Investment Banking Career Path, Jobs, Salaries, Top Companies, and Challenges

Investment banking is a very popular career option in the modern financial-corporate world. Investment banks attract a large pool of skilled talent from countless universities that churn out investment bankers across the world. In this post, we discuss what is investment banking, what does an investment banker do, typical career path, required educational qualifications, investment banking job functions, salaries, top companies, and challenges.

Investment Banking Careers

Co-authored by Parinita Gupta

What is Investment Banking?

Investment banking is an area of the financial services industry that focuses on managing and increasing the financial assets of clients. Investment bankers help companies invest their assets with a view towards increasing the value of their portfolios. They primarily act as advisors and brokers, helping their clients identify and capitalize on great opportunities.

Investment Banking Career Path, Jobs, Salaries, Top Companies, and Challenges

Investment banking is a special division of financial institutions and banks which serves the state and central government and other services like corporations, institutions, commercial & non-commercial banks for various transactions. These banks provide proper guidelines regarding stocks and mutual funds. It is basically a financial advisory industry which guides the investors to invest in various entities.

What is the Investment Bank?

An investment bank (IB) is a financial intermediary that performs a variety of services. Investment banks specialize in large and complex financial transactions, such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and acquisitions (M&A), Sales and trading, equity research, asset management, and acting as a broker and/or financial advisor for institutional clients.

Major investment banks include Barclays, BofA Merrill Lynch, Rothschild, Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, UBS, Credit Suisse, Citibank, and Lazard. Some investment banks specialize in particular industry sectors. Many investment banks also have retail operations that serve small, individual customers.

Investment banks do not accept any kind of deposits, they just guide the investor, provides capital investments to the business organizations and accept various kinds of investments which provide many kinds of mutual benefits.

One of the main ways an investment bank functions 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.

Main Functions of Investment Banks

  • Securities research: Investment banks perform various kinds of researches and issues many reports which provides a detailed report regarding the company’s status and investments by considering “Buy” “Sell” and “Hold” rating system.
  • Proprietary trading activities: Investment banks engage in buying and selling of financial products which bring profits in every trade. Products include stocks, bonds, and derivatives and many more.
  • Investment management: Investment banks generally help the organizations by providing appropriate advises regarding the investments in various entities which gives benefits to individuals or organizations.

What do Investment Bankers Do?

The primary responsibility of investment bankers is to advise their clients on investments and help facilitate those investments. This means that investment bankers essentially act as advisors and brokers, assessing the needs of their clients and then finding the right solutions to meet those needs. Once the client has decided how they would like to proceed, it’s up to the bankers to negotiate deals and mergers, ensuring that they are keeping their client’s best interests in mind.

Common Job Duties and Responsibilities of Investment Bankers

  • Work with specific product groups or industry groups
  • Liaise with client companies
  • Act as an advisor and manage transactions for clients
  • Structure deals and negotiate favorable terms
  • Work in bridging loans
  • Interface with corporate finance groups, Capital markets professionals etc.
  • Keep track of market conditions – Debt capital markets or Equity capital markets
  • Interact with other professionals working in financial strategy, derivatives, currency trading, convertibles, and equity derivatives
  • Work in mergers & acquisitions to set up deals
  • Undertake transactions in equities, bonds, currencies, options or futures for large institutional investors
  • Facilitate the creation of financing vehicles to redirect cash flows to investors
  • Work as advisors in capital structure, valuation and risk management
  • Work in equity and fixed income research
  • Convey information about specific securities to institutional investors
  • Maintain interface with portfolio managers and the firm’s analysts and traders

Investment Banking Career Path

Investment Banker Positions

The career of an investment banker progresses along a fairly standard path. Investment banking positions from junior to senior:

  • Analyst: These are usually people just out of college or employees with 1 or 2 years of work experience. They are usually involved in data collection, creating presentations, and basic analysis of financial data. This experience is important for any aspirant to be a successful investment banker as most of the financial concepts get developed during this course of his/her career.
  • Associate: After 3-4 years of experience, an analyst is promoted to the level of an associate, with additional responsibilities like client interaction and managing a team of 4-5 analysts.
  • Vice President: A vice president is usually an expert in investment banking with experience in a variety of projects. A VP is responsible for maintaining client relationships and making sure the operational efficiency at each level of hierarchy underneath.
  • The Director or Managing Director: It is a very senior post in the investment banking domain and can be achieved only after 15-20 years of experience in the field. An MD is usually responsible for getting more business and converting potential clients into actual deals.

To make a career in the investment banking field, one should have a bachelor’s degree in accounting and Finance. Some well-known investment banks look for master graduates in Finance and also for MBA graduates in Finance who have common subjects like Economics, marketing, mathematics, accounting, and financial reporting. To grow up in this sector aspirants should have the license in various stock exchange programs.

Entry Points

Analysts are recruited from undergraduate (B.Com or B.A.) programs at target schools, or other highly regarded universities.  An analyst is typically expected to stay for 2 to 3 years at which point they will either be promoted, go back to business school, or move on to something else.

Associates are recruited from MBA and/or other graduate student programs. Strong analysts can be promoted to associate roles, but typically analysts will be required to go back to school before being promoted.  Associates have similar responsibilities as analysts but take on more responsibility quickly and are on the fast track for promotion.  Both roles require extensive financial modeling and presentation building skills.

Many investment banks give preference to Chartered Financial Analysts who have proper credentials from CFA institutes. CFA is a broad subject which covers the entire process in investment banking like investment valuation, company analysis, and portfolio management.

An Internship is very critical during Bachelors or MBA

Although most entry-level investment bankers start as financial analysts, the investment banking career track really begins with an internship. In fact, both large banks and smaller boutique banks recruit entry-level employees from their yearly crop of interns, so securing an internship during college is key to setting yourself up for success.

An internship is a fantastic opportunity to build your skill set and get on-the-job training. This is especially important in a field like investment banking which is both technical and specific. By taking on one or more internships during your time in college, you’ll gain exposure to many facets of the industry and be able to find an entry-level investment banking job that’s right for you.

This will typically be a summer internship during your junior or senior year and (if successful) will lead to an offer for a full-time financial analyst role.

Careers and Job Domains in Investment Banking

Following is a broad classification of services offered within the domain of investment banking:

Corporate Finance

Corporate finance is the division of a company that deals with financial and investment decisions. Corporate finance is primarily concerned with maximizing shareholder value through long-term and short-term financial planning and the implementation of various strategies. Corporate finance activities range from capital investment decisions to investment banking.

In a corporate finance position, you would work towards helping the client raise capital to start new projects or scale up the on-going operations. As it also includes determining the right balance between equity, debt, and securities for attaining higher levels of profitability, the team should have sound knowledge of applied finance and its concepts. This is the most widespread profile in the investment banking domain and is usually considered as a foundation of investment banking.

Mergers and Acquisition (M&A)

The team here is responsible for servicing the client on a strategic level and acting as an advisor in facilitating valuation, structuring, and negotiations of the deal. This division is one of the major sources of revenue for investment bankers across the globe.

It is often very difficult to start off a career in investment banking in this profile. A candidate needs to have at least 4-5 years of hands-on experience in financial services before getting an entry in this profile as the work involves a lot of strategy building, which requires enough exposure to various facets of financial management.

Capital Markets

It includes both equity and debt markets, where the team advises the client on the most appropriate time, valuation and form of issuance. Often the investment banks also help their clients in issuing funds in the market. This involves an in-depth understanding of the capital market and its volatility.

It is usually the starting profile for most of the investment bankers around the world. An aspirant can join as an analyst in this profile and then can take off in various streams within investment banking. An aspirant looking for a career in this profile needs to be strong in financial, securities and derivatives analysis.

Sales and Trading

The team, on behalf of the clients, is responsible for undertaking transactions in equities, currencies, bonds etc. with other institutional investors and traders. It is one of the most desired jobs in investments banks and requires a robust understanding of financial instruments, capital markets, options futures, and derivatives.

As it involves verbal and organized, written interactions at all levels, interpersonal and communication skills are of vital importance. Growth in this profile is among the fastest in investment banking profiles. Consistency in performance is of utmost importance for an investment banker to move up the hierarchy in this profile.

An analyst can become a senior associate in a very short span of time as the performance is very easily quantified in such a profile. Equity and debt research, financial restructuring, public finance, and project finance are a few other, amongst numerous, services offered by investment bankers to their clients.

Related: Equity Research and Analysis Careers and Jobs

All these services require high inclination towards financial analysis and number crunching for building a successful career in investment banking.

Career Progression and Alternative Career Tracks

Analysts or associates typically go on to work in private equity (“PE”), equity research, in-house at a corporate, or do something entirely different.  Most investment bankers dream of “graduating” to PE, and the banks are natural feeder systems for these firms.  Corporate development (“corp dev”) is a pleasant stepping stone from IB and provides exposure to similar transactions, on the client side.

Investment Banking Salary

In India, A graduate with master’s degree or bachelor’s degree with good work experience has a lot of chances to earn on an average range of 2.56 Lakhs to 39.99 Lakhs of salary per annum and a Median salary of 10.9 Lakhs to 20.8 lakhs per annum. As per PayScale India, the average salary for an Investment Banker is Rs 702,124 per year. While Glassdoor India shows an average salary as Rs. 902,800 per year.

According to U.S. Bureau of Labour Statistics (BLS), there is an 11% growth in the industry and by 2020 an average growth in all the occupations present within the financial industry and professionals like investment bankers, financial agents, sales associates are seen. A professional with good experience will earn an average salary of  $71,720 with a good amount of Bonus. An analyst and a CFA certified have a lot of chances to earn more, i.e on average of $100,000 per annum.

A career in investment banking involves dealing with various kinds of investments and managing the money in different forms. Job outlook and prospects in this field are quite very positive and seem to have a lot of scope in the next several years.

Top Investment Banking Companies in India

  • JP Morgan Chase
  • Goldman Sachs
  • Bank of America Merrill Lynch
  • Morgan Stanley
  • Citigroup
  • Deutsche Bank
  • Credit Suisse
  • Barclays Capital
  • UBS
  • Wells Fargo
  • HSBC Holdings
  • Accenture

Work-Life Balance is a Myth

Life as an investment banker is characterized by uneven bursts of activity followed by times of calm or even boredom. Unlike financial analysts (equity research analysts), investment bankers are directly responsible for generating revenues and pulling the trigger on investment decisions.

Investment banks are notorious for their demanding hours, with 100-hour work weeks being the norm for entry-level investment banking analysts. It is not uncommon for investment bankers to work 80+ hours a week (roughly six 13.5-hour work days) or to always be available via phone or email, even during early morning hours on weekends or vacations.

Investment bankers need to work frantically at nights and wee hours of the morning to complete a pitch book, rush home in the morning to shower and change, and then head straight back to the office for the meeting. In such high-pressure situations where there are multiple competing deadlines, the ability to not just cope, but thrive under pressure, is extremely important. If you wilt and wither in such situations, you may need to consider a less stressful field than investment banking.

In this field, you have to believe, “Money isn’t everything, it’s the only thing.” If making money isn’t a key driver for you, look to another career.

Technological Disruption is Causing Downsizing

It’s true that investment banking is an extremely lucrative sector. The typical salary for equities sales, trading, and research jobs in a bulge bracket investment bank are around $500,000. M&A professionals can get much higher. But, technological disruptions are creating havoc in the investment banking sector.

In the year 2000, Goldman Sachs employed 600 traders in its New York HQ office. Last year that number went down to 2 traders (Source)! And they hired 200 software engineers to write and support automated trading programs. Other business lines within the firm, such as research, corporate finance are moving in the same direction.

That breaks the notion that only back-office operational jobs are being lost to AI and machine learning. Seems like front-office jobs including investment banking jobs aren’t safe either. You might like to read the impact of machine learning and AI in the banking and fintech sector.

Sources: 1, 2, 3, 4, 5, 6, 7.

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