[#permalink]
18 Apr 2007, 11:57
I found this thread on a CFA message board. I believe the guy in blue works in sales for a big I-bank. He talks a little bit about trading too.
I sell bonds to institutional clients. Traders in this business do two things:
1 - buy and underwrite product for me to sell
2 - buy and sell product with other dealers to generate desk profit
Fixed income houses usually have traders for each type of security. IE we have an Agency desk, a corp desk, an MBS desk, each of which is responsible for knowing their market, finding me the best priced product to sell, hedging inventory, trading inventory for profit with other dealers etc.
By and large they make pretty good money because they get a cut of the desks profit...which is mostly generated by the sales force. A salesman takes home a portion of the commission he generates...a trader takes home a smaller percentage of what everyone sells. Judging by the size of the houses and the number of ex-wives they do pretty dang well for themselves.
Of course fixed income is a cyclical business and we're all suffering now.
>if you don't mind me asking, what did you do to get the job...what were your qualifications?
I was leaving work late one night and ran into the guy that ran the office leaving late as well. He told me what they did and I hounded him for a year to hire me.
I had been running a retail equity trading desk, then had experience in the risk management area of a large regional bank.
We sell fixed income to banks so it was a natural fit. After he hired me he said the reason I got the job was because I wouldn't quit calling him. Thats what it takes to make it in the business. Tenacity.
>I was a was a floor trader on the cboe floor for 10 years. The best traders tended to be very good at math, fast, emotionally disciplined, contrarians, and have a very thick skin. I saw many very smart people fail and people I thought were idiots do very well.
>do you think FI is down? it looks like so but what about derivatives, credit and other fast-growith products?
Depends on your customer base. I call on U.S. Banks, they tend to be pretty conservative in the investment arena. They have to operate within their investment policy, and they are heavily regulated. Banks over, say, $5 Billion in Total Assets start to use more derivatives, but I call on banks under $5 Billion in Total Assets, and as a guideline they are pretty straight forward Fixed Income investors. Muni's, MBS, Agencies, Hybrid ARMs, CMO's. Not too many that are into corporates now-a-days with the poor risk/reward relationship that exists currently.
Loan demand is what is killing us. If banks have customers willing to do loans at 8% they won't have money sitting around to buy bonds at 5%. Once the consumer slows down our gravy train will be rolling again.
>Hey Greenspan--how do you like your position? Is the money as good as they say? How is the sales aspect? Do you find yourself spouting out a lot of bullsh!t small talk or is it strickly business?
I call on US banks and when the economy is doing poorly we make a LOT of money. When I say it pays well I'm talking about normally having 2 digits, sometimes 3 digits to the left of the comma on your MONTHLY paycheck. Every firm has a few guys making millions a year. It's not easy, and they've usually been there a while...but they are there. To put it in perspective, two years ago one well known fixed income house fired everyone that wasn't grossing 200,000 a month. That was the minimum. That is an extreme example, but those are the numbers we're talking about.
The problem is that banks have been making loans non-stop for four years running now. Compounding the problem is the shape of the yield curve which is squeezing Net Interest Margin at banks which spurs them even harder to find more loans. They are paying 5% for funds and can put them into bonds at 4.80 to 5.50 or into loans at 8.00%.
Sales aspect - at the end of the day you have to sell. It's not an easy job and thats why it pays well.
It's a relationship business so you do wind up talking about a lot of non-revenue-generating topics with your active customers. But thats not a problem because by then you're usually on pretty good terms with them. About half of my active customers I would consider friends. It's nice to talk with a friend for 30 minutes then have him give you 30 million to invest.
When loan demand goes away we'll be back in business...til then...we suffer.
>is it possible to get into sales from UG, or very early into your career?
You can get into sales from almost anywhere. There are a lot of guys that start right out of college. It certainly makes a more compelling case if you have an accounting/banking/investment background but it's by no means necessary.
You just have to know that if it doesn't work out they give you a cardboard box and 30 minutes notice to get out of the building. It's really that simple.
From the firms perspective it's a numbers game. They'll hire you for a few months at an annual salary of 17,000 a year and if doesn't work out they'll fire you in month 3 or month 6. They'll make up the money they paid you in one trade.
It's pathetic to watch as a guy gets his name called out over the loudspeaker for all the salesforce to hear...then they watch as he does the walk of shame in front of his peers to the personnel office to get fired. That tactic is designed to motivate the remainder of the sales force...and I'm not talking about bucket shops doing this...these are guys in the top 20 debt underwriting arena. These are firms that put up massive numbers in terms of commissions.
>well that would sure as heck motivate me, that sounds like a cool environment, funny stuff....
>i heard for some kinds of products though you need to be up to date on the whole macro outlook and may need some very good math skills....for instance like commodities....
>where do you think the CFA comes in handy in sales? do you make models, valuations, etc...
>Thanks, sorry if my questions seem dumb....
Not dumb at all. I can only speak from the perspective of selling to depository institutions. A solid understanding of bond characteristics, valuation, z spread, OAS, monetary policy, duration, convexity, economic indicators and what they mean, etc form the basis for understanding the bond side of things.
From there you need to understand how a bank works, why a bank has an investment portfolio, what the regulatory restrictions are, how their investment policy affects their decisions, which fixed income products will best help them achieve their portfolio goals, etc.
The FSA stuff has come in handy as well. FAS 159 has been a big, big deal for the last three weeks. Without a working knowledge of FSA I wouldn't have known what they were talking about when they said FAS 159 might allow an institution to Fair Value some investments, mark them to market as of year end, sell them, run the loss on sale through their capital account and avoid the income statement entirely. Without FSA I wouldn't have had the insight to know that banks really don't want to use Fair Value accounting because the unrealized gains and losses all run through their income statement, which creates earnings volatility, and leads to lower stock prices. I wouldn't have had the knowledge to realize that the SEC would likely frown upon FAS 159 transactions because it might create a lack of transparency. As much as I loathe FSA it has really come in handy in a lot of real world cases.
The CFA curriculum definately helps.
close
. A fresh out of undergrad MO / Ops hire starts on $70k. An Associate (which most decent ugrads attain after 3yrs ish) will be on 100k. Senior Associate / team leader / low rank manager will be on 120-150k ish. At VP / manager level you are looking at around 180k - 250k. Above VP level you have Exec Directors and MD's. There are almost no non front office MD's, but the ED's are probably on around 300k. 
) area you can work in. Previous experience will help you get the job in the first place, but its unlikely to help that much once you are in, as promotion and renumeration are based on your performance.
