From Big to Boutique: The Changing Face of Investment Banking

istock_000007272893xsmall1by Liz O’Donnell (Boston)

From UBS to Aladdin Capital; Merrill Lynch to Evercore PartnersLazard, and Greenhill; Morgan Stanley to Perella Weinberg – one-time Wall Streeters continue their defection from large investment banks to boutique banks following the sub-prime mortgage crisis.

Boutique banks, which typically focus on smaller deals than the traditional big firms, garnered a lot of positive attention last year in the midst of the country’s financial crisis and the negative attention focused on Wall Street. Today, these smaller, specialized firms show no sign of slowing down. They are enjoying preferred status as the workplace of choice for some of the top talent in the financial services industry. There are several reasons for the attraction:

  1. Layoffs: Layoffs have been a factor as Wall Street has been hit hard by the economic slowdown and displaced bankers have sought employment in the smaller firms. Unfortunately, while many have found new corporate homes, the supply of people outweighs the demand.
  2. TARP:  Others have willingly left the bigger banks in an effort to escape restrictions in compensation brought about by the Troubled Asset Relief Program(TARP) administered by the U.S. Government. Banks accepting TARP funds are subject to restrictions on executive compensation. Last week, President Obama outlined his regulatory plan, “Financial Regulatory Reform: A New Foundation.” Exactly what impact this plan may have on executive compensation is still to be seen.
  3. Emerging Markets: Yet another reason positions with the boutique banks are heavily sought after by well-credentialed bankers, is that many of the smaller firms are focused on hot, emerging markets. Boutique firms are carving out niche expertise in green and clean tech, life sciences, healthcare, bio tech, IT and emerging technology. Savvy workers recognize long-term growth potential in these areas.

Says Steve Sherman, founder and Chief Operating Officer of GreenChoice Bank  in Chicago, “It’s the small banks that are doing very well right now as people move their business out of the big impersonal banks.” GreenChoice Bank is a new firm in the capital raising stages. When it opens it will be the first green community bank in the Midwest.   “We expect to be hiring in the next couple months,” says Sherman.

According to Neil Shroff, Managing Director at Orion Capital Group, a boutique bank in Menlo, California, the one thing Wall Street veterans really like about boutique firms is the lifestyle change. Because boutique banks tend to have more regional business than the large banks, there is less travel and fewer hours, says Shroff.

He says his firm has been getting a lot of inquiries from very talented people.  “It’s helping us—the amount of really qualified people –top MBAs, J.Ds. We’re seeing a lot of people from Merrill Lynch who see an opportunity going forward.”

While the move from big to boutique may seem appealing, bankers can experience culture shock when they make the move, says Shroff. He says Wall Street veterans are used to bigger companies and bigger support staff than they’ll find at a boutique.

“If they are interested in being in a smaller size firm, they need to get in the mind set of those execs and how they think,” says Shroff. He says that some of the smaller companies, who are the boutique clients, were heavily impacted by the shift in the economy. Transplants need to keep this in mind. “They need to have understanding, empathy and sympathy,” says Shroff. If they can demonstrate this understanding –and Shroff says this caliber employee is ” pretty intelligent at figuring out what they need to do to adapt,” there is a tremendous benefit for the boutiques’ clients. “They get quality people with experience.”