Wealth Management Technical Interview Questions

Chances are if you have spent anytime researching how high finance interviews are conducted, you've come across the dreaded phrase "technical questions".

In investment banking interviews, whole guides are dedicated to these kinds of questions such as walking through a discounted cash flow model, showing how a sale of an asset flows through the three statements, etc.

There are many incorrect things on the internet - which is perhaps the understatement of the century - but one of them is that there are no technical questions in wealth management.

At nearly any reputable wealth management shop, but in particular for those tied into large investment banks, your interview will contain some technical questions.

There's nothing to fear about these types of questions, however. In fact, once you know what ones to expect, and what good answers include, they are often the easiest part of the interview process. 

This is because unlike more qualitative questions these technical questions have definitive answers. You either are going to get it right or wrong.

In the Wealth Management Interviews, I go over 50+ technical interview questions (along with market-based questions, which are quite similar).

Below are some of the top technical questions to be cognizant of prior to stepping into an interview. These are meant to give you a feel for the level of questions and the level of answers expected of you.

Over the past five years wealth management interviews have become significantly more difficult, so these kinds of questions are increasingly common.

Technical Wealth Management Interview Questions

Many enter into wealth management interviews without thinking too much about technical questions. However, in particular for the largest wealth management shops tied to investment banks, you absolutely need to know some basic technicals. The following are some examples.

Question 1: What kind of debt instruments are most common to find in a capital structure of a company

Question 2: What are treasury securities? Can you categorize them?

Question 3: What are TIPS?

Question 4: What shape does a yield curve normally take?

Question 5: Do you know what GDP is and what its components are?

What kind of debt instruments are most common to find in a capital structure of a company?

When a large company funds itself, it has two fundamental options: it can issue equity or it can issue debt.

For debt, there are a myriad of possible securities it can issue that will all come with their own unique set of pros and cons.

When answering this question in an interview you should list the types of securities by senority. What it means to be senior in the capital structure is that you have a highest claim on the company in the advent that they file for bankruptcy. 

Thus the yields on the most senior debt will be the lowest as they are the most secured and thus have the lowest credit risk.

  • Revolvers: revolving debt facilities, also known as asset backed facilities, are like credit cards that a company can draw down and pay back whenever they see fit)
  • Term Loans: these are traditional bank loans, although not necessarily issued by a bank, which have defined maturities and often floating interest rates (for example, they will be L + 400, meaning LIBOR plus 400 basis points of 4%)
  • Senior Notes: these are your traditional bonds that have a fixed coupon payment and defined maturity date. Senior Notes can be backed by collateral or note.
  • Subordinated Notes: these notes are simply less senior than Senior Notes, often not backed by collateral, and thus have higher interest rates attached to them
  • Mezzanine Debt: Mezz debt is somewhere between debt and equity. While it has debt like attributes - normally via coupon payments paid to holders - it will be much more volatile than traditional debt. Convertible bonds are an example of mezz debt; with convertible bonds you buy a bond, that gives you coupons, but you have the right if the stock hits a certain point to convert your bonds into common shares
  • Preferred Equity: preferred equity is just common shares that have a higher payment priority in the advent of bankruptcy. These have no coupon payments attached to them.
  • Common Equity: common equity is what you buy if you buy a common share in the stock market. You are buying a perpetual security (it never matures) and you will receive no coupon payments (although you may receive dividends although those can be cut at any time)

If you were asked which of these securities would be safest to buy, if you could buy any of them, you would say the revolver. If you were asked which one would be most volatile, it would be equity (since equity has the lowest payment provider and doesn't provide any coupon payments).

Understanding how debt instruments work, not just equity, is a phenomenal way to stand out in your interviews.

What are treasury securities? Can you categorize them?

Every major developed country has a deep Federal government bond market and in the United States this is called the Treasury market. In the UK they are generally referred to as GILTS and in Germany they are generally referred to as Bunds.

These government securities are issued at various maturities in order to finance the Federal government and are backed by the full faith and credit of the governments (not by any physical asset, such as gold). 

In the United States, treasuries can be broken down by duration (how long until they mature) into a few distinct categories:

  • Treasury Bills have a maturity under a year and are a key component of what are referred to as money markets (which is a broad term meant to encompass securities that are under a year in duration)
  • Treasury Notes are issued as either being 2-year, 5-year, 7-year, or 10-year, which the most actively issued bonds being 2-year or 10-year
  • Treasury Bonds are issued with a 30-year maturity

One should think of treasury securities - or the relevant securities of any country - as composing a yield curve that shifts and contorts itself due to the market anticipating changing economic fortunes for the country (in terms of inflation, economic growth, and future deficits that need funding). 

What are TIPS?

There are several types of assets that aren't talked about much on the news, but which are highly relevant to the world of wealth management.

One of these assets are TIPS in the United States, which stands for Treasury Inflation-Protected Securities

TIPS can be thought of as simply a premium to whatever inflation happens to be. This stands in contrast to traditional treasuries - which are a far larger market - where a coupon is stated at issuance and does not change due over the duration of the security. 

For TIPS the premium stays constant, but as CPI changes so too will the amount of coupon payments generated for those holding the security. 

Why a wealth manager may be interested in TIPS is that if a client needs to generate coupon income, but the wealth manager is concerned about rising inflation causing treasuries to have negative real rates, then TIPS offer a solution where the client is guaranteed to get some premium to inflation regardless of how high or how low inflation is. 

Treasury inflation protected securities

What shape does a yield curve normally take?

Yield curves are simply the representation of the yields of treasuries up to the 30-year benchmark treasury bond.

The line drawn in-between is interpolated, not representative of actual bonds at those points. 

During the vast majority of the time, a yield curve is upward slopping meaning that, for example, two year treasuries have a lower yield than 30-year treasuries.

However, yield curves can invert, where the shorter end of the curve has a higher yield than the long-end. This primarily happens when the market is more bearish on the economic future than the Fed is. An inverted yield curve - normally at 2s10s or 10s30s - is viewed as a pessimistic economic indicator and is famous for predicting recessions (although it has been wrong several times recently). 

Generally when the yield curve inverts the Fed, or whatever the relevant central bank is, will cut rates and the curve will take a lower, shallower, but upward sloping curvature. 

Here are some more in-depth articles on yield curve inversions, which are always impressive to note in an interview:



Do you know what GDP is and what its components are?

Gross domestic product measures the goods and services created within an economy during a given time period (quarterly or annually).

The equation – via the expenditure approach – is C + I + G + NX.

C stands for Consumer, which can be broken down into: Personal Consumption Expenditure, Durables, Non-Durables, and Services.

I stands for Investment, which is both traditional investment and net change in inventories.

G stands for Government, which an be broken down into Federal and State / Local spending.

N stands for net exports, which is inclusive of both goods and services.

The U.S. economy – like most major economies – is driven primarily (around 65-75%) by consumer spending, followed in roughly equal measure by investment and government depending on the year. Net exports can often be negative for developed economics.

Conclusion & Future Reading

As hopefully you can tell, technical questions aren't necessarily hard. You aren't going to have to break out any first-year calculus in order to answer any of these questions.

However, in a wealth management interview you will have to know at least the basics of these types of questions. There's no need to have overly developed views on them. For example, no one expects you to know about non-call provisions in term loans. That's all far too advanced for an interview.

If you want some extra prep, be sure to check out the private wealth management interview questions I put together, which have a blend of behavioral and technical questions to go over. 

Good luck!

Leave a comment

Please note, comments must be approved before they are published