Is there really any point of going into banking nowadays? After all, the hours are still long, the people are mostly identikit uber-achievers (with a few exceptions), and the pay is lower than it used to be. Why not go into consulting, or technology, or realll any other industry at all?
Because, if you’re lucky, banking still pays. And it still pays a lot – especially if you stick with it beyond the age of 30. So says new analysis from the analysts at Bernstein Research who – having perused some of the historical figures on this site and elsewhere, conclude that banking pay is not now as low some would have you believe.
1. In your early 20s you can earn three times more in investment banking than the average job
You might fancy becoming an accountant or a broadcaster or a civil servant instead of going into banking. If so, you’ll still earn a lot less than if you leave university and achieve a front office banking job. Admittedly, it shouldn’t be about the money, but the discrepancy is probably big enough to make you stop and think: Bernstein says entry-level banking jobs pay three times the average entry level pay for other sectors in the UK.
2. Banks are paying more to attract recalcitrant students
Banks like Goldman Sachs and J.P. Morgan seem to have no problem attracting hundreds of thousands of applications from students (who likely want to earn enough to pay off their student loans). Last year, Goldman said the number of student applications it received had increased 46% since 2012.
However, Bernstein’s chart below suggests there’s still something in the notion that students are less enthused about banking than they used to be. Between 2014 and 2016, the percentage of Harvard MBA graduates going into finance fell from 33% to 28%. MBA starting pay increased from $160k to $190k over the period.
3. Pay for some 30-somethings has come down though
While banks are putting out to pull people in, Bernstein suggests they’re more complacent about paying people who’ve been around a while. Compensation for mid-ranking vice presidents (VPs) has fallen since 2012 – especially for people who’ve been VPs for one or two years.
4. But you probably shouldn’t leave banking until you’re AT LEAST 34 years-old
Bernstein’s most exciting chart (below) suggests that if you can stick it out beyond the mid-VP level, it will be worth it.
By the age of 30 you should, cumulatively, have earned $1m in front office banking. Thereafter, cumulative pay increases exponentially. By the age of 34, you should (cumulatively again) have earned $2m. If you can stick it out until the age of 42, Bernstein says you’ll have earned nearly $6m over your banking career. Do you really want to quit aged 27 for a small and ultimately unsuccessful tech firm?
5. However, most people in ‘banking’ don’t make this money
Don’t assume that just because you get a ‘banking job’ you’ll be paid this sort of money though.
As the charts below show, hardly anyone in finance works in front office investment banking (IB) (ie. in sales, trading, M&A or capital markets), and those who don’t aren’t paid much more than people doing something entirely different. Most people who work in banks are working in the retail or commercial banking sectors. Even within investment banks there at least twice as many people working in support roles in the back and middle office as there are in the highly paid front office jobs. These jobs don’t pay nearly as much.