One of the main functions of an investment bank is to operate as an intermediary between companies that want to raise money by issuing securities and individual or institutional investors who are willing to provide money in exchange for securities. Investment bankers handle every aspect of these transactions.
- Investment banks facilitate deals between companies that want to raise money by issuing securities and investors who are willing to pay in exchange for securities.
- Investment bankers handle financing issues, including helping a corporation choose what type of securities to issue, or placing those securities with investors, also known as underwriting.
- Investment bankers also help with the completion of mergers and acquisitions, including company valuation, strategizing, and deal finalizing.
What Does an Investment Banker Do?
Investment bankers advise companies on what kind of securities to issue, such as stocks or bonds, and how, when, and at what price to issue them. They also handle placement of the securities with investors, a process known as underwriting. In addition to working with private and publicly traded companies, investment bankers also underwrite municipal bonds and other types of debt securities.
Beyond company financing activities, investment bankers also handle a variety of other complex financial transactions. For example, an investment banker may help facilitate a company merger and acquisition (M&A) by providing advice and other related services to parties involved on either side of a potential transaction. They may assist an M&A client with company valuation, strategy formation, and deal negotiation. Investment bankers may also be involved in financing the final deal if it requires the issuance of new debt or stock.
What Is a Typical Career Path?
Many investment bankers begin in the industry by participating in internships with investment banks when they are undergraduate students. Although an internship is not required to enter the field, it is an excellent way to get started.
After graduating with a bachelor's degree, it is possible to begin working in the field as an investment banking analyst conducting research and producing analytical reports for more senior staff members. Working as a financial analyst in a wealth management firm, bank, hedge fund, or another financial organization is also a good way to begin building experience.
Typically, with several years of experience and a strong record of good performance, an analyst can often move into a junior-level position as an associate investment banker. This position may also be available to a highly qualified candidate with a master's degree and a strong resume but little investment banking experience.
Commonly, the junior analyst phase is "on-the-job training" that usually lasts about 2 years. Some companies such as Goldman Sachs have Goldman Sachs University, which provides education to new analysts for 6-8 weeks. Junior investment bankers eventually participate in most aspects of investment banking, including the planning, structuring, and execution of large financial transactions. With good performance, junior bankers can move into senior positions overseeing transactions from start to finish.
What Type of Education Is Most Common?
A bachelor's degree is the minimum educational qualification required to work as an investment banker. Entry-level analyst positions in the field are typically open to bachelor's degree graduates, and it is possible to move on to a senior banker role without a master's degree in many investment banks. However, a master's degree is very common among the mid-level and senior staff in this industry, as it helps to pave the way for career advancement. In some investment banks, a master's degree is required for entry into the investment banker career track.
Goldman Sachs, JPMorgan Chase, Bank of America Corporation, Morgan Stanley and Citigroup Inc. are the five largest investment banks in the world.
Most investment banks prefer degrees in finance, accounting, business administration, and other business disciplines. Undergraduate degree subjects are less influential in the hiring process if a candidate has a master's degree in business administration, finance, or another highly relevant subject. Coursework in finance, economics, and mathematics is highly recommended.
What Certifications Are Required?
Professional certifications are rarely required to get started in investment banking or to progress into senior positions. That said, the Chartered Financial Analyst (CFA) designation, awarded by the CFA Institute, can potentially provide a leg up in the job market. This professional designation is generally considered the most important certification for professionals working in the investment field. It is available to investment analysts and other types of financial analysts who have a minimum of four years of qualifying experience. Candidates must pass three examinations to earn the designation.
Investment bankers have to obtain appropriate licenses from the Financial Industry Regulatory Authority (FINRA), an oversight body responsible for securities firms and brokers operating in the United States. As the licensing process requires sponsorship from an employing firm, professionals in the investment banking career track typically complete licensing requirements after getting hired. Many investment bankers require Series 63 and Series 79 licenses, although requirements can vary depending on the job.
The Bottom Line
Investment bankers advise companies on issuing securities and handle the placement of the securities with investors, known as underwriting. Degrees in finance, accounting, business administration, and other business disciplines are common in the investment banking career path. A junior analyst can spend about 2 years in the phase of "on-the-job training," Career investment bankers must obtain appropriate licenses from the Financial Industry Regulatory Authority (FINRA).