Life isn’t easy when you’re an elite student. Alongside the pressure to maintain a high GPA, there’s the pressure of choosing between the established elite careers. – Banking or consulting? Law or investment banking?
The law/banking conundrum has been invested with new complexity in the past few months now that big law firms have hiked their big bonuses. The New York Times reports that Boeis Schiller, a US firm with a London office, is now paying its top second year associates bonuses of $350k (£223k). If you’re interested in money, law suddenly looks like the place to be.
Long term, banking still pays more than law
Boeis Schiller isn’t the only law firm that’s been pulling up pay. In London, the Lawyer reports that salaries at Freshfield Bruckhaus Deringer have risen by 25% over the past four years. Following the introduction of a new ‘merit-based reward system’, associates at Freshfields can command pay of £100k to £107.5k ($157k to $168k) just two years’ post qualification. Meanwhile, first year hires at US banks are on starting salaries of ‘just’ $85k (£54k). Who said banking is the most lucrative industry to work in?
Except, it’s worth bearing in mind that those legal salaries are for post qualified lawyers. Their recipients have already been through two year training contracts. In banking terms, 2nd year post qualified lawyers are third year analysts – and third year analysts working in M&A in investment banks earn £102k according to the most recent Dartmouth Partners compensation survey. In London, at least, this implies that pay for junior bankers and junior lawyers is on a par.
The situation looks different in the US, where Boeis Schiller’s $350k bonuses are being paid to the banking equivalent of first year associates and are supplemented by salaries in the range of $160k, bringing the total package to a huge $510k. Median first year salaries first year associate roles in investment banks were just $100k this year according to Wharton’s employment report. That’s a big discrepancy – even if banking associates do get their pay fluffed up with extra bonus payments.
Long term, however, recruiters are insistent that banking pays best. Average pay per head at Goldman Sachs was nearly $400k last year and ‘risk taking’ staff working for the firm in Europe are known to receive $4m+.
Jonathan Cuff, director at London legal recruiting firm Cuff Jones, says it’s uncommon to make more than £250k working in law unless you’re a partner. “Even the most senior associates at the highest paying law firms are not going to be earning more than that,” he tells us. On the other hand, £250k pay is quite common in front office banking roles in the City. The average 40-something banker is earning £430k ($702k).
“Pay just doesn’t increase at the same rate in law as in banking,” says Freddy Lawson at legal recruiters Fox Rodney.
Lawyers may work even harder than bankers
Whether you go into law or into banking, you’ll need to have an appetite for the grind. “Law is comparable with banking in terms of hours,” says one counsel at a US law firm. “Bankers and lawyers work hand-in-hand. When a deal is going through, they’ll both be working all night and at weekends.”
Banks have made efforts to reduce hours for their junior staff following the death of Bank of America intern Moritz Erhardt. Law firms, however, seem to have sidestepped the hours issue. “It doesn’t matter if you’re in transactional law or disputes,” says Lawson. “Either way clients expect hard work and responsiveness. They won’t mind calling you at the weekend or on a Wednesday evening.”
Lawyers say they work even harder than bankers in the later stages of a transaction. Junior bankers put together the financial models and pitch books before the deal. Lawyers are up all night dealing with documentation when the deal goes ahead.
Legal careers get stuck just like banking careers, but the options for escape are better
Banking careers often get derailed around eight years in. This is the time when you’re a vice president (VP) or director and you’re pushing for a promotion to managing director (MD) level.
Exactly the same thing happens in law, except senior associates in law firms are pushing for promotion to partner. “Most savvy law firms have an up or out policy,” says Lawson. “Anything between seven and 12 years in, you’ll either be promoted to partner or you’ll be managed out the door.”
The alternative options for experienced investment bankers are limited. Private equity funds rarely hire bankers with more than three years’ experience. The most likely homes for unwanted VPs are boutiques, or the in-house M&A and strategy teams at corporates, neither of which hire in large numbers.
By comparison, people ejected from law firms can go in-house. And plenty of them do. In-house careers may not be dynamic, but they are at least stable. “The in-house M&A lawyer often has a job for life,” says Lawson. “But their career doesn’t necessarily go anywhere.”
Lawyers get to feel intellectually superior. Bankers get to feel rich
“The mindset in law is very different to the mindset in banking,” says one recruiter. “There’s an intellectual superiority with lawyers – but at the end of the day, very few of them become properly rich.”
This superiority is echoed by lawyers when they talk about their jobs. “Law is an intellectual challenge,” says one senior lawyer. “I look across to banking and think I might have been financially better off if I’d taken that career path, but I don’t wish I was a banker in terms of the work that’s involved.”
One FX trader who’s retraining as a lawyer says law offers the kind of “sustained intellectual challenge” that’s absent in finance. “I know that I can make more money by staying in finance and doing a job I’m not interested in for years on end. However I don’t have the boredom threshold for it!,” he added.
And yet, the alleged intellectual superiority of law may simply be a way for lawyers to console themselves about their lower pay. One lawyer told us he loved his job because of the thrill of, “being part of a close-knit high calibre team, working on high value cross-border deals that take place under a lot of pressure and stress, with no two transactions ever the same.” That’s strange, because bankers describe their jobs in very similar terms.
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