Long gone are the days when an MBA or a Ph.D. from an Ivy League school would guarantee a coveted investment banking job at a large multinational firm.

Since the global financial crisis of 2008-09, even high-caliber candidates are finding it difficult to break into investment banking. Recently, smaller investment banking boutiques firms have been gaining market share over the big investment banks. (See also: M&A Advisory Business Boutiques: How The Small Shops Are Capturing Large M&A Deals.)

Bulge Versus Boutique

Investment banking is dominated by large, well-established multinational firms, sometimes called bulge banks. These include Goldman Sachs Group Inc. (GS), Citigroup Inc. (C) and JP Morgan Chase & Co. (JPM). In contrast, investment banking boutiques are small, independent firms usually owned and operated by one or a few individuals. Boutique firms offer services on a smaller scale.

For example, they may focus on niche areas of investment banking like mergers and acquisitions, restructuring or leveraged buyouts. While bulge banks usually enter deals worth $500 million or more, boutiques handle deals worth $50 million to $500 million. 

  • Better Experience at Boutiques? It Depends: At a boutique banks, there are enormous opportunities to do the entire deal on your own. A boutique bank may expect and allow bankers to operate more independently by scouting for opportunities, convincing prospects, structuring the deal, and taking it to closure. However, if the boutique bank specializes in a small area, the banker may find that he does not gain wide experience. At bulge banks, especially at the entry level, bankers may find themselves confined to a limited role and dependent on processes, rules, approvals and resources. For example, instead of scouting for opportunities, the banker may receive sales leads and pitches from an established team, making the defined job comparatively straightforward. (See also: What's the Role of an Investment Bank?)
  • Independence for Administration?: At a bulge bank, investment bankers can ask a dedicated quant team to develop and test a quantitative models. There is a dedicated legal team to consult on legal matters, technical writers for documentation and a presales team to prepare the proposal. In a boutique, the banker may have to do everything including from simple tasks like drafting pitch books to complex ones like quantitative modeling and deal structuring. For some, a boutique bank may offer the experience of independence, independence and creativity. Others might consider such experiences administrative and unrewarding.
  • The Clientele: Though boutique investment banking has been gaining market share, the market is still dominated by bulge banks. Businesses tend to trust large established global firms more than the small shops, even if the latter charge lower fees. This results in bulge banks having a huge pool of readily available clientele. Boutiques may have to hunt down prospects, usually other small-sized companies. Boutiques have an advantage in that bulge banks don’t often intrude into their smaller-sized market. But at the same time, big ticket deals are usually out of reach.
  • The Dynamic Environment: Boutique banks may shift their focus completely, for example by going from all leveraged buyouts to corporate restructuring. Large investment banks have diversified streams of work, making it possible for their employees to work in their desired areas. (See also: Top Things To Know For An Investment Banking Interview.)
  • Job Security: Few jobs are 100% secure and even the best performers may have to face the axe during bad times. However, given their diversified business divisions, large size and global presence, a bulge bank has greater flexibility to shift people around, say from merger and acquisitions (M&A) to the equity research analyst department, or from Europe to Asia as business needs rise and fall. Boutiques do not have the same level of flexibility and opportunities, due to their smaller size and specialization.
  • Risk Level: A few individuals can make or break even a large, global, multinational investment bank. One merger and acquisition deal can go wrong on a legal technicality, or a case of interest rate rigging by one or two individual traders may incur fines in the millions. Large investment banks have the capacity to absorb these losses. Boutique banks runs on personal rapport and network connections. In the absence of dedicated legal or audit departments, the risk is far higher in boutiques as one or two key individuals can break the entire business.
  • Size Does Matter (At Times): Banking scandals happen. Even if an individual banker was not involved, his or her career can be seriously affected in the long term if associated with a boutique bank accused of wrongdoing. There are cases of individuals being denied visas or facing increased scrutiny at a new employer because of past association with a disgraced boutique bank. Bulge banks are not immune to irregularities or failures, but they have an advantage in an established brand value which can absorb a few such incidents.
  • Easy Access to Information: While it is easier to gain information about a bulge bank, the internals of boutiques remain hidden. Once selected, bulge banks are known to offer a uniform salary to associates with similar skills and experience levels. Salaries may vary more in boutiques based on personal preferences or very particular requirements. When switching jobs, especially to hedge funds and private equity firms, candidates with experience with bulge banks are preferred due to their better corporate exposure. (See also: Financial Careers: Investment Banking Jobs.)

The Bottom Line

Joining an investment banking boutique does offer some great advantages even though bulge banks offer a more classic career path. Ultimately, the choice between a boutique bank and a bulge bank must be decided by a candidate's temperament, aspirations and expectations.