Navigating the Investment Banking Talent Shortage
Navigating the IB talent shortage: How to attract and retain top analysts in investment banking
Investment banking is one of the most prestigious and competitive industries within finance. The top Wall Street banks have always competed for top talent – highly educated and ambitious young professionals who are willing to do whatever it takes in exchange for a rewarding and highly compensated career.
For many new hires, it’s a rite of passage to work long hours when a deal is live. But over the last decade, there has been a shift in expectations: the next generation of analysts (Millennials, and especially Gen Z) have different expectations around compensation, culture, work-life balance, flexibility, diversity, sustainability, environmental impact, and ongoing opportunities for training and development. It is estimated that 70% of employees now prioritize flexible working hours, while 68% want flexible work locations, and 51% want to work for organizations that focus on sustainability and corporate responsibility.1
There are other obstacles, too. Over the last decade, there has been a constant battle for talent between tech and finance, with tech typically providing better work-life balance and flexibility. As banking revenues have declined globally, hiring and training budgets are under pressure and banks are increasingly relying on outsourcing to train new analysts.
Attracting diverse talent has also become a major priority, but banks still have a long way to go. Only 30% of top management positions are held by women at US banks, and only 25% at European banks.2 Although it is common for candidates to apply to many banks, it is increasingly clear that diversity, equity, and inclusion policies are important to younger generations and influence employment decisions.3
Firms are also hiring earlier to get a jump on the competition, with some private equity firms (mainly those with in-house training programs) hiring graduates with no analyst experience, and some firms even hiring years in advance4 – further heightening competition for top talent.
While bulge-bracket firms offer money and prestige, they still aren’t immune to the talent shortage. A meticulously planned strategy can give any bank an edge in identifying and retaining the top talent in an increasingly competitive market.
Obstacles in Sourcing Talent
Competition from other sectors
Investment banking has always had a unique allure. High compensation, challenging and rewarding work, and rapid career progression combine to make the industry distinctly appealing to certain types of individuals.
Whereas the finance industry once enjoyed an exclusive appeal for talented and ambitious young professionals, tech giants, innovative startups, and fintech disruptors have become equally attractive. Companies like Google, Tesla, Nvidia, and Microsoft are now just as prestigious as Goldman Sachs, J.P. Morgan, Morgan Stanley, and Bank of America.
In 2018, a LinkedIn survey 5 revealed that 54% of MBAs with finance experience were interested in moving into the tech sector – based on compensation (which often includes stock), workplace culture, perks and benefits, societal impact, and better working hours. Over the last five years, the pendulum has begun to swing back towards finance – after huge bouts of layoffs and hiring freezes across major tech companies – and an increasing number of graduates from top business schools are going into finance instead of tech 6.
Banking has not emerged entirely unscathed, though, as the collapse of Silicon Valley Bank sent reverberations across the sector. But finance has shown greater stability (partly due to lessons learned during the 2008 crisis). Nevertheless, tech’s appeal remains strong, and there are still more professionals moving from finance to tech (8.9%) than the other way around (7.6%).7
Tech competitors attract talent through more than just lucrative salaries (which can often be on par with investment banking); they also provide enticing workspaces, cutting-edge technologies, and, crucially, a culture that champions innovation, creativity, and flexible working. Since analysts can spend their first year virtually living in the office, investment banks that offer attractive dining options, gyms, and recreational options like table tennis and pool can increase their appeal.
Investment banking has traditionally valued tenacity, hierarchy, structure, long hours, and a focus on clients. Tech is typically much flatter structurally, with senior executives and new junior employees sharing office space, which also has a profound cultural impact.
Tech companies are also typically much more casual – there are no strict dress codes, working hours are more flexible, and greater focus is placed on digital connectivity and remote work. Furthermore, tech is often customer-focused, with many resources dedicated to creatively solving problems or building solutions, with plenty of opportunity for lateral career jumps.
How can banks compete with tech for talent?
Differentiate on culture, not pay: The investment banking industry can no longer rely purely on compensation to differentiate itself.8 To stand out, banks must establish a distinctive brand that resonates with candidates’ values and aspirations. This means championing work-life balance, flattening hierarchies, offering more flexible work arrangements (such as remote work), and renewing focus on impact and purpose. A Harvard Business Review survey found that 9/10 people are willing to accept lower compensation to do more meaningful work 9 – in the US, the average worker is willing to forego 23% of their entire future lifetime earnings to have a consistently meaningful job. They appreciate remote work, flexible schedules, work-life balance, and a career that aligns with purpose. While banking traditionally places more emphasis on earning potential than work-life balance, the scales are starting to shift.
Establish a clear brand purpose: As consumers, Millennials and Gen Z are far more likely than previous generations to align themselves with brands that have a meaningful purpose 10, and they are similarly more likely to gravitate towards careers with organizations whose view of the world aligns with theirs. Content that showcases your bank’s culture, such as video diaries, footage of internal training sessions, and Question and Answer sessions with leadership, can help give candidates a sense of how it feels to work at your bank.
Look to tech for inspiration: Look closely at job postings for tech roles and see how the culture is communicated through the job description. Review the websites and careers pages of tech titans – there may be policies and perks that you can easily add or changes you can make to remove strict hierarchy. Showcase your bank’s unique culture, the unparalleled learning and career progression opportunities you offer, and the opportunity to contribute to the financial sector’s growth and stability.
Skills mismatch
Success as an analyst requires a combination of technical, interpersonal, and time-management skills that take significant time and effort to develop. However, some skills, such as financial acumen, Excel proficiency, and modeling ability, have traditionally been given more weight, disadvantaging candidates with stronger soft skills but less technical ability.
Whether it is a boutique firm or the biggest bank on Wall Street, all demand excellence from their analysts. With enormous sums of money on the line, something as simple as a misplaced decimal point or a rounding error can have extreme financial consequences, and in some cases, even lead to lawsuits. With so much at stake, it is not surprising that new analyst candidates are expected to have a firm grasp of the essentials to even get their foot in the door – banks simply cannot take chances on poorly trained or inexperienced analysts.
But the digital era has ushered in a wave of technological innovation that is fundamentally transforming the banking landscape.
This shift has created a mismatch between the skills that prime analyst candidates hone, and those skills required by the evolving industry. While it is yet to be critical in financial services, experience with AI is a skill that can set candidates apart – in a study of over 2,300 C-suite leaders, 97% believed generative AI will be transformative, and 44% are already making big investments in it. It is estimated that generative AI (like ChatGPT) and LLMs (Large Language Models) will impact up to 40% of an individual’s working hours. Deloitte has called generative AI one of the most disruptive technologies in investment banking and predicts that the top 14 banks could improve front-office productivity by up to 35%, resulting in an additional $3.5 million in revenue per front-office employee.13
In coming years, the finance industry too will experience the significant disruption that AI is predicted to cause, with 52.9% of Gen Z and 52% of Millennials expected to be monthly users of generative AI by 2025, compared to only 16.7% for Baby Boomers.14 Even the basic valuation and modeling tasks mostly done by manually reviewing documents and plugging numbers into Excel may eventually be supported by technology that streamlines and automates the process, freeing up precious human capital. While ChatGPT cannot yet compare to an experienced analyst, it can support new hires by, for example, teaching them how to build a DCF valuation in Excel.15 It is not a stretch to imagine these tasks being increasingly handled by AI as models get smarter and users gain experience in prompting AI to provide more comprehensive answers.
The analyst of the future will be an expert with software that makes valuation and modeling easier, will rely less on manual work, and will be more proficient thanks to the support of technology. Soft skills, attitude, and a willingness to master new technology will be what sets top candidates apart.
What can you do about it?
Seek diverse candidates: By focusing on potential rather than just credentials and education, banks can tap into a broader pool of talent. A finance degree does not guarantee a candidate will be a better analyst. There are many professional training providers that can train graduates on the fundamentals, and diverse educational backgrounds can be a huge advantage. There is also strong evidence to suggest that diverse candidates provide diverse perspectives that can fuel creativity and innovation. A Harvard Business Review study on Venture Capital firms, for instance, found that the more ethnically homogenous a team is – that is, the less diverse – the worse their performance, reducing success (in terms of acquisitions and IPOs) by as much as 32.6%.16
Use training providers to cover skill gaps: Top-tier training providers can turn even the most inexperienced graduate into an analyst in only weeks, so hiring for financial experience and skill alone dramatically limits the pool of promising candidates. Diversity hiring programs offer a great example – candidates from non-target universities are not limited by ability. They simply may have lacked the money and connections to study at a top university.
Prioritize hiring for cultural fit: Focus on cultural fit, attitude, and ambition, and trust the industry experts to provide the technical training that gets new employees up to speed on the fundamentals. It is much easier to teach financial modeling than it is to instill resilience, or eagerness to learn. Do not limit your hiring pool with outdated preferences.
Generational shifts: Influx of Gen Z
Gen Z candidates are quickly becoming much of the talent pool for new investment banking analysts and recruiting them requires an understanding of their unique preferences and priorities. It is estimated that Gen Z will make up 27% of the entire workforce by 2025 17, representing a huge portion of the available talent pool.
Much more so than their predecessors, these generations prioritize factors beyond compensation – they seek work environments that offer a balance between their professional and personal lives, and they are driven by a desire to make a positive impact on the world through their careers.
Millennial and Gen Z candidates are more likely to seek employers that accommodate flexible work arrangements, such as hybrid work, remote work, or flexible start and finish times. According to Deloitte, three-quarters of UK Gen Zs (77%) and millennials (71%) 18 would consider looking for a new job if their employer asked them to go into their workplace full-time. The same study also highlights that reported levels of burnout are higher for Millennials and Gen Z than the global average, with over half saying they feel stressed all or most of the time, leading them to prioritize work-life balance and the ability to switch off.
Millennial and Gen Z candidates are also eager for rapid career progression, and Gen Z sees continuous education and workplace learning as essential to furthering their careers and giving themselves a competitive edge.19 91% of Millennials also say that career progression is a top priority, with 53% disappointed by a lack of personal development training after starting a new job. 20 More so than many other industries (including tech, a large competitor for talent) investment banking provides structured and reliable career development pathways with plenty of opportunity for advancement.
What can you do about it?
Highlight opportunities for rapid career growth: Investment banks should communicate the potential for rapid career progression, emphasizing mentorship programs, training initiatives, and pathways to leadership roles. Demonstrate a commitment to nurturing and developing the best young talent, whether that is through mentoring programs, shadowing opportunities, or training. Create clear, structured pathways for upward mobility to ensure analysts know what they need to learn (knowledge and skills), do (experience and performance), or demonstrate (dedication, attitude) to progress into new roles.
Be clear about purpose and impact: These generations are drawn to work that goes beyond financial gains, seeking opportunities to contribute to meaningful causes and make a positive impact on society. Investment banks that highlight their involvement in sustainable finance, responsible investing, corporate social responsibility, and ESG (Environmental, Social, Governance) initiatives will appeal to these candidates.
Promote diversity and inclusion: Millennial and Gen Z candidates value diversity and inclusion more than any other generation before them. It has been reported that 83% of Gen Z believe a company’s commitment to diversity and inclusion is an important factor when choosing an employer.21 Investment banks should communicate their efforts to create inclusive work environments where individuals from diverse backgrounds are respected, valued, and, importantly, promoted. But this needs to be more than lip service – you need to take active steps in promoting a more inclusive workplace. Diverse representation at the leadership level is even more crucial than at junior levels. Highlighting employee resource groups, diversity initiatives, and representation at all levels demonstrates a commitment to fostering an inclusive culture and improving the diversity of the industry more broadly. There are clear benefits to the bottom line too, with a McKinsey report showing a clear correlation between diversity and profitability – though this is more impactful when leadership teams are diverse.22 Younger generations are also more likely to have a broader perspective on diversity, going beyond the traditional dividing lines of race, gender, religion, and age, to also include cognitive diversity, which encompasses a diversity of experiences, identities, ideas, and opinions.23
Obstacles in Retaining Top Talent
Intense competition for loyalty
Attracting top talent is only half the battle – once you have hired an analyst, the challenge is keeping them. Top banks are always looking for experienced analysts to bolster their ranks, and your best analysts will always have their eyes open for better offers elsewhere – this comes with the territory when dealing with ambitious, career-driven, progression-hungry professionals.
The battle for top talent is fierce, with institutions vying relentlessly for the loyalty of their most exceptional analysts. Investment banks face stiff competition not only from rival banks but also from emerging disruptors and fintech companies that offer enticing packages and innovative work environments. This can leave traditional banks scrambling to retain their best performers. However, understanding what your employees value can provide crucial insight into creating a workplace they do not want to leave.
What can you do about it?
Loyalty can be bought or earned: High-performing analysts are often headhunted, and it is impossible to prevent rival banks from making aggressive offers to poach top talent. You may need to propose a counteroffer. But when pay is mostly consistent across the board, other perks and benefits become the major deciding factor. Money can buy loyalty, but culture can earn it. The best way to foster genuine loyalty – and not just loyalty to a paycheck – is to create an environment analysts appreciate, a team they want to work with, and a brand they want to work for.
Understand your employees: Survey recent hires to better understand their values. Why did they choose your bank? What do they enjoy about the workplace and the role? What do they not enjoy? Similarly, survey company veterans and ask why they have chosen to remain within the organization. There may even be associates or VPs who have turned down offers from other banks – understanding why they stayed can reveal a lot about what your bank is doing well. It might be that your bank pays better, it might be a more convenient location for commuting, or it might have better mentorship programs. Once you know what your employees value, you can double down on those policies.
Connect your analysts with senior bankers: Structured mentorship programs can provide analysts with a sense of worth and opportunity – they feel like they are being invested in, nurtured, and guided. Having your most seasoned experts take time out to support and mentor your brightest talent can go a long way toward creating long-term commitment in your new hires.
Provide strong leadership training: It is also often said that people do not leave jobs, they leave managers. So strong leadership is crucial – ensure your analysts feel supported, trusted, and respected. Give them autonomy and opportunities to grow, provide them regular feedback and actionable advice for improving, and encourage them to push themselves. Avoid micromanaging your best talent. Treat your people exceptionally well, and they will work exceptionally hard. This means ensuring your managers are trained in leading teams – a skilled financial analyst will not necessarily be a good leader, so invest in the right training to prepare your new managers for leadership.
Work-life balance struggles and burnout
The need to balance work and personal life has emerged as a significant challenge in retaining talent in the investment banking industry. While many new analysts might initially be attracted to the idea of demanding workloads, late nights, and high-pressure situations, the reality can often prove to be more physically and mentally exhausting than expected. The industry’s sometimes grueling hours, coupled with relentless performance expectations, can take a toll on well-being and job satisfaction over time. It has been reported that analysts routinely work over 77 hours a week – sometimes as many as 90 or 100 hours depending on the bank, and that new analysts are only managing to get fewer than 6 hours of sleep a night.24 As many as 83% of employees in the finance sector have considered seeking a new job because of their job‘s impact on their mental well-being – and half of those do end up leaving.25
Experienced bankers may have fond memories of working late nights with close-knit teams to meet tight deadlines. This camaraderie and shared sense of accomplishment are indeed rewarding. However, for newer generations, the trade-off between these experiences and a balanced personal life has become more pronounced. As Millennials and Gen Z candidates prioritize a holistic life experience more than their predecessors, investment banks must rethink their traditional structures to accommodate different expectations.
What can you do about it?
Flexible work arrangements: Investment banks can introduce flexible work arrangements and remote work options that cater to individual needs. This acknowledges changing preferences and sends a strong signal that you value your employees’ well-being. This might involve flexible working hours, where analysts to have more control over their usual start and finish times. allowing them to juggle things more easily, such as family commitments, sports, and hobbies. Hybrid work options (especially since the pandemic) can help reduce time spent on lengthy commutes.
Encourage vacation and time off: Promote the importance of taking regular vacations and time off to recharge. Encourage employees to use their allocated leave and unplug from work during these breaks. You might even choose to embed this into your policy, for example making analysts take at least five consecutive days off at least twice a year to give them ample opportunity to switch off and recharge. You might also implement policies that prevent employees from regularly working later than midnight, for instance.
Mental health support: Investment banking culture has traditionally been very stoic, with analysts expected to either persevere or leave. By openly encouraging all employees to engage with mental health support programs, you create a culture that removes the stigma of admitting exhaustion, and mental health struggles in general. Provide free access to confidential counselling services for analysts facing emotional or mental health challenges. You could also introduce an employee assistance program (EAP), designed to offer support for personal and professional challenges, ranging from career struggles to financial concerns to stress management.
Lead by example: Senior leadership should set an example by promoting work-life balance and respecting time outside of work. New analysts look to more experienced bankers for guidance, and if the culture is one where work is aggressively prioritized over work-life balance, expect your analysts to quickly fall into the same pattern.
New challenges require new strategies
The talent shortage within investment banking is a call to action for firms to redefine their recruitment and retention strategies. By embracing diversity, fostering growth and development opportunities, prioritizing well-being and work-life balance, and exploring flexible working arrangements, investment banks can attract and retain top analysts who are prepared to navigate the intricate challenges of the industry.
Culture can be a competitive advantage: Investment banks should champion diversity and inclusivity not only as ethical imperatives but also to attract a wider range of qualified candidates. The diverse perspectives fuel creativity and innovation. A culture that analysts feel aligned with, and proud of, also increases the chances of loyalty, and therefore retention. The new generation of analysts is more likely to want to work for a brand that they believe in and respect, and increased pay counts for less than it once did.
Prioritize professional development: Investment banks should invest in training and internal growth programs to retain and nurture talent. Millennials and Gen Z are eager for career advancement (and expect a clear and structured pathway for doing it). By providing pathways for career progression and learning, ongoing mentoring opportunities, and reviews based on performance rather than hours worked, banks demonstrate their commitment to their employees’ futures and empower them to navigate an ever-changing landscape.
Promote flexible working and well-being: Investment banks must acknowledge the evolving expectations of their analysts and respond by introducing policies that promote flexibility, work-life balance, and well-being. By creating an environment that values the holistic experiences of employees, banks can contribute to higher levels of job satisfaction and retention.
Competition for top talent is fiercer than ever, and the new generation values purpose and culture more than their predecessors. While pay remains an important factor, talent is increasingly won and lost on culture, work-life balance, and well-being. The demands of investment banking might not have changed much, but the new generation of analysts has different expectations about how to navigate those demands.