Sales is truly the heart of any investment bank, comprising the vast majority of people and the relationships that account for a substantial portion of any investment banks revenues. This section illustrates the divisions seen in sales today at most investment banks. Note, however, that many firms, like Goldman Sachs and Donaldson-Lufkin & Jenrette, identify themselves as institutionally focused I-banks, and do not even have a retail sales distribution network. Goldman, does, however maintain a solid presence in providing brokerage services to the vastly rich in a division called Private Client Services, or PCS for short.
The Breakdown in Sales
Retail Brokers
Some firms call them account executives and some call them financial advisors. Regardless of this official designator, they are still referring to your classic retail broker. The broker's job involves managing the account portfolios for individual investors - usually called retail investors. Brokers charge a commission on any stock trade and also give advice to their clients regarding stocks to buy or sell, and when to buy or sell them. To get into the business, retail brokers must have an undergraduate degree and demonstrated sales skills. The series 7 and Series 63 examinations are also required before selling commences. Being networked to people with money offers a tremendous advantage for a starting broker.
Basically a retail broker with an MBA and more market savvy, the institutional salesperson manages the bank's relationships with institutional money managers such as mutual funds or pension funds. Institutional Sales is often called research sales, as salespeople focus on selling the firm's research to institutions. As in other areas in banking, the typical hire hails from a top business school and carries a tiptop resume (that usually involves prior sales experience).
Private Client Services (PCS)
A cross between institutional sales and retail brokerage, PCS focuses on providing money management services to extremely wealthy individuals. A client with more than $2 to $3 million in assets usually upgrades from having a classic retail broker deal with him or her to a PCS representative. Similar to institutional sales, PCS generally hires only MBAs with solid selling experience and top credentials. Because PCS representatives become high-end relationship managers, as well as money managers and advisors, the job requires greater expertise than the classic retail broker. Also, because PCS clients trade in larger volumes, the fees and commissions are larger and the number of candidates lining up to become PCS reps is longer.
Section Six: Institutional Sales - The Players
For many, institutional sales offers the best of all worlds: great pay, fewer hours than in corporate finance or research, less stress than in trading, and a nice blend of travel and office work. Like traders, the hours typically follow the market, with a few tacked on at the end of the day after the market closes. Another plus for talented salespeople is that they develop relationships with key money managers. On the downside, many institutional salespeople complain that many buy-siders disregard their calls, that compensation can exhibit volatile mood swings, and that constantly entertaining clients can prove exhausting.
Sales Assistant
This position is most often a dead-end job. It is extremely difficult to move into institutional sales without an MBA, so sales assistants take on a primarily clerical role on the desk. Handling the phones, administrative duties, message taking, letter writing - there's nothing glamorous for the assistants.
Associates
The newly hired MBA is called an associate, or sales associate. Like analogous associates in other investment banking departments, a sales associate spends a year or so in the role learning the ropes and establishing himself. Associates typically spend one to two months rotating through various desks and ensuring a solid fit between the desk and the new associate. Once the rotations end, the associate is placed on a desk and the business of building client relationships begins.
Most sales associates out of business school pull in the standard package on Wall Street: $75,000 base plus bonuses of $25,000 in the first six months. Pay escalation in the first year depends on the bonus, which often ranges from 50 percent of salary to 90 percent of salary. Beyond that, compensation packages depend on the firm - most firms pay based on commissions generated for the firm.
Salesperson
The associate moves into a full-fledged salesperson role extremely quickly. Within a few months on a desk, the associate begins to handle "B" accounts and gradually manages them exclusively. A salesperson's ultimate goal is the account at a huge money manager, such as Fidelity or Putnam that trades in huge volumes on a daily basis. Therefore, a salesperson slowly moves up the account chain, yielding "B" accounts to younger salespeople and taking on better and bigger "A" accounts. Good salespeople make anywhere from $250,000 to be and $1 million per year in total compensation.
Salespeople usually focus by region. For example, an institutional equity salesperson will cover all of lie buy-side firms in one small region of the country like New England, San Francisco or Chicago. Many sales people cover New York, as the sheer number of money managers in the City makes for a tremendous volume of work.
The salesperson has a relationship with a money manager, or an account, as they say. Suppose a research analyst initiates coverage of a new stock with a Buy-1 rating. The salesperson calls the portfolio manager (PM) at the account and gives an overview of the stock and why it is a good buy. The PM will have his own internal research analysts compile a financial model, just as the sell-side research analyst has done, but likely with slightly different expectations and numbers. If the portfolio manager likes the stock, she will contact her trader to work with the trader at the investment bank.
Involvement in an IPO
Corporate finance investment bankers would argue that the salesforce does the least work on an IPO and makes the most money. Salespeople, however, truly help place the offering with various money managers, to give you a breakdown, IPOs typically cost the company going public 7 percent of the gross proceeds raised in the offering. That 7 percent is divided between sales, syndicate and investment banking (i.e. corporate finance) in approximately the following manner:
- 60 percent to Sales
- 20 percent to Corporate Finance
- 20 percent to Syndicate
As we can see from this breakdown, the sales department stands the most to gain from an IPO. Their involvement does not begin, however, until a week or two prior to the roadshow. At that point, sales people begin brushing up on the offering company, making calls to their accounts, and pitching the deal. Ideally, they are setting up meetings (called one-on-ones when the meetings are private) between the portfolio manager and the management team of the company issuing the offering. During the roadshow itself, salespeople from the lead underwriter often fly out to attend the meeting between the company and the buy-side PM. While their role is limited during the actual meeting, salespeople essentially hold the PMs' hands, convincing then to buy into the offering.
The Sales Routine
The institutional salesperson's day begins early. Most arrive at 7 a.m. having already read the morning papers. Each day a package of research is delivered to the salesperson's chair, so reading and skimming these reports begins immediately. The morning meeting at 7:30 involves research commentaries and new developments from research analysts. The trading meeting usually begins 20 minutes later, with updates on trading positions and possible bargains for salespeople to pitch.
At 8 a.m., the salesperson picks up the phone. Calls initially go to the most important of clients, or the bigger clients wishing to get a market overview before trading begins. As the market approaches the opening call, the salesperson finishes the morning calls and gets ready for the market opening. Some morning calls involve buy or sell ideas, while others involve market updates and stock expectations. At 9:30, the markets open for business, and salespeople continue to call clients, scrutinize the market, and especially look for trading ideas throughout the day.
Lunchtime is less critical to the salesperson than the trader, although most tend to eat on their desk on the floor. The afternoon often involves more contacting buy-siders regarding trade ideas, as new updates arrive by the minute from research.
The market closes abruptly after 4:00 p.m. By 4:01, many salespeople have fled the building, although many put in a couple more hours of work. Salespeople often entertain buy-side clients in the evening with ball games, fancy dinners, etc.
Success Factors in Institutional Sales
Early on, new associates must demonstrate an ability to get along with the clients they are asked to handle. Usually, the first-year sales associate plays second string to the senior salesperson's account. Any perception that the young salesperson does not get along with the PM or buy-side analyst means he or she will be immediately yanked from the account. Personality, ability to learn quickly and fit into the sales group will ensure movement up the ladder.
The timing of the career path in sales, more so than in corporate finance, depends on the firm. Some firms trust sales associates quickly with accounts, relying on a sink-or-swim culture. Others, especially the biggest I-banks, wait until they are absolutely sure that the sales associate knows the account and what is going on before handing over accounts.
Once the level of full-on salesperson is reached (usually after one year to one-and-a-half years on the desk), the goal shifts to growing accounts and successfully managing relationships. Developing and managing the relationships at the various buy-side firms is especially critical. Buy-siders can be thought of is time-constrained, wary investors who follow a regimented investing philosophy. Importantly, salespeople must know how and when to contact the investor. For example, a portfolio manager with a goal of finding growth technology stocks will cringe every time a salesperson calls with anything outside of that focused area. Therefore, the salesperson carefully funnels only the most relevant information to the client.
Promotions depend on a combination of individual performance and desk performance. The ability to handle relationships, to bring in new clients, and to generate commission sales for the firm are paramount. Those that have managed to join the ranks of institutional sales without an MBA may be at a disadvantage when it comes to promotions into management roles.
