The Five BMO Wealth Management Interview Questions You Need to Know
Of the Big Five Canadian Banks, RBC and BMO are not only prominent within Canada, but are also the most aggressive in their push to gain market share across investment banking, sales and trading, and wealth management.
This is also the strategic direction that's been highlighted by the new head of BMO Wealth Management, Deland Kamanga.
As a general principle, whenever you enter into a new industry it's important to think about the institutional framework around you. All else being equal, it's better to be joining a large bank that's actively planning to expand out your division than one that looks on your division as being passe.
Fortunately, wealth management is something that nearly every large investment bank is doubling down on due to the ability to generate persistent fees that are relatively resilient to market conditions (relative to other divisions of an investment bank, like investment banking or sales and trading).
Whether you're looking to join BMO in Canada (where they are a market leader) or the United States (where they are quickly growing), here are the top wealth management interview questions you need to know.
BMO Wealth Management Interview Questions
Below we cover some of the more technical and market-based questions you could be asked in a wealth management interview. You can click the links below to be taken directly to the question:
- What does it mean for an individual stock or an equity index to be in a bear market?
- Can you give me an example of a single stock that's in a bear market currently?
- If a bond is currently trading at $90 (with a face value of $100) and has a 10% coupon, then what is the current yield?
- Let's say a bond is trading at $110 (with a face value of $100 and two years to maturity) and has a 10% coupon. Will the yield to maturity be higher, lower, or the same as the current yield?
- Recently there has been a lot of discussion surrounding Fed tapering. What does that mean?
Often you'll hear about an equity index (e.g., the S&P 500) being in a bear market. All this refers to is that the S&P has declined 20% from its most recent high.
This same principle holds true for individual stocks (e.g., Amazon, Alphabet, etc.). Even if the broader index is up or flat, you can still have individual stocks that are in a bear market.
This is a very common form of question to be asked. It's not overly difficult -- you won't need to be getting out your pencil and having to do advanced math! However, it is one that relies on you understanding a definition (the definition of a bear market) and following markets closely enough to have a company you know has fallen by 20% from its local high.
For example, Meta (formerly known as Facebook) reached an all-time-high in September of 2021. However, by early December of 2021 it had entered into a bear market by falling 20%.
This has been due to a whistleblower that came forward detailing potential issues surrounding how Facebook has moderated itself, antitrust actions out of the U.K. regarding recent acquisitions, and a general stall in earnings growth.
Given the incredibly large size of Meta, this 20% decline represents $224b in value being destroyed.
Interestingly, Meta was one of the most crowded hedge fund trades throughout the Fall of 2021. Which many joke always represents a bad omen.
If a bond is currently trading at $90 (with a face value of $100) and has a 10% coupon, then what is the current yield?
This is quite a simple question, but it can appear a little bit tricky given that the bond is currently trading below par.
However, when it comes to determining the current yield of the bond don't get caught up in thinking about the yield to maturity of the bond (which would necessitate taking the par value into consideration).
Instead, just take the annual coupon in dollar terms (which doesn't change just because the price of the bond changes) of $10 and divide it by the current trading price of $90. This gives an answer of 10/90 or 11.11%, which is what the current yield of the bond is.
Let's say a bond is trading at $110 (with a face value of $100 and two years to maturity) and has a 10% coupon. Will the yield to maturity be higher, lower, or the same as the current yield?
The yield to maturity (YTM) will be lower than the current yield. This is just a formulaic reality whenever the trading price of a bond is above the par value.
Remember that the yield to maturity takes into consideration what you get back when the bond matures (the face value of $100). So, in this example, you're paying $110 to get some high coupons ($10 per year), but you're only getting back a $100 lump sum at the end when the bond matures.
Whereas with the current yield, you're ignoring what the face value is and just dividing the annual coupon amount (in dollar terms) by the bond trading price.
So, the current yield in this example would be 9.091% whereas the YTM would be 8.496%.
One of the most critical things you'll need to do as a wealth manager is communicate clearly to your clients. Every week you'll have clients coming to you with concerns about markets that they've read or heard about -- some of which will be reputable, and much of which won't be.
Your job will then be to talk to your client and reassure them that you've put them in the best possible position to succeed.
Quantitative easing (QE) is one of those subjects that gets laypeople very concerned about markets and is wildly misunderstood.
All QE really involves in the Federal Reserve - or any other central bank - increasing reserves and purchasing government bonds or (in the United States) mortgage-backed securities.
Since the onset of the pandemic, the Fed has had an aggressive QE program whereby every month they've purchased roughly $80b in treasuries and $40b in mortgage-backed securities. This is done primarily to suppress down rates, which helps to encourage lending and generally boosts asset prices along with it (as the discount rate underpinning assets is reduced).
All that tapering means is that the pace at which these monthly purchases are being made is slowed down. So, right now the Fed is looking to taper (slow) their rate of purchases by $15-30b per month until it is no longer buying any treasuries or MBS.
If you were paying attention to markets back in 2013, you may have heard of the taper tantrum. All this refers to is a period of volatility that arose from the Fed announcing a tapering of its (by today's standard) relatively modest amount of asset purchases. This tantrum impacted the rates by causing a spike in yields, and impacted equity markets by causing a relatively sharp correction.
BMO - like many large banks - over the past few years has focused heavily on growing out its wealth management franchise. This has resulted not only in an increase in junior wealth managers being hired, but also in an emphasis on training.
Through these interview questions hopefully you've gotten a feel for the types of questions that will be asked. Some are a bit more mechanical and some are a bit more market oriented.
If you're preparing for interviews, you can see my longer list of wealth management interview questions here (which also give you a feel for some more behavioral style questions that will come up in interviews). Alternatively, I wrote a wealth management guide where I put together all the wealth management interview questions I've ever heard all together.