing money for friends and family. “I started helping my friends and family and found I was making a significant difference to their lives. This was far more rewarding than trading, which had become increasingly bureaucratic and execution-focused since the financial crisis.”
Jim quit banking at the end of 2015 and has spent the past year retraining as a wealth advisor. His focus is on people earning between £100k and £200k, many of whom are working in financial services.
“You find yourself earning £10k a month and you wonder whether it’s ok to spend it and improve your lifestyle, or whether you should save it for the future,” says Jim. In banking, he adds that the attitude has often been that you should spend it: you’ll be earning more soon. Given the uncertainty surrounding banking careers, however, this may be wishful thinking. “You should get into the habit of saving 20% to 25% of your income for the future,” he advises. “And instead of thinking about what you’ll do when you earn £100k next year, you should be thinking what you’ll do if you earn £50k – or less.”
You should also be thinking about tax efficient methods of saving and investing. While Jim was trading, he says he invested in five start-ups, making the most of the UK government’s Enterprise Investment Scheme under which investors can (now) get a 30% income tax credit by investing in unlisted companies. “I was in a job where I felt I was plateauing and where I wouldn’t be able to get any upside to my earnings. I figured that if I couldn’t work for a start-up directly. I would invest my savings in start-ups and gain exposure to high growth companies that way.”
Investing in start-ups can be risky, however. Jim says he did considerable research into the companies he invested in – something which may not be possible for the average, time constrained banker. Now that he’s out of the industry and advising on investments full-time, he says investigating start-ups is one of his priorities. “Start-up investments are tricky. You need to find the right company with the right business model and management team. I spent a significant amount of my time meeting and vetting companies in the start-up space.”
Nowadays, most people in finance have doubled the expected length of their finance careers and expect to leave the industry aged around 50 instead of aged around 45, says Jim. The most sensible will think long-term from the outset: “You get a lot of people who are in their 20s and are just focused on buying a house,” Jim says. “Property is one part of a portfolio, but if there’s a downturn in the property market there could be a lot of panic in the UK. Ideally you want to be investing across different products, and in different global markets – not just in the UK, but in the U.S. and China, for example.”