The job description of an investment banker can include a wide range of duties. Investment bankers help their clients raise money in capital markets by issuing debt or selling equity in the companies. Other job duties include assisting clients with mergers and acquisitions (M&As) and advising them on unique investment opportunities such as derivatives.
The Allure of an Investment Banking Career
Drawn by the allure of high salaries and copious cachet, young, aggressive, ambitious finance students right out of college often gravitate to investment banking. This is one of the few careers in which a 22-year-old with nothing but a bachelor's degree can earn up to six figures in their first year out of school. Moreover, investment banking often serves as a springboard to even more lucrative and prestigious careers, such as venture capital, private equity, and wealth management. Knowing their pitches are well received by hungry finance students, the big Wall Street banks recruit heavily at the Ivy League universities and additionally at other prestigious schools such as Duke and The University of Chicago.
Misconceptions of the Investment Banking Field
A common misconception is that anyone great with numbers is well suited to be an investment banker. Though quantitative acumen is a fantastic trait to have, it by no means unilaterally predicts success in investment banking. The best investment bankers, along with being math whizzes, are persuasive, aggressive, quick-witted, and have unflappable work ethics.
Investment bankers make big paychecks, but it is far from easy money. The financial crisis of 2008 cast a negative light on investment banks, which worked tirelessly during the ensuing years to change the public's perception of them for the better. Some of the adjustments they made were cultural, which included making their work environments more family-friendly. At certain firms, this manifested in better hours, greater flexibility, and more family time, though an investment banker's work week, particularly during the first few years, still rarely runs less than 60 to 70 hours. According to an internal survey conducted in 2021, the average number of weekly hours worked by a first-year investment banker at the Wall Street firm Goldman Sachs is 98 hours.
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Duties of Investment Bankers
Investment bankers conduct many jobs for their clients. At some firms, each individual banker wears many hats, while at others, employees are specialized, with different bankers performing different jobs. At the crux of every investment banking role is raising money for clients. This is primarily done in two ways: issuing debt and selling equity in the company.
Issuing debt means selling bonds to investors. When an investor buys a corporate bond, they are loaning money, or capital, to the issuing company for a fixed number of years, usually at a fixed rate of interest. The issuing company makes interest payments throughout the term of the bond and then when the bond term ends, the company remits the principal back to the investor.
Typically, one of the biggest challenges for a company wanting to raise capital by issuing bonds is finding qualified investors with lots of money to invest. This is where an investment banker comes in; investment banks have entire floors staffed with aggressive salespeople, each with large contact lists of leads from which to solicit investment business. A company wanting to issue bonds hires an investment bank not only to help structure the bonds but also to tap into the bank's vast network of potential investors.
It works the same way for raising capital by selling equity, or stock. Investment bankers serve as the primary go-to people when a company holds an initial public offering (IPO) to sell stock to the public. Newly public companies are scrutinized beyond belief on how their IPOs turn out. The success, or lack of success, from an IPO often sets a company on an irreversible trajectory, for good or bad. For this reason, companies enlist the help of investment bankers to line up big-time investors and put their IPOs in the most auspicious positions to succeed.
Investment bankers assist clients in additional ways. They help broker M&As, lending their expertise to make sure things go smoothly. When clients seek investment opportunities outside their realms of expertise, investment bankers serve in advisory roles to assist in finding the best opportunities.
Skills Needed to Become an Investment Banker
At first glance, the barriers to entry for an investment banking career appear pretty navigable. The educational requirements are not particularly rigid. While an MBA is a popular designation in the field, many investment bankers have only bachelor's degrees, and a few have even less than that. The tests a person must pass, such as the Series 79 and Series 63, to obtain various securities licenses, while not easy, do not carry the reputation of extreme difficulty held by the bar or CPA exams.
That said, investment banking is a highly competitive field. Because the pay is so high and the job is so prestigious, particularly in cities such as New York, applicants far outnumber job openings every year. Having the right skills and being able to display them is paramount for getting a foot in the door. One of the first advantages comes from attending a top-rated university. An aspiring investment banker cannot go wrong with an Ivy League school, while other elite universities such as Duke and The University of Chicago also generate heavy recruiting activity from the big banks.
A major such as economics or finance provides a good academic base, but other skills needed include persuasion, tenacity, and, perhaps most importantly, a tireless work ethic. The competition in the industry does not stop after a job offer is extended. The first few years are tough and serve to weed out a lot of folks who do not belong. Plenty of time is spent on the phone soliciting potential investors and pitching investing deals; those with thin skin, who cannot speak persuasively or tire easily, struggle as investment bankers.
Pay and Hours
The average base salary for an investment banker is about $83,660 per year. However, a first-year banker can add to this amount significantly with bonuses, and the better they perform, the more money they make. In 2020, the top 10% earned almost $160,000 a year, commonly regarded as a good total income goal for an investment banker.
This money does not get paid without lots of hours and lots of work. Anyone who is not capable or comfortable working weeks that frequently run in excess of 80 hours should probably look elsewhere for a career. Some banks even feature rooms with bunks; these are for investment bankers who find themselves at the office at midnight or later but realize they still need to be at their desks prior to the next morning's opening bell. Certain investment banks have tried to improve work-life balance as part of a cultural overhaul they hope can rehabilitate the industry's image in the wake of the 2008 financial crisis. However, the day when investment banking is a Monday-to-Friday, nine-to-five career is a long way away, if it ever comes.