Is An MBA Necessary to Start a Finance Career?
If you’re an economics, engineering, or business undergrad, or recent graduate with ambitions of joining the high-flying, complex, and rewarding world of finance, an MBA (Master of Business Administration degree) can seem like the natural next step. Here’s why:
Successful People Have an MBA
You’ve noticed successful alumni, family members, and business leaders you look up to all have it.
MBAs Seem Like They Have An Edge
When you hear them speak, it can feel like people with an MBA have an extra “something” — an X factor they bring to the table that can make it seem like they hover above the ground while the people around them walk.
You may have been told it’s the “right” thing to do.
Is it? More importantly, is it right for you?
The short answer: No.
The slightly longer answer: To have a career in finance, one lasting decades and marked by continuous financial and professional success and progress, you may want to get an MBA.
To get the complete answer on starting your finance career without an MBA, read on!
The History of the MBA or Why the MBA Program Exists
Today, it can seem like an MBA is indispensable to start your career in finance. This isn’t true now and wasn’t true for most of business history.
Like many other norms, institutions, and practices in modern finance (like the Federal Reserve), MBAs are a product of the late 19th and early 20th century. Prior to then, the relationship between the means of production and the owners was far more direct. Factories were both owned and run (managed) by owners.
Everything changed, however, with the Industrial Revolution. Here’s how:
With the Industrial Revolution, there was exponential growth in production possibility due to the development of superior technology.
This led to greater manufacturing labor employment, which led to more and more people having a higher disposable income.
This higher disposable income led to greater consumption, incentivizing more production.
All this commerce needed management.
As technology and the relationship between workers grew more complex, the management of business activity required more specialized knowledge from talented people. These talented people needed to be identified and educated specifically in the processes and systems required to manage businesses. A professional class of managers was born.
The skills to manage businesses were and continue to be highly valued. Steel magnate Charles M. Schwab rose through the ranks in the late 19th century, from day laborer to top executive in industrialist Andrew Carnegie’s organization.
He was paid a $75,000 annual salary with a frequent $1,000,000 bonus — in the early 20th century! He was paid the $75,000 for the work he did, but he was paid the $1,000,000 bonus for the work he could get others to do, usually by applying Schwab’s pleasing personality.
And so the first business schools were started:
1. The Wharton School
2. The Tuck School of Business
In 1900, the Tuck School of Business opened its door at Dartmouth College, conferring the predecessor of the MBA, a Master’s of Science in Commerce.
3. Harvard Business School
The Harvard Graduate School of Business Administration established the first MBA program in 1908. They began by teaching the classic business theory which is arguably the foundation of modern business school education, Taylor’s scientific management.
Should You Get an MBA to Start a Career in Finance Part I: The Benefits
The MBA program today, keeping up with the times, has changed significantly from its origins. The young graduate entering an MBA school today will walk away with far more than a knowledge of systems and processes.
It is important to note, however, that an education in systems and processes of large business still forms an integral part of the MBA curriculum. Students, whatever their background, entering the MBA program should be prepared to go through courses in 6 core areas. These are:
- Leadership and Organizational Behavior
- Accountability and Ethics
- Economic Statistics and Operations
Going into the MBA program, many students are underprepared for the economics courses they will have to successfully complete. It is regularly observed that many MBA candidates struggle with the curriculum’s economics courses! There is no need to struggle with economics. Excel in your MBA economics class by preparing yourself with Econblox’s Business Economics Specialist (BEStTM) course and certification.
Getting an MBA today has significant advantages for a future career in finance, beyond what you learn in the classroom. To name just a few:
Your network of highly motivated, ambitious, and talented people you can call your friends and peers. If the future CEO of a Fortune 500 company was your roommate for a semester, getting clients for your future investment banking (IB), private equity (PE), or corporate finance firm just got a whole lot easier.
2. Opening Doors
Doors open when you try to walk through them, where they may be shut for others. Especially if you went to a target or semi-target school. Having that school pedigree on your resume is an easy and quick way for future employers to verify that you are a high-quality, talented, and hard-working individual they should hire fast. The name-brand recognition plays a strong role in building client trust and you getting their deal to work on. Clients and employers demand high quality work. A name-brand MBA is an easy way for them to screen you and know that you’re capable of delivering.
MBAs learn a strategic approach to problem-solving. MBA graduates look at the world a little bit differently than people who haven’t been through the program. A modern MBA program is really an exercise in bringing together the best minds of today to teach the best minds of tomorrow how to make an impactful, positive difference in the world. There are classes in entrepreneurship, law, data science, social entrepreneurship, and a whole lot more.
There are, however, gaps in the traditional method of teaching at university MBA programs. This is especially true of their economics courses. Today, most universities teach theoretical economics. These courses tend to be heavy on theory and light on practical business economics. This is why we teach Real-World Economics. Meet the challenges of tomorrow with our Business Economics Specialist (BEStTM) course and certification.
Should You Get an MBA to Start a Career in Finance Part II: The Costs
We’ve looked at some of the benefits. Let’s look at some of the costs. Getting an MBA to start your career in finance this year…may not be the right choice. Here’s why:
Remember, there are thousands of MBAs looking for a position in finance. Most companies will hire only those with a high GPA and who studied at well-recognized schools.
2. Your Career Path
The importance of an MBA for you will depend on the career you’re seeking. For positions such as financial planner, financial analyst, or trader, an MBA will not necessarily give your career a boost.
Even in investment banking, an MBA is not your only entry ticket. Not surprisingly, the acceptance rate of applicants at big investment banks mirrors top MBA schools at only 4%,. Differentiating your qualifications is a key solution to this challenge.
If you invest the time that you would otherwise invest in an MBA, in internships and work experience, the experience you’ll gain can impress potential employers. Remember, having an MBA does not replace building a network.
3. Cost and Time
An MBA doesn’t come cheap. The financial investment may not bring you a satisfactory ROI. You typically have to invest two years, just to acquire the degree. A few schools have slightly more accelerated programs. As well, part-time studies are possible although not nearly as effective as full-time programs.
A full-time MBA can set you back $130,000. That’s a lot, and you may end up going into debt for it. There are two caveats though.
Firstly, while this may be the ticket price, this is not the cost most students pay. A significant majority of students qualify for some form of scholarship or tuition aid. It’s not uncommon for an MBA student to only pay 50–75% of the $100,000 ticket price.
Secondly, while $100,000+ cost may seem like a lot at this point in your life , you can expect to make $107,000+ annual compensation with an MBA. That’s the salary of the average MBA in the US. If you went to a top 10 school, you could expect to make $140,000+.
Should You Get an MBA to Start a Career in Finance Part III: The Alternatives
So how can you develop the skills you need to get your career in finance started?
1. With Networking
Talk to your dad, his friend, and the friend’s uncle’s dog’s neighbor. As long as they have a job in finance that you want: find them, contact them, and set up a coffee chat with them.
2. Take Certifications And Courses
Become a chartered financial professional and enjoy many of the benefits that MBAs enjoy, at a fraction of the cost and time.
While there are many available, there are only two that stand out and give you the skills necessary:
- Chartered Financial Analyst (CFA): The CFA course requires self-study of 19+ months, after which you must pass three exams. A CFA costs less than $5,000. According to Payscale.com, the salary of a CFA can range from $66,000 to $175,000, depending on the job role. The average annual income for CFAs stands at $93,861.
- Business Economics Specialist (BEStTM): The BEStTM course requires part-time self-study of less than 1 year, along with a mentored, practical project. The BEStTM certification costs less than $1,000. Economics, engineering, and business undergrads all over North America can now be certified in real-world business economics. For a limited time, mentoring will be led by Jay Moulton, 30+ years in finance and Harvard MBA.
To MBA or Not To MBA: A Conclusion
Jumping into an MBA right out of college is probably not the best way to start your career in finance.
Yes, an MBA will help you learn many of the skills that you need to be effective at your first job in finance. The MBA program finance courses will teach you financial modeling, how to read financial statements, how to value assets and other useful skills.
But getting an MBA to learn these specific skills will be overkill for some. Like our friend who got an MBA to start his career in finance says, it’s like getting a hydraulics engineer when you need and called for a plumber.
We’re not saying don’t get an MBA. We’re saying don’t get an MBA to start your career in finance. As we’ve pointed out, an MBA is an expensive and time-consuming project. If you choose to pursue an MBA, you will gain much more value after you acquire a few years of work experience, not directly out of college.
Getting real-world experience in finance or related industries immediately after your undergraduate degree is very doable. In such a role you can experience or see how different parts of the finance industry operate, build a network of mentors and peers, acquire practical finance knowledge, and most importantly, have clarity on your goals.
You can’t get what you want till you know what you want. After 2–3 years of working, you’ll know if you need an MBA or not.
We hope to see you back here to learn more about a career in finance. If you want to find out more about business economics, visit our website at Econblox.com.