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

Key Takeaways

  • Becoming a managing director (MD) at a financial firm like an investment bank means high compensation and status, but there are only a few such positions available in each department.
  • To become an MD, you first have to land an entry-level job and then survive the highly competitive corporate culture of investment banks.
  • Through hard work, commitment, and keen social skills, one can hope to get promoted through the ranks, all the way up to MD.
  • Managing directors are responsible for the day-to-day operations of their groups and report directly to either the CFO, COO, CRO, or CEO.
  • Most managing directors are responsible for bringing in clients and closing deals, also while overseeing directors, vice presidents, associates, and analysts in their group.

What a Managing Director Does

Managing directors are at the highest levels in the corporate structure of an investment bank except for the executive positions, such as the CFO, COO, and CEO. Managing directors are typically the heads of the different 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 their 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, which includes operations, risk management, sales and trading, and information technology. Typically, in the context of an investment bank, however, a managing director refers to those working in the mergers and acquisitions department. These MDs are responsible for bringing in clients, traveling, 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 over 12 years at all major investment banks. Most take over 14 years while others over 16 years. And for some, even over 18 years.

Twelve to 18 years may not sound like a long time to wait to make an extremely high salary, but this amount of time is likely to come after undergraduate school, a two-year internship, and an MBA program. Once work begins, most investment bankers work an average of 105 hours per week as analysts, often working the entire weekend.

It's a grueling lifestyle but If you can make it to MD, expect a 6-figure salary along with perks, status, and job security.

Breaking Into Investment Banking

Ivy league business schools, places such as Wharton, Harvard, and Columbia are the go-to breeding grounds for entry-level investment banking jobs. Students begin the process of attracting investment banks at an early age by targeting internships, strategically networking with older professionals, and taking classes to get into a good master's program.

Typically classes that undergrads take to enter the investment banking world include economics, business management, finance, econometrics, statistics, and accounting.

Even the lowest-level analysts are the brightest, highest-achieving business students. It is a grind to get an analyst job since banks are looking for those who can willingly build active schedules and show they can work long hours with superb results. The first step toward becoming managing director is getting in on the ground floor.

Surviving the Investment Banking Culture

Investment banking has a well-earned reputation for difficulty and cutthroat meritocracy. Bankers are expected to work as many hours as needed and 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 are treated as commodities, and most report being told they are easily replaceable. This is actually true, as there are hundreds of eager business students pining to take every available slot.

Advancement is as much on you as your senior co-workers. 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."

At an investment bank, it is difficult to make it to the top without a mentor who is more senior than you and well respected. Finding a good mentor is critical in moving up the corporate ladder at an investment bank.

Your friends are likely going to be your co-workers, with whom you spend almost all of your time. This can lead to a great deal of camaraderie among analysts, especially those who make it to the associate level together. From an emotional and interpersonal perspective, the most important aspect of surviving the first few years is to develop strong relationships inside the firm.

Putting In the Time

The great majority of 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 for a 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, and part of that process is mastering every level of bank 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. They do not spend a lot of time executing deals, so most 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 work their way to become 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 very tempting to accept an outside offer and leave the 100-hour weeks behind you, 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 or have children, they might have to take care of aging parents, or they may get sick or hurt. Investment banking does not leave much time for life outside the firm. When presented with hard choices, many choose to focus on everything else and leave the bank behind.

Managing Director FAQs

What Is the Difference Between a CEO and Managing Director?

A CEO is responsible for the overall direction of a company and its health. CEOs are not responsible for the day-to-day aspects of a business. For that, they rely on their subordinates to carry out their vision and strategy, ensuring all is going well to achieve the intended goals of the company. The CEO reports to the board of directors.

A managing director, on the other hand, is responsible for the day-to-day operations of the department they oversee. They report directly to the CEO, CRO, COO, or CFO, depending on their department.

How Many Managing Directors Does Goldman Sachs Have?

There are hundreds of managing directors at Goldman Sachs. In 2019 alone, Goldman promoted 465 people to managing director status.

How Much Does a Managing Director at Goldman Sachs Make?

The average base salary for a managing director at Goldman Sachs is $432,602 annually. On top of this is additional pay at an average of $287,143, which can include a cash bonus, stock bonus, a profit-sharing plan, and commissions.

The Bottom Line

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