1. What is Investment Banking?

Definition: Investment Banking refers to a segment in the financial services industry and also a service division within an Investment Bank. It serves various types of clients including corporations, institutions, and governments in capital raising – underwriting and strategic transaction advisory such as M&A and Restructuring. 

IB Overview 1

Let’s clarify with the bank structure in the following passages.

2. An Investment Bank’s Structure

Investment Banks are considered all-encompassing financial institutions that offer a variety of services to corporates across industries. People might have as many types as they want, but at the end of the day, three most common categories are: Bulge Bracket, Middle Market and Boutique. Bulge Bracket Banks – the broadest institutions – have the complete organization.  

A large investment bank is divided into the front office – directly generating revenue for the firm, the middle office – closely supporting the front office, and the back office – responsible for human capitals, accounting, and other administrative tasks . 

Many firms are adopting new technologies that automate and modernize banking processes to create leaner offices, faster operations and enhance client services. These applications allow the bank to save hours of manual labour and significantly lower less palatable costs  to focus on their core business – deliver best services to their clients.

IB structure

2.1 Front Office

Basically, the four main divisions in the front office responsible for making revenues of an Investment Bank are: Investment Banking Division (IBD), Sales & Trading (S&T), Asset Management (AM), and Equity Research (ER). 

2.1.1 Investment Banking Division (IBD)

Definition: Investment Banking Division is the most coveted career in an Investment Bank. It provides high-profile financial services such as debt and equity issuances, private placements of capital, and advisory on strategic transactions (M&A, divestitures, restructuring, etc).

There are two main groups existing parallelly in the Investment Banking Division: Product Groups and Industry Groups.  

Product Groups perform specific deal types such as Mergers and Acquisitions, Capital Issuances and Offerings across all industries. Meanwhile, Industry Groups specialize in a certain industry on many deal types.

#1. Product Groups

Mergers and Acquisitions (M&A) (referred to as M&A in short) advise, devise innovative, customized solutions and execute transactions including mergers, sales, acquisitions, leveraged buyouts, joint ventures, raid defenses, spin-offs, divestitures and other restructurings. 

Say, for instance, the M&A group assists in selling a company, acquiring a company, divesting from a company, spin-offs, or even selling and buying valuable assets of a company. 

Hedge Fund NetworkingFinancing or Capital Market (names varying depending on the firm) advise on the client’s most complex strategic needs for capitals in Equity Capital Market (ECM) and Debt Capital Market (DCM). The group originates, structures and executes public and private placement of a variety of securities: equities, investment-grade and non-investment-grade debt and related products. Beyond securities, the group also assists in syndicated loans, corporate derivatives and other forms of finance. 

#2. Industry groups

A large Investment Bank possesses sufficient capabilities to advise a broad scope of industries including: 

  • Starting your own hedge fundFinancial institutions
  • Technology
  • Healthcare
  • Real Estate
  • Transportation
  • Utility and Energy
  • Natural Resources
  • Industrials (automobile makers, aerospace, etc)
  • Consumer Retails
  • Media and Telecommunication

2.1.2 Sales & Tradings Division

Definition: Sales & Trading Division is a division collaborating closely with IBD. The functions of S&T are:

  • To advise clients on trading securities such as stocks, fixed incomes, derivatives, etc.
  • To distribute securities to potential investors by mapping the market, targeting the right buyers to execute engagements fasters.

Sales Groups and Trading Groups are separate from each other. Sales people build client relationships that help them pitch deals to clients and represent the investment bank on important business issues. Meanwhile, traders are responsible for making the market and executing the orders for clients.

In short, S&T mostly undertakes execution activities, in which its primary responsibilities are to identify the most promising buyers and issuers and match them.  The two main products of S&T are Equity and Fixed Income

  • Equity Trading – The group trades stocks and derivatives
  • Fixed Income Trading – The group trades FICC (Fixed income, currency and commodities)

2.1.3 Research

corporate developmentDefinition: The research division is responsible for writing timely, integrated analysis and reports. It gives bankers comprehensive and granular datas to support their responsibilities. A research analysis report basically includes datas about a company, the sector and the economy that the company does business in accompanied with its prospects. 

The division serves both internal parties and external parties. 

  • External parties order reports from investment banks then pay fees in return.
  • Internal parties such as the Sales and Tradings Division need reports for their pitching purposes. 

The research reports fall into one of three types:

2.1.4 Asset Management

REPEAsset Management largely resembles an investment fund, in which the Investment Bank manages the investments on behalf of investors, or provides investment products to institutional and individual investors. The division invests in stocks, fixed income, derivatives and other types of investments. It offers in-depth investment expertise and advises individual and institutional investors on building, preserving and managing wealth to help them achieve their financial/investment goals.

2.2 Middle Office and Back Office

Middle Office and Back Office do not directly generate revenue but manage risks and make sure that the transactions are executed correctly and successfully. 

  • The Middle Office includes Risk Management, Treasury, etc.
  • The Back Office includes compliance, accounting, information technology, and human resources.

3. Investment Banking: Career Progression, Salary, and Exit Opportunity

3.1 Career Progression

You will start off your banking career as an Analyst – after the undergraduate program, then move up to an Associate after 2 – 3 years, Vice President, Senior Vice President, and Managing Director.

3.2 Salary

The Investment Banking Salary generally includes two parts: Base Salary and Bonus. The base salary at Bulge Brackets is presented in the table. You will be paid slightly higher if you work at several certain Elite Boutique Banks, yet 20-30% lower if you work at Middle Market and Regional Boutique Banks.

Position

Promotion TimelineBase Salary (USD)Total Compensation (USD)
Analyst2 -3 years80K – 90K150K – 200K
Associate2 – 3 years150K – 180K250K – 400K
Vice President5 years with a strong performance200K – 300K500K – 700K
Director/Principal/Senior Vice President5 – 10 years250K – 350K500K – 1,000K
Managing Director 450K – 600K1,000K+

Based on your work performance during a year, the bonus is often 60% to 100% of your base salary, which means the total compensation as an Analyst can go up to 200K USD. However, in terms of cash bonus payment, while Elite Boutique Banks tend to pay you in total cash, Bulge Brackets intend to pay a majority of bonuses in stock. 

Despite the financial hubs of the world, Investment Banks in London, Tokyo, Hong Kong  pay lower than those in the US.

HC43.3 Exit Opportunity

The most popular paths to exit for Investment Bankers are Private Equity, Hedge Fund, Venture Capital, Asset Management, Corporate Development, and Corporate Finance. 

  • Private Equity: It is the most popular exit for Investment Bankers, accompanied with high-profile responsibilities, handsome compensation, and slightly comfortable working hours compared with Investment Banking. If you work at M&A in IDB at Bulge Brackets/ Elite Boutique Banks, your chance is decent. However, the buy-side job is quite competitive with limited slots each year. To make your way smoother, you can start to join the On-Cycle process, which invites fresh bankers to apply right at your first analyst year. 
  • Hedge Fund: It is another top-tier job at Wall Street beside Private Equity. While Private Equity tends to prioritize M&A people since the skills are largely alike, Hedge Fund’s recruiting is more flexible. Provided that you present your flexibility, your interactive skills, and your solid foundation of finance and investment, you are a strong candidate for Hedge Fund. The recruiting process offers two pathways including On-Cycle and Off-Cycle, in which the likelihood of passing of On-Cycle participants is greater. 
  • Venture Capital: It is a special type of Private Equity. Venture Capital’s recruiting quite resembles PE’s one. There are various types of Venture Capitals operating in the industry, because each Venture Capital tends to focus its resource on a certain industry. Those who are interested in tech, healthcare, etc. plus solid investment knowledge and skills, are strong candidates for VC.
  • Corporate Development: It involves mergers & acquisitions and restructuring for a corporation. Your skills and knowledge at IB are totally applicable. The nature of work is not heavy as much as in Investment Banking, plus the better working hours. You don’t need to work over-time frequently and can arrange your timetable more suitably for your friends and family. 

4. How to get into Investment Banks?

4.1 Common pathways to get into Investment Banking

Classification: Investment Banking Division (IBD) as Tier 1, Sales & Trading (S&T), Equity Research (ER) as Tier 2

The step-by-step guide gives you the best shot possible at landing one of the most lucrative careers in finance. However, in this article, the pathway to get into Investment Banking is summarized with 4 main steps as follows:

  1. Resume / Cover letter
  2. Networking
  3. Internship / Relevant Banking Experience
  4. Interview

BIB9If you want to learn about your specific chance of breaking into investment banks, you can check our Wall Street Career Planning Tool. The tool examines the chances of getting into Wall Street for different backgrounds. It provides the big picture of Wall Street’s job market and acts as a career guideline for you to land your dream job.

For undergraduates:

For freshman and sophomore: 

  • Tier 1 summer analyst internships at Bulge Bracket banks are getting more and more competitive. If you have little to zero relatable professional work experience, applying for an Bulge Bracket internship in your freshman and sophomore year is infeasible. However, freshman and sophomore year are golden times to secure a summer analyst in junior year. You should start early and apply for an internship / part-time position at wealth management firms (most realistic if you don’t have a strong network), or ideally boutique investment banks & small private equity funds – this takes a lot of smart networking and some relevant finance course / experience though.  

For junior and senior: 

  • If you are unable to secure a Tier 1 IBD, S&T internship at Bulge Bracket banks, you should focus more on Tier 2 positions at Middle Market & Boutique banks or Sales & Trading and Equity Research. These are considered less competitive, yet still require a lot of smart networking and selling your relevant banking experience on your resume (link to our product). If you are struggling to land an investment banking internship, then internships in Private Equity, Hedge Funds, Venture Capitals, Corporate Development, Management Consulting, Big 4, and Valuations can be viable options. These industries provide a significant overlap or deals directly with investment banking. After equipping yourself with relatable experience, you can apply for full-time analyst roles whose recruitments happen annually. 

For graduates:

Top 20 MBA programs:

  • Associate roles at Bulge Bracket Banks are highly sought-after targets by MBA students. Top 20 MBA students have a decent chance of getting into both Tier 1 & 2 careers given the school’s prestige and strong alumni network. They are often approached by Bulge Brackets’ recruiters right at the campus. The key to win a full-time associate role upon graduation is to grab a summer associate internship right after the first year of MBA. You will need to bankify your resume and know how to sell your background, especially if you did not work in Finance before your MBA. 

Outside-top-20 MBA programs:

  • Though students outside-top-20 MBA have less competitive advantages than highly achieving top 20 MBA students, they have certain chances of landing jobs at Bulge Brackets. Provided that you have strong finance-related work experience, and do a crazy amount of networking through LinkedIn or professional connection, you can stand a good chance of breaking into Bulge Brackets. In addition, you should consider Middle Market banks and Boutique banks since your chances there are higher.

Professionals:

  • Professionals with several years of relevant work experience in Big 4, Consulting, Valuation firms, etc can apply for associate roles and some customized professional programs. Over the past few years, Bulge Bracket banks have offered many slots to experienced professionals. A lot of recruiting programs and events are designed with the aim of diversifying the workforce. The programs vary from firm to firm. For example: Goldman Sachs has Neurodiversity Hiring Initiative, Career Pivots series for professionals who want to learn about the firm and get into the banking career. For this category, your chance will be more decent if you apply for associate roles at Middle Market banks and Boutique banks. The key to win a job at large banks is always sticking with having relatable practical work experience and an extensive network with pro-investment bankers.

4.2 Resume

Make your resume stand out and finance-oriented

The investment banks generally look for three key differentiators on your resume.

  1. History of excellence (i.e. GPA / test scores, awards & honors, brand name, competition wins, leadership) – Quick fact: Goldman Sachs recommends applicants to submit their SAT scores to increase the chance to pass the application round.
  2. Interest for finance, specifically investment banking (i.e. school major, clubs, related coursework).
  3. Relevant Experience (i.e. past finance-related internships, past relatable work experience). – Investment banking internships (i.e. IBD internship) work best.

Mistakes: Candidates often just list their activities rather than putting their accomplishments. 

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4.3 Network

Healthcare network

For undergraduates: 

Once you have finance-related experience, the most effective way to get an Investment Banking interview is to network with your school’s alumni. If there’s no alumni at your targeted banks, you better find current professionals in investment banks by connecting with them on cold calls, LinkedIn, or emails.

You should start networking as soon as possible. The ideal time to start networking is 6-12 months before the application begins. 

For MBA graduates: 

You have to start networking as soon as you get accepted to MBA programs. Similar to the undergraduate group, you should reach out to your school’s alumni first, then current professionals who can give you the most insightful information source.

Mistakes: A lot of students reach out to investment bankers when they do not have any finance-related experience. It won’t look great. You still can connect with them, but it will be better if you can explain detailed plans for your upcoming internships and jobs, and you are looking for their advice. 

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4.4 Internship

Private EquityThe internship is considered a prerequisite to land a place in bulge bracket investment banks. Although relevant finance internships in other financial corporations and firms are appreciated, investment banking internships always work best. 

For undergraduate: 

  • To improve your profile to break into large banks, you need to have at least 1-2 finance-related internships. If you do not have an internship from a bank or a financial services firm, activities such as student-run investment funds in college can be used to support your profile. 

For MBA graduates:  

  • Internship is particularly important. That’s why you definitely have to have one finance-related experience pre MBA or during MBA. If your pre-MBA full-time jobs are irrelevant to banking and finance, it will be very difficult to get into. Let’s equip yourself with at least one summer associate internship at investment banks/private equity firms/ hedge funds. Here, Investment Banking internships (summer associate programs) always work best. 

4.5 Interview

Healthcare InterviewThe recruiting process will include multiple rounds. Normally, there will be three rounds. The first round is to screen candidates’ resumes. The second round is to assess candidates’ practical abilities via short interviews. Specifically, if a resume is qualified, the candidate will be sent a link to complete a video-recording process – HireVue as some firms are deploying (i.e. two behavior/technical questions to test the analytical abilities, presentation abilities, etc) or phone screen, which is still popularly used by investment banking firms. The final round is Superday, when chosen candidates are gathered in the office or nearby hotel to meet interviewers in person. Superday (U.S)/ Assessment Centers (EMAM) are designed to assess both your technical capabilities and physical/mental stamina. Here, in order to receive offers, most highly-achieving candidates will have to get through an intense interview day (simulating the real working pressure) with a myriad of questions largely hinged on their respective division/industry preferences in their application.  

What do Recruiters Evaluate?

Investment banks will evaluate your skills, your technical knowledge, and how you are interested in the position you apply for. Many questions are designed to test these competences. Simply put, interview questions will be around 3 main parts:

  • Behavior questions (often asked in HireVue/Phone Interview)
  • Fit questions (Superday/Assessment Centers)
  • Technical questions (Superday/Assessment Centers)

In which, behavior questions largely resemble fit questions asked during Superday. Some say that HireVue/Phone screen just asks you behavior questions. However, as mentioned above, you can be asked both technical questions and behavior questions right after you proceed to the second round.  The full list of interview question samples and what you need to prepare, let’s check on investment banking interview questions. Presented below is the short version of what you should do to have an upper hand in the interview.

How to Prepare and Ace an Interview

You can visit our interview questions articles for analyst and associate roles for more details. 

#1. For fit/behavior questions, this is the part where you tell your stories with interviewers. Thanks to these questions, recruiters will learn how your previous academic and work experience fits into the division/industry you apply for.  

The questions in the first place always surround:

What you should prepare here are crafting your own stories (reflecting your achievements, past experience, transferable skills and leadership), and backing up small personal stories to answer questions related to strengths and weaknesses. 

If you have some disadvantages in your profile such as low GPA, non-target background, fewer outstanding accomplishments, fewer finance internships, and etc., you have to prepare stronger responses to make up for these “real weaknesses”. 

#2. For technical questions, the interview always sticks with accounting, finance, valuations, and practical deals. 

Beyond technical comprehension, investment banking’s recruiters also want to test your knowledge about the market, practical deals and companies. Your work is to keep abreast of news about markets, imminent IPO, bond issuances, and mergers & acquisitions on a daily basis. The questions largely depend on your experience shown on your resume. That means if you present your active involvement in transactions/deals, you might get many questions about it. Discussing the deals is considered the most challenging part in an interview. 

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