Top 4 Graduate Wealth Management Interview Questions

In most areas of high finance - such as investment banking or equity research - most full-time employees end up coming through internship programs. So, while the firm may do a bit of full-time hiring for new graduates to fill in any remaining seats, the vast majority of any incoming class will have already spent some time at the firm.

However, wealth management is a bit unique. While over the past few years wealth management internship programs have expanded rapidly - especially at places like Goldman Sachs, JP Morgan, Morgan Stanley, etc. - there will still be plenty of space left over for full-time hires that haven't had a prior internship at the firm.

Fortunately, graduate wealth management interviews won't look that different than summer analyst or summer associate wealth management interviews. However, graduate level roles in wealth management are often open to those that are about to graduate, or have graduated from college over the past few years. So, if you're applying with a few years of work experience then you should expect your interviewer to spend some amount of time asking about what you've done after graduating (but they'll quickly want to move on to more traditional questions).

Graduate Wealth Management Interview Questions

Below are some graduate wealth management interview questions you should expect to get. While you can be asked a wide diversity of questions, during periods of significant market volatility (as we're seeing now) there will be an emphasis placed on markets-based questions.

Why have equities sold off so much this year?

Can you name a ramification of rising rates on two different asset classes?

So far this year have bonds been a good hedge for equities?

What would you say to a client who's worried about their portfolio dropping significantly and wants to move entirely into cash?

Why have equities sold off so much this year?

The beginning of 2022 saw one of the most prolonged and persistent selloffs to start a year on record across all major indices.

This risk off sentiment was really driven by a realization that inflation was not transitory and the Federal Reserve would need to hike rates at a pace not seen for several decades. 

This poked a hole in the exuberance that typified the equities market. In particular, in the growth stocks that had led the post-pandemic recovery.

While explaining why a given asset class has sold off significantly will always involve multiple factors, the primary factor you can point to is simply that every equity, in some abstract way, is the summation of all its projected future free cash flows discounted back to the present value. 

However, this discount rate - the weighted average cost of capital - increases when a central bank increases rates. As a result, future free cash flows - when discounted back to the present - are worth less. This rise in the discount rate particularly affects growth stocks that have most of their free cash flows long into the future.

More recently, troubling retail sales numbers, along with slowing growth across Europe and Asia, is signalling the possibility of a recession. While the recession, especially in the United States, would be more of a technical variety (a few quarters of negative growth) it still spells trouble for equities who were hoping to ride the coattails of significant economic growth.

Can you name a ramification of rising rates on two different asset classes?

Obviously, rising rates has ramifications throughout the economy. This is why a central bank's ability to raise or lower rates is often called a blunt instrument (because it doesn't target any one thing, but rather causes reverberations throughout the entire economy).

So we've already covered one way in which rising rates impacts an asset class (equities, via raising the rate by which future free cash flows are discounted). 

However, the impact of rising rates is also felt in other asset classes as well. For example, over the past five months we've seen steep declines (in price terms) of investment grade bonds. The reason why is that there's a mechanical relationship whereby when yields go up on bonds, the prices go down.

Moving forward, the same investment grade bond issuer will need to offer a yield to investors significantly above where they could have offered it just a year ago. This is because all bonds can be thought of as being comprised of two things: the underlying treasury (government bond) rate and a credit spread (the credit spread being the compensation you need to pay a buyer for buying your bond, as opposed to just buying a completely safe government bond). 

Therefore, even if the credit spread doesn't change at all (meaning that the market doesn't think the company itself is any more risky) the yield an investment grade bond needs to offer still goes up in a rising rates environment because of the underlying government bond having a higher yield. 

So far this year have bonds been a good hedge for equities?

Chances are you've often heard people say that they like to put clients into a mixed portfolio of at least some bonds and equities (i.e., a 60/40 portfolio). The rationale behind this is that bonds should dampen the portfolio's volatility and act as a hedge in some circumstances.

However, we've been in a quite odd market environment thus far this year. Both bonds and equities have sold off substantially due to how aggressively central banks are moving to raise rates.

By May most equity indices were down at least 20% and bonds (whether government or corporate) were down at least 10%. So, while bonds have acted as a dampener to volatility (if the client was had a portfolio of just equity, their returns would be worse!) there's no real hedge that's taken place (as both asset classes have declined in value significantly). 

Many clients will be looking at their portfolio and be quite surprised by just how sharply everything has fallen because they'll be used to having a portfolio that doesn't show such sharp swings (because bonds don't usually go up or down nearly as aggressively as equities, but we have seen a very significant yield re-pricing). 

What would you say to a client who's worried about their portfolio dropping significantly and wants to move entirely into cash?

This is a very typical question to get in a wealth management interview, because so much of what it means to be a wealth manager is to manage the expectations and emotions of clients.

Something to always keep in mind is that most clients won't be following markets closely, what have their thumb on what economic news is making headlines, etc. Instead, sometimes they'll read an article or talk to a friend and then become quite concerned and come to you thinking that the market is imploding. 

What you should make sure to always include in your answer to think kind of question is that you should never talk down to your client, and you should be empathetic to how much the value of their portfolio influences their emotional state.

In this kind of situation, what you should do is give an overview of what's happened in markets recently and why their portfolio is dropped. Then you should remind that them perfectly timing the market is an impossibility, and that moving to cash today will preclude them from getting future gains (i.e., those 4-5% daily increases that occur when a market rebounds after a significant correction).

You should reflect on what the client's stated goals are. If they're planning to retire in ten-years, you should remind them that they still need to accumulate further gains and if they aren't invested in the market then they're just leaving their portfolio to be eaten away by the heightened inflationary environment we're currently in.

With all that being said, you should also make it clear to your client that they are your client and can ultimately tell you to do whatever it is they want to do. As a result, if they want to move some of their assets into cash you will abide by their wishes.

What this kind of answer shows your interviewer is that you understand what the real role of a wealth manager is; it's ultimately to listen to your client, be supportive, and try to help them achieve their objectives (even if that requires making decisions that you personally wouldn't do with your money).

Conclusion

Hopefully these questions have been helpful for you to go through. Keep in mind that graduate wealth management interviews aren't that different than what you'd expect for internships -- so you should be reading up on markets and preparing succinct answers to classic behavioral questions. 

If you're looking for even more interview questions, be sure to check out the longer list of wealth management interview questions. Alternatively, if you're applying for a more asset management style role, I've also prepared asset management interview questions (since they're quite similar to wealth management ones at the internship and graduate level). 

Finally, if you're looking for over 180 questions, I took quite a bit of time to create the wealth management interview book which people have really enjoyed going through.

Like I said, hopefully this has been helpful and good luck in your interviews!