Top 11 Wealth Management Interview Questions You Need to Know
Wealth management is a career path like no other. Unlike many areas of finance where you are focused on just consummating a deal, in wealth management you are focused on developing a relationship with a client that can stretch for decades. Indeed, many experienced wealth managers deal with the same family for generations as money is passed along from one generation to the next.
The compensation structure of wealth management is also quite unique in finance - compared to investment banking or commercial lending, for example - where after several years in the industry your compensation will become entirely variable. What this means is that after a short stint you will have limited or no base salary, but instead simply earn a percent of the wealth under your management.
This "eat what you kill" style of compensation can lead to extremely large incomes, but comes along with an incredibly sobering responsibility. Your clients look to you to help them navigate toward their financial goals.
Unlike a hedge fund manager, your goal is not simply to maximize returns outright. Rather, your goal is to maximize returns based on the risk tolerance and future expected needs of your client.
In the wake of the Great Financial Crisis (GFC), wealth management has become the single fastest area of growth within high finance. In the United States, the total amount of money controlled by wealth managers (whether at mom and pop shops, or at a firm like Goldman Sachs) has doubled.
While the United States makes up approximately 54% of all wealth management activity, the growth rate outside of the United States (in particular in Asia) has been growing at over 8% a year for the last five years. This shouldn't be overly surprising, as wealth is being accumulated at a rapid pace throughout Asia, the Middle East, and Africa at an astonishing pace.
One notable trend that has occurred over the past decade - roughly since the GFC - is the rise of traditional investment banks trying to expand out their wealth management operations aggressively.
Traditionally investment banks - like Morgan Stanley or JP Morgan - were less focused on the wealth management side of their businesses. This is because they generally require more people, and provide slimmer returns, than investment banking or sales and trading. However, over the past decade as regulations have increased, banks have seen the virtue of the predictable fees that stem from wealth management. Further, servicing high net-worth (HNW) or ultra high net-worth (UHNW) clients via wealth management can lead to further business opportunities in other areas of the banks.
A large drive of the growth of wealth management has been from banks like these recruiting more junior wealth managers, providing more training to new employees, and trying to rapidly grow out their franchises. If you're wondering just how much these banks have emphasized the growth of their wealth management business, take a look at some of these articles:
- Goldman Hires Ex-UBS Banker to Double Wealth Business in Middle East
- JP Morgan to Double Advisers As Wall Street Vies for Wealthy
- Morgan Stanley to Expand Wealth Management Business
- HSBC to Target Wealth Management in Latest Shift
A common misconception is that breaking into the wealth management industry isn't overly difficult. While it's true that some mom and pop shops may extend offers - with little pay or training - to 20-30% of those who apply, for larger more sophisticated players interviews are becoming increasingly more demanding.
Part of the reason why I created this site was that I saw many people walk into interviews with little or improper preparation, and then fail to land the job.
Preparing for a wealth management interview isn't necessarily difficult, but it does require understanding what the most common questions are and how you should frame your responses (which is partly why I wrote a book on it!). In the end, what is most important is to craft answers that show that you understand what wealth management really is about and that you are entering into the industry for the right reasons.
So without further adieu, let's get started...
Wealth Management Interview Questions
Below are some of the most common wealth management interview questions that you are likely to face. They range from being reasonably technical questions to being reasonably qualitative.
There are certain areas of finance where your interviewer will know that most likely you'll only be staying for a few years (for example, in investment banking). So whether or not you really know what you're getting into isn't overly important as long as you can tough it out.
By contrast, wealth management is truly a career choice. Once you join a wealth management firm, you should have every intention of turning it into a decades long career.
When faced with this interview question, many people think that the correct answer involves talking about what books they've read or what interview guides they've gone through (like the one I personally created).
However, what interviewers are really looking for with this question is that you can articulate that you know what you're getting into with wealth management and that this aligns with your personality and goals in life.
The best answer to this question will begin by laying out that you've talked to current wealth managers; both those who have been in the industry for less than a decade, and those who have been in it for longer than a decade. You should say that these were revealing conversations and helped you understand the breadth and depth of being a wealth manager (including the less desirable aspects of the job).
Second, you should discuss your interest in markets broadly. Not just the equity market, but also FX, credit, commodities, and alternative investments. You should point to the resources you've used to keep up-to-date; whether that be the Wall Street Journal, Financial Times, or Bloomberg.
Finally, you should say that you've thought deeply about what it means to be a wealth manager and whether or not you could handle the potential disappointment that comes from not getting the clients you wanted, or handling the frustration that some clients will bring. Of course, you never really know how you'll handle all of this until you begin, but it shows great poise and maturity to show that you've thought through not only the positive aspects of the career, but also the sometimes demoralizing aspects.
However, you should always wrap up this question by making it unequivocally clear that you understand the nature of the role and are driven by a desire to build relationships with clients that will last decades. Helping them to reach their financial goals for themselves and their families.
Nearly every wealth manager will tell you that one of the largest concerns that clients are currently expressing is around inflation.
One of the interesting aspects of wealth management is that clients will often have different concerns than more sophisticated market participants (like hedge funds).
A key skill of any wealth manager is recognizing that even if the concerns of a client aren't representative of more sophisticated market participants, they can still be entirely logical.
For example, if a client is looking to ultimately take out a sizeable portion of money at retirement, which is perhaps just a few years away, then they have every right to be concerned about protecting their portfolio against inflation. Further, they have every right to be concerned about whether or not they have to adjust their thinking about how much money they'll really need in retirement.
There are several ways you can protect clients against inflation. You can either do so directly, or via the purchasing of assets that relatively outperform during inflationary periods.
Nearly every country has a form of government bond that has coupon payments that are indexed to inflation. These generally offer lower coupons than nominal paying government bonds, to reflect the value of them being indexed to inflation, but offer a way to give peace of mind to your clients.
In the United States, these products are called Treasury Inflation Protected Securities, or TIPS. Below is a screenshot from my Bloomberg terminal showing various TIPS that are currently trading on the secondary market:
One issue with any truly inflation-indexed asset is that the coupons are generally going to be quite low. So a second way you can protect clients is by putting them into products that outperform in inflationary environments.
Generally speaking, these will be what are known as hard assets. The most common are commodities, such as oil, natural gas, steel, etc. All of these commodities have synthetic funds you can put your clients into in order to profit on the rise of these during inflationary times. Here's a good report from Alliance Bernstein discussing this.
In recent years, some have considered that tech stocks provide a good inflationary hedge due to their high growth rates and high margins. However, as we'll discuss in the next question, this can be a dubious proposition.
First of all, let's back up for a second. The reason why this question is asked is because it's absolutely imperative that you can demonstrate in an interview that you understand how broad financial themes are connected.
No one expects you to be as proficient as a private equity associate or a long-short equity analyst at a hedge fund. However, what the above question does is very nicely tie together two themes: rates and equities. In particular, how the two are tied.
As you likely know, there are a number of standardized ways in which companies can be valued. One of the most popular ways to value a company is via a discounted cash flow (DCF) model. In a DCF the free cash flows of a company are discounted by a rate (the weighed average cost of capital) that includes in it the 10-year yield (usually, although it can be of different duration). The WACC is then put to the power of the year in which the free cash flows occur. So, if the free cash flows occur in year five then the denominator would be (1+WACC)^5.
What this means practically is that as the yields on government bonds decrease, the value of the cash flows increase (because the free cash flows are being divided by a lower rate).
For growth companies - like many technology and bio-tech companies - they have relatively high valuations, but these stem from projections about how large they will be in the future. In other words, their cash flows today are relatively modest, but their cash flows in the future are relatively large.
When rates decrease, the value of these far out cash flows become much more valuable as the denominator is raised to the power of whatever year they occur in. Whereas when rates decrease, but cash flows are accruing in early years, this increases the value of cash flows relatively less as the power in the denominator isn't as large.
So, if rates were to rise you would expect for growth stocks to fall in value. Through 2020 and into 2021 you've seen this phenomenon play out. Whenever the Fed seems quite dovish (like they'll maintain easy monetary policy), then growth stocks go up in value. When the Fed signals they may be ready to move rates - perhaps due to inflation fears - then growth stocks tend to drop more than the market overall.
As I mentioned in the answer to the last question, some think that in a true inflationary environment that is persistent, not transitory, growth stocks would perform better than the market overall as the growth stocks would grow much more than everything else. In other words their fast growth would outpace the declining value of their far out cash flows. This is a controversial opinion and hasn't been borne out by what we've seen over the past year, but many intelligent equity analysts do think it could occur.
Throughout 2021 and into 2022 nearly all wealth managers have been fielding calls from their clients who want to gain some exposure to either cryptocurrencies or Special Purpose Acquisition Companies (SPACs).
One of the trickiest parts of being a wealth manager is to temper your clients whims. By this I mean making sure that your clients aren't panicking when markets are falling and making sure that they aren't making foolish decisions during periods of irrational exuberance in the markets.
However, unlike a hedge fund manager, you don't have the ability to preclude your client from investing in what they want to (with rare exceptions). If your client really wants to do something, no matter your personal opinion on it, then you have little recourse.
When clients come to you wanting to put money into something that has significant hype around it, and is rapidly increasing in value, your job is to lightly play devil's advocate. The best way to do that is by pulling together research reports from other firms (or your own firm) and talking with your client about how these investments align with what their ultimate financial goals are.
So, for example, many clients come to their wealth managers and say they'd like to have some of their money placed into cryptocurrencies in case the equity market crashes. You can then show them research reports and show them how cryptocurrencies actually fell more than the stock market did in early 2020 and fell during mid-2021 even as the equity market continued to advance.
Likewise, with SPACs, you can explain the mechanism behind how they work and that ultimately you are at the behest of the SPAC sponsor who may or may not go out and find a good company to merge with. If they don't find a good company to merge with, you could just get back your initial investment (but will have lost out on the returns you could have had elsewhere).
Ultimately, to be a true wealth manager you can't just be a "yes man". You need to be willing and able to gently push back. This requires understanding the temperament of your client. For example, if they get easily offended then you need to be careful in not dismissing their ideas outright.
Many wealth management clients have exposure to cryptocurrencies, for example, but wealth managers ensure that the way in which these funds are deployed are into well-managed indexes that track the overall market and allow for seamless redemptions and tax accounting. Likewise, many managers have placed their clients money into SPACs, but have made sure that they're being run by reputable counter-parties who are also placing a large amount of their own money into any deal they find (and have promised to find a deal in a reasonable amount of time, not years).
This is a bit of a trick question, because you need to add a number of qualifiers to it. Every wealth management firm will have its own process for onboarding new clients. However, what they will all have in common is asking the client a series of questions, looking at their total net worth, and devising a plan taking these two things into consideration.
In other words, there is no standard portfolio for wealth management clients. Instead, it's based on a number of factors, including:
- The size of their current net worth
- The stability of their current income
- How long until they plan to retire
- How much money they are planning to use annually upon retirement
- How much (if any) they are planning to pass on to their family or charities upon death
- If they have any special instructions for how their money should be placed (for example, some clients don't like being invested in coal)
Because of all these factors, you can't give a generalized answer to this question. Instead you should say that the answer will depend, based on the qualifications that were laid out above.
But you should then give an illustrative example based on a hypothetical case. So, for example, you can say that if you're dealing with a 40-year old cardiac surgeon who makes $500,000 a year, has a net worth of $2,000,000, and is planning to retire at 65 then you would look to create a growth oriented portfolio given that they are relatively young (by physician standards) and have very stable income. Therefore, they are able to handle down years and should be responsibly maximizing growth potential for at least another decade.
For this client, you could look to perhaps have 80% invested in equities, 10% in corporate bonds, 5% in government bonds (Treasuries), and 5% in cash. Within equities, you could have a tilt towards growth stocks, with the inclusion of some commodities-focused firms (like oil and gas companies) that pay healthy dividends to provide modest downside protection.
Of course, you can get more detailed breaking down each of these asset categories. But, as I mentioned, what the interviewer is really looking for here is that you understand this is a bit of a trick question and requires qualifications. So long as your answer to portfolio composition hits on having a mix of equities, credit, and cash then this is more than sufficient.
Note: In the United States, it's reasonably typical for clients to be almost entirely domestically invested. However, if you're working with clients outside the United States, with less developed or more volatile markets, then you may have a more geographically diverse portfolio as well. Especially in Asia and the Middle East careful attention needs to be paid to FX (currency) fluctuation considerations and laws and regulations surrounding foreign investment.
You may have noticed a trend developing here. Many wealth management questions are situational in nature. They seek to figure out how you would respond in certain common situations that you'll face with clients.
Whenever you face these kinds of questions you should begin by reminding yourself what the role of a wealth manager is. Your role is to ensure that your client is put in the best position to reach their stated financial goals. However, those goals may change over time and ultimately you do not have the authority to go against their wishes (even if you think they're making quite a large mistake).
Often clients will come to you saying they've been given an opportunity to invest (purchase equity) in a private business. Occasionally, for high net worth individuals, these will be startups in Silicon Valley with big name VCs behind them.
However, most often these will be local businesses that have values in the $1-10mm range (or even local startups that haven't even begun yet, whether in the tech space, restaurant industry, etc.).
Ultimately, what I would do in this situation is first reaffirm their autonomy. Make it clear that they can make whatever financial decisions they think are in their best interest, which includes going and investing in a private company.
However, I would remind them of the fact that when you invest in a private company that investment is incredibly illiquid. Unlike a stock or bond you can't just sell it in a few seconds whenever you want (at a clear loss or gain). Instead, you need to go and find someone who wants to take your piece of equity and then agree to what the cost will be. This requires lots of legal fees to make sure it's all above board.
It's very common for someone to own, for example, 30% of a restaurant that is highly successful. But then even though it's doing very well, the minority equity holder can't find anyone to buy it from them when they want the cash.
Further, if you invest in a private company and down the road it begins to move in a direction you disagree with, what do you do then? You can once again try to sell your equity, but if others agree the company is moving in the wrong direction then you'll likely only be able to sell your equity at a fire sale valuation (if you can at all).
The unfortunate reality is that many people look to the unicorn private tech companies coming out of Silicon Valley and think that all private companies operate with the same kind of liquidity and professionalism. But, of course, that's not the case.
Normally when a client hears all this they'll be much less interested in investing. If they still are, it's probably because they have incredibly high conviction in the idea and want to invest in the company irrespective of any future returns (perhaps its the company of a friend or family member or pursuing a cause they deeply believe in).
This is what I call a wealth management technical question. While you can get into quite a bit of detail with a question like this, it's more important that you can give at least some answer.
What you should do is walk through the hypothetical capital structure of a company from the most senior to the most junior piece.
So you'd begin by saying that the most senior part of the capital structure will be a revolving credit line (typically referred to as a revolver). Below that you'll have term loans, which are often provided by large banks or alternative lenders. These will have relatively tight covenants and be collateralized by the assets of the company.
Below the term loans, you get to the bonds. Bonds can be either secured or unsecured and will have names like Senior Secured or Unsecured. Obviously, the secured bonds will rank senior to the unsecured bonds as the secured bonds have a higher claim on the company in bankruptcy.
Below these traditional forms of bonds, you can have various kinds of debt-like instruments such as preferred shares or subordinated notes.
Finally, at the very bottom of the capital structure, you have common equity. A surprising amount of applicants - at least to my mind - are actually entirely unfamiliar with how capital structures operate and when they think of investing think almost entirely about equity (because of how much the stock market dominates financial media).
So showing that you understand how a capital structure operates - even just the short description above - is incredibly important. Here's what Amazon's capital structure looks like:
This is yet another question that allows you to demonstrate that you truly know what wealth management is all about. Many get this question and then immediately begin thinking about answers regarding how rising Fed Fund rates will alter the valuation of equities.
While that is true (and good to think about!) you have to remember that you aren't just managing a pot of money, but also are going to be involved in the more tangential parts of people's lives potentially.
When rates rise this tends to suppress equity valuations. In particular for growth stocks with cash flows coming far in the future, for reasons we already mentioned. Further, real asset prices (commodities) tend to benefit from a rising rates environment.
However, one thing that obviously gets affected by Fed Fund changes directly are mortgage rates and many wealth management clients will have several mortgages. If they have variable mortgages, then obviously this will increase their cash outflow each month. Further, if they were looking to move then suddenly it will be more expensive to carry a mortgage (unless the price of the home looking to be bought has fallen due to rising rates).
Overall, the entire purpose behind lowering rates - or keeping rates low - is to stimulate the economy. So as you'd expect when rates are low, wealth tends to accumulate at a faster pace and more people enter into the HNW or UHNW categories. This is an unmistakable good for the wealth management business.
When rates rise, however, assets tend to cool off and excess valuations tend to tapper. What this generally means for the wealth management industry is that the influx of new clients declines, but this is when wealth managers become even more essential. When markets are volatile or declining, clients are much more apt to be reaching out to their wealth managers for guidance and assurance regarding their financial condition.
Any good answer to this question should cover how asset prices generally change due to changes in monetary policy along with how clients engage with their wealth manager (with the tendency being that more hand holding is needed when rates rise, assets slow their rise or reverse, and practical items like mortgages get more expensive).
Historically there has existed a strong negative correlation between government bonds and equity. This should make intuitive sense as when an economic crisis occurs generally you have a "flight to safety" phenomena. Investors, wanting to preserve capital, sell equities and buy government bonds (called Treasuries in the United States).
Further, generally during an economic crisis you'll have the Fed Funds rate reduced. This generally will lead yields across the yield curve to fall, which in turn pushes up prices further (remember, as yields fall bond prices rise). For reference, here's what the yield curve looks like as of this writing:
With all this being said, there have been some recent periods over the past few years where this relationship has appeared to become broken. Most likely because of how low yields already were prior to the pandemic-induced recession of 2020.
Here's a good article from MSCI discussing the relationship between Treasuries and equities a bit further.
This is a common follow-up question, because it's trying to see if you understand the fundamentally different dynamics at play when thinking about the correlation between equities and government-issued or corporate-issued bonds.
If a company - for example, Ford - has significant declines in their equity price then we would expect to see a price drop in Ford's bonds as well. However, because the bonds are more senior to equity and may have specific collateral backing them we would expect bonds to fall less than equity.
So, if you were to see equity fall 20% perhaps bonds would only fall 4%. Often you'll see equity declines for certain stocks as much as 10-15% without bonds moving in price at all.
This is because equity - that is residing at the bottom of the capital structure - has a residual claim on the cash flows of the company, as opposed to the more senior claims of bonds. So this makes equity more sensitive or, in other words, more volatile than bonds.
We'll end this sample of wealth management interview questions with a qualitative question that is incredibly important to answer well.
While there are potentially a number of different ways you could think about answering this, I'll give you my thoughts.
There are few careers out there that offer the potential to build decades-long relationships with individuals. The relationships that you develop as a wealth manager aren't superficial in any way; they involve at least quarterly interactions with people about their current financial status and their financial future.
When you become a wealth manager, you will take on a deep responsibility. A failure to execute your responsibilities well and to act in the best interests of your client can lead to severely harming their lives. While money isn't the most important thing in the world, it is a necessity. As a wealth manager you are implicitly helping people to carve out the kind of life they want to live. You will be implicitly funding college tuition, vacations, retirements, and nest eggs left behind for the next generation.
While all wealth managers will occasionally feel overwhelmed by the responsibility they must take on, they also have a fierce sense of pride in what they deliver to their clients. Unlike some areas of finance, which can seem devoid of meaning, wealth management can offer a career of deep meaning.
Wealth management can also can provide you with a substantial income of your own, of course. Even modestly "successful" wealth managers in relatively small cities can do very well by any measure. However, if you talk to enough wealth managers you'll quickly realize that why they keep doing it is not for the money, but because people have come to rely on them and they want to do right by them and continue to make their financial lives better and more secure.
Well, there you have it. I didn't expect to write over 5,000 words for this article, but hopefully this gives you an idea of the kind of wealth management interview questions you can expect.
In the end, as you've probably noticed, there are several distinct styles of questions you can get in an interview. Below is a little photo detailing the distinct styles.
As you've also probably noticed, the most important thing to do in all your interview answers is to understand what the question is really asking and answer that.
In many of the answers above I've tried to demonstrate this. If in doubt, just remember what the ultimate priority of a wealth manager is: to serve clients to the best of your ability.
Ultimately the reason why I created this site is that I saw many promising potential wealth managers fail to get through the increasingly rigorous interview process.
Over the past year I've spent a bit of time each week writing down the most common wealth management interview questions and then providing what I believe would be the best possible answers. In total, I put together over 180 of these questions into a book, which you can check out here. I charge an incredibly small sum for it, which helps to pay for the web hosting of this site (and a nice bottle of wine every now and then!).
If you're gearing up for wealth management interviews, try not to get overly stressed out. While it's true that these interviews have gotten much more difficult over the past few years, they still are entirely manageable (even if you only have a few days to prepare).
Treat your interview preparation like a test. Try to find as many practice problems as possible (many are on this site) and practice reciting your answers.
Best of luck!