How to Become a Managing Director at an Investment Bank

Virtually every business student dreams of life as the managing director (MD) of a major investment bank, and it’s easy to see why. Top investment banking directors can earn millions of dollars per year, travel all over the world, and get to see their names in print in publications such as The Wall Street Journal. In terms of respect, lifestyle, and prestige, managing directors are in the upper echelons of the finance world.

What a Managing Director Does

Managing directors are at the highest levels in the corporate structure of an investment bank except for the top executive positions, such as CFO, COO, and CEO. Managing directors are typically the heads of the various divisions of a group. For example, a managing director could be the head of the credit risk department, overseeing the department’s day-to-day activities and reporting to the chief risk officer (CRO).

Managing directors have many people working under them including directors, vice presidents, associates, and analysts. Typically, a managing director will work with the directors of the groups that report to them, and the directors deal directly with the VPs, associates, and analysts. The managing director will ensure that the group’s responsibilities are being met, depending on the division, such as sales targets, budget goals, and the implementation of risk policies.

Most divisions in an investment bank have managing directors, including operations, risk management, sales and trading, and information technology. However,, in the context of an investment bank, the title managing director usually refers to those working in the mergers and acquisitions department. These MDs are responsible for bringing in clients and closing deals.

A Long-Term Proposition

There are not many of these jobs, so competition is fierce, and it takes a grueling amount of work to get that far. The salary benchmarking firm Emolument has released a report on how long it takes to become a managing director (MD) at an investment bank. The results were not surprising. It takes more than 12 years at all of the major investment banks. Most take more than 14 years and it can take more than 18 years.

If that doesn’t seem like a long time to wait, keep in mind that it comes after undergraduate school, a two-year internship, and an MBA program. Once work begins, investment bankers work an average of 105 hours per week as analysts, often working through the weekend.

It’s a grueling lifestyle but If you can make it to MD, expect a six-to-seven-figure salary along with perks, status, and job security.

Breaking Into Investment Banking

Ivy league business schools such as the University of Pennsylvania’s Wharton, Harvard, and Columbia are the go-to breeding grounds for entry-level investment banking jobs.

Students aiming for jobs at investment banks target internships, strategically networking with older professionals, and taking classes to get into a good master’s program.

Undergraduates focus on courses in economics, business management, finance, econometrics, statistics, and accounting.

The first step toward becoming managing director is getting in on the ground floor. Even the brightest, highest-achieving business students start out as low-level analysts. The banks are looking for those who can willingly build active schedules and work long hours with superb results.

Surviving the Investment Banking Culture

Investment banking has a well-earned reputation for cutthroat meritocracy. Bankers are virtually never off the clock. The culture is, in a word, intense.

Career advancement comes from embracing the challenge. Most banks have a “put up or shut up” mentality, even for junior analysts. Low-level analysts know they are easily replaceable. There are hundreds of eager business students pining to take every available slot.

Investment banks are not known for holding hands or emphasizing training. Andrew Gutmann, author of How to Be an Investment Banker: Recruiting, Interviewing, and Landing the Job, frankly states that “a junior banker’s career development also takes a backseat. As a junior banker, you are there to work, not to learn.”

From an emotional and interpersonal perspective, the most important aspect of surviving the first few years is to develop strong relationships inside the firm. Your friends are likely going to be the co-workers with whom you spend almost all of your time.

Putting in the Time

Most managing directors were senior vice presidents, sometimes called principals or directors, at the same firm for several years. Most senior vice presidents were vice presidents for three or four years and had proven their skills at executing deals and managing relationships.

Vice presidents come from a pool of top investment banking associates, usually after their third year with that title. And most associates are selected from analysts who managed to survive the first few years.

It seems a little odd that such a results-based industry has a de facto graduation schedule for promotions of three years here, two years there. But banks want to know an analyst or associate can keep pace and produce year in and year out.

To make it as managing director, you are going to have to prove you can help the bank make money. Part of that process is mastering every level of the bank’s operations.

What Investment Banks Want From a Managing Director

Part of becoming a managing director is putting in the time, but a bigger part is convincing the bank you are what it is looking for. Each managing director has to know the bank and its clients inside and out and, more importantly, has to be able to tactfully balance all of the personal relationships. An effective managing director knows when to delegate and when to interfere, when to hire and when to fire, and even when to walk away from a deal.

Investment banks are businesses in search of profits, but the managing director cannot just have the bank’s short-term bottom line in mind. The bank’s clients need to trust the managing director, who acts as the spokesman for the bank in a deal. Effective managing directors know that the clients are the ones who really pay their huge salaries.

Managing directors drive revenue by looking for and winning deals. Investment banks are far more interested in a great schmoozer and prospector than a technical mastermind.

Other Factors

There are a few primary reasons an analyst may never become a managing director. The first and most common is burnout.

Even if an analyst is able to adjust to the long hours and demanding work, there are tremendous exit opportunities, meaning there are other excellent jobs with good firms that are fighting to pick up the scraps from investment banks. It is tempting to accept an outside offer and leave the 100-hour work weeks behind, especially if you do not make associate or vice president as quickly as you expected.

Many other analysts and associates never reach the managing director’s office because life gets in the way. They might get married and have children, they might have to take care of aging parents, or they might simply develop other interests. When presented with hard choices, many choose to leave the bank behind.

The Bottom Line

Becoming a managing director at an investment bank is a difficult path that requires hard work, intelligence, and the sacrifice of a private life. To many who love their jobs, the path is worth it, particularly given the wealth and prestige that comes with the title.