There are many reasons why someone might transition between the retail and institutional sectors of the investment industry, but it's not always an easy switch, even if you think your talents and career goals might be suited more to one sector than the other.
The Retail Sector
The retail sector provides products and services to individuals with assets of a few million or less, and is the most common entry point into the investment industry. Unfortunately, there are only two broad career paths that encompass the vast majority of employment opportunities: administrative positions (secretarial, operations, sales assistants, etc.) and commissioned sales positions (brokers, financial planners, advisors, etc.). Of course, there are upper echelon positions that require advanced degrees and high levels of expertise, but such jobs are rare.
For individuals who envision a high-paying, intellectual career of analyzing and thinking about investments, the retail side of the industry is not the place to be. As is the case with any industry, administrative positions simply don't pay well and offer little intellectual fulfillment. Moreover, commissioned sales positions (or brokers) are where the key requisite talent for success is the ability to sell products and services. Nonetheless, the financial rewards can be significant, with most successful brokers making hundreds of thousands of dollars each year.
Fierce Competition and Ethical Conflicts
With such financial rewards at stake, the competition to acquire new business is incredibly fierce. As such, achieving a stable and desirable income can often take five to 10 years, or more. As a rule, the best way to be successful in retail is to begin with a myriad of wealthy friends and family that are willing to get you started. Otherwise, building a customer base will almost certainly be an uphill battle, even if you are a truly gifted and ambitious salesperson.
Another major career consideration is the ethical conflict brought about by the retail sector itself. Brokers generally do not get paid unless a product or service is sold. As a result, the customer's best interests can sometimes take a back seat to the broker's need to generate income. The practice of "churning" is probably the most commonly known example of this ethical conflict. It is an unfortunate side effect of the industry's structure that brokers are continuously weighing the need to make money against making appropriate recommendations. People often find this inherent conflict of interest an untenable situation and opt out of the profession.
The harsh reality of the retail side is that unless you are content with an administrative role, are a truly gifted salesperson or are blessed with wealthy friends and family, your best bet is to move over to the institutional side of the industry, which offers multiple lucrative career paths that require a more diverse set of talents.
The Institutional Sector
The institutional sector is broadly defined as firms that serve either high net worth individuals or institutions such as endowments, foundations, corporations and pension plans. Additionally, institutional clientele generally employ investment professionals as retained advisors on an ongoing basis, as opposed to purchasing products, thereby sidestepping some of the ethical issues associated with the retail industry.
The institutional sector serves sophisticated clientèle. As such, firms in this industry require high-caliber investment professionals and a diverse pool of intellectual talents. As a result, salaries are substantially higher on the institutional side. Moreover, sales positions comprise a modest portion of career opportunities.
Outgoing Personalities Not Always Required
Some of the more notable non-sales career opportunities include securities analysis, investment manager analysis, macroeconomic analysis, statistical analysis, professional writing, marketing, relationship management and consulting. In stark contrast to the retail sector, a shy, highly analytical person could have a lucrative career doing analysis for an investment management or consulting firm. In fact, these sorts of positions are plentiful in the industry and can pay very well.
Essentially, there is a hierarchy of talent sets within the institutional sector. At the bottom rung of the ladder are "grinders;" these are the people who provide the heavy number crunching and analytics. The next level up is the minders; they meet with existing clients and manage relationships. Finally, at the top of the ladder, are the finders; these people bring new business in the door. As is the case with the retail side, salespeople are the most valuable.
Higher Pay, Harder Entry
If you are not fortunate enough to have friends or family on the institutional side, or to have attended one of the nation's elite educational institutions, entering the institutional sector can be a very difficult process. Generally, entering this field through the consulting portion of the industry is the path of least resistance, whereas entering the investment management industry can be the most difficult. However, there are many ways to get your foot in the door.
First, if you haven't already, seek graduate-level education such as a master's degree or a master of business administration (MBA) from a reputable institution. Secondly, seek other professional credentials, such as the certified public accountant (CPA) or chartered financial analyst (CFA) designation, both of which look great on a resume and may help you to get an interview. Additionally, it is essential that you join local professional organizations to network. Both local CFA and CPA societies hold periodic luncheons, which serve as great opportunities to meet people and learn about potential employers.
Making the Switch
The most important aspect of moving over to the institutional sector is to "pound the pavement" to get your resume circulated and to generate interviews. Moreover, depending on how serious you are, you may want to consider moving to a large city with a well-developed financial industry, such as New York or Chicago, to maximize your chances of being hired by a reputable company. Also, keep in mind that credentials look great on your resume and will likely help in generating interviews, but are by no means a key to success.
Chances are that with enough hard work and patience, getting an entry-level position in the institutional sector is feasible. However, in order to move up through the ranks to an intellectually and financially rewarding position, you must be humble and hardworking, and keep an eye open for new opportunities. As is the case with the retail industry, high levels of compensation tend to attract high levels of competition. As such, being shy or overly cautious in your career will be detrimental.
The Bottom Line
The retail sector is a great place to be if you have wealthy friends and family to get you started, or are a gifted salesperson. However, making a career in retail remains one of the most challenging tasks in the entire investment industry. If you have a passion for the investment business but just do not have what it takes to make it as a broker, there are many options available to you in the institutional sector. It is one of the most developed and competitive industries around, so if you want to be a part of it, be patient, work hard and keep at it!