Investment Bankers always appear as some suited guys running around with the phone in the office, talking about multibillion deals. But what do Investment Bankers exactly do? Let’s break down this complicated yet prestigious term.
1. What do Investment Bankers do: The Role of Investment Bankers
Investment Bankers act as advisors on the financial market. They deploy deep investment expertise in advising clients on multibillion deals. A large investment bank comprises 4 main divisions including Investment Banking, Sales & Trading, Equity Research, and Asset Management. Bankers perform tasks and responsibilities with respective departments. In fact, they do not work independently, the responsibilities of those departments overlap in some areas. Let’s take a look at an example below to see how Investment Banks get involved in the financial world.
For example: Tesla planned to raise $5B through stock offerings to make another investment push for its operation expansion and the development of new vehicle types. Tesla turns to Capital Market Groups of top Investment Banks to determine the valuation, price its stock, and estimate the number of stocks Tesla should offer, etc. Following those pre-offering steps, if Tesla decides to offer their stocks, the electric-vehicle maker will enter an equity distribution agreement with Sales & Trading Divisions of grand-tier Investment Banks including Goldman Sachs, Bank of America, Credit Suisse, Morgan Stanley, Deutsche Bank. These banks will help distribute its stocks to institutional investors or individual investors. Simply put, from research to distribution of stocks, Investment Banks are firms that may offer capabilities to fulfill all financial requests and make the process go smoothly all along.
1.1 What do Investment Bankers do in the Investment Banking Division (IBD) ?
The Investment Banking Division includes two main groups called Product Group and Industry Group. The Product Group specializes in financial services while The Industry Group has expertise in a vast range of industries. But generally, both groups advise on debt and equity insurance, private placements of capital and strategic transactions such as mergers, acquisitions and divestitures. For more details about how an Investment Banking firm is structured, you can visit here.
This part will cover what Investment Bankers do in specific deals such as Mergers & Acquisitions, Capital Raisings.
Mergers & Acquisitions (M&A)
Mergers and Acquisitions (M&A) is one product group in the investment banking division. The M&A team excels in in-depth knowledge and extensive experience across both domestic and international transactions. They advise, devise innovative, customized solutions and execute transactions including mergers, sales, acquisitions, leveraged buyouts, joint ventures, raid defenses, spin-offs, divestitures and other restructurings. Simply put, they are transactions such as selling companies to buyers or divesting from a company, spin-offs and acquiring other companies or a specific division, assets of other companies.
Specifically, Mergers & Acquisitions group serves two types of clients: sell-side and buy-side. The responsibilities will differ depending on which side they advise on.
On the sell-side engagement, Investment Bankers do following responsibilities:
- Keep our fingers on the pulse of industry M&A trends to set valuation expectations for client companies and help them plan their timing and go-to-market strategies
- Deploy our knowledge of the client and its industry to craft a set of key points that form a compelling investment thesis—then assembling marketing materials such as the “Information Memorandum” to convey these points
- Identify and contact potential buyers, manage information flow and holding strategic discussions with interested parties
- Establish a formal bid process for the company, review bids and helping select a buyer
- Set up an online diligence “data room” and serve as the primary liaison between the buyer (and/or its advisors) and seller during due diligence
- Help negotiate the final terms of the deal
On the buy-side engagement, Investment Banker do following responsibilities:
- Evaluate the potential target and its industry to set a preliminary valuation
- Assess the strategic fit of a potential target with the client; identify and, to the extent that it’s possible, quantify synergy opportunities
- Craft a bidding strategy and help draft proposed terms of purchase
- Identify potential issues in the diligence process and follow up accordingly
- Analyze the buyer’s capital structure to determine the correct transaction financing; help the buyer find financing
- Help negotiate the final terms of the deal
The Capital Market is an integral part of an Investment Bank. Although M&A is the most sought-after division among Investment Banks, Capital Market reportedly generates significantly higher revenues than M&A.
Capital Market is geared towards handling capital demands of companies through stock offerings and debt offerings (see the example above). Prior to offerings, an investment bank performs analyses to advise the companies on whether the prospective offerings should be deployed or not, and if deployed, where and who they should target to raise the most money.
The roles of Capital Market division will differ depending on whether a banker is working on Equity Capital Market Group or Debt Capital Market Group. Generally, the Capital Market division’s responsibilities largely resemble sell-side M&A transactions. Positioning the company to potential investors, drafting marketing materials, conducting investor outreach, and determining price are responsibilities a Capital Market banker handles on a daily basis.
In Equity Capital Market, the investment banker’s responsibilities include:
- Consult the term of the offering and the risk it carries to the board of director of the company
- Work the issuance process with the U.S. Securities and Exchange Commission (SEC)
- Analyze the financial performance, the potential of the company
- Price the stock of the company
- Write equity research report to evaluate the price of the stock
- Pitch clients for selling or buying stocks
- Execute the deals between investors
In Debt Capital Market, the investment banker’s responsibilities include:
- Pitch to clients on debt issuance, discussing with clients and investors
- Answer questions about interest rates, benefits from issuing new debts
- Perform detailed analysis and presentation, but no financial modeling, valuation as M&A
- Meet with clients to execute the deal and to negotiate deal terms
- Write memoranda for clients and sales force team
- Create good case studies, work on slide updates for other industry and product groups, work with data for other required purposes
1.2 What do Investment Bankers do in Sales and Trading Division
Sales & Trading in Investment Banks serve as intermediary between issuers (companies) and buyers (investors). Working in investment banks is always a team effort, it depends on the particulars of the situation and the deals. But generally, in the reverse order of seniority, the division of work is as follows:
– Support in researching market trends and opportunities for clients
– Build financial model and report
– Preparing client presentation
– Assist sales or trading teams with daily work on the trading floor.
– Always be on call with clients for pitching, updating market situations
– Do research to provide insights in trading securities.
– Prepare commentaries, payrolls, notable trades
– Assist at trade desk
– Manage trade blotter ( a record of trade activities)
– Build relationship with medium-sized clients
– Support daily functions of the sales team
– Ensure the accuracy of trade booking
– Maintain relationships with clients by helping them execute the trades.
– Do market making for a financial instruments (stock, bonds, etc)
– Inform clients and internal company about market updates
– Support with Profit & Loss of trading book
– Build relationship with medium to large investors
– May cover a portfolio
– Contribute in sales strategy
– Handle trading books (the list of portfolio intended for trading)
– Be responsible for risk management and trading activities
Director, Senior Vice President
– Build relationship with large clients
– Relationship manager role for larger client
– Create sales strategy
– Manage a trading book (generally a larger and more profitable than a VP)
– Handle large transactions
– Create strategy for trading and overall risk management.
– Manager of sales team
– Relationship managers for largest clients
– Manager of trading desk
– Oversee risk limits
– Manager of largest trades
1.3 What do Investment Bankers do in Equity Research
Equity Research refers to investment research. This is a division consisting of researchers for potential equity. They will conduct research about a listed company on a stock exchange to recommend which stock to buy, sell or hold in an equity research report.
In Equity Research, Investment Bankers in general do:
Equity Research Analysts are responsible for a group of stocks or companies in a specific field. They have to gather information – data to conduct a research. Data will be collected from many sources, both public sources (google, news, annual reports and so on) and private sources (the company’s board of directors and so on). They also have to lay their eyes on the global economic situation, new trending markets, size of the market and a very important element – competitors, to hedge risk or seize new investment opportunities.
Equity Research Analyst analyzes the information gathered by evaluating the financial performance of the company through financial statements, building financial models in Excel to project revenue and profit of the company in different scenarios of the market. This gives readers a clear insight of the potential of the company.
Evaluate the stock price
Using the data from the previous step, Equity Research Analysts conduct a research to conclude whether to “buy”, “sell” or “hold” that company’s stock to investors. They evaluate the price of the stock at the moment by using some Equity Valuation models such as DCF, Relative Valuation, SOTP valuation, P/E EV/EBITDA methodology or using some metrics like P/E Ratio, EPS, ROE, ROA, et cetera.
Write equity research reports
Equity Research Report is the report representing investment recommendations about one stock. This may be used for internal or external purposes.
1.4. What do Investment Bankers do in Asset Management?
Asset Management refers to the management of investments on behalf of investors. The Asset Management division involves managing the fund of institutional investors by investing in stocks, fixed income securities, derivatives and other types of investments. Investment banks provide deep investment expertise and advise individuals and institutional investors on building, preserving and managing wealth to help the clients achieve their financial/investment goals. In this division, investment bankers do:
- Research and collect data for investment decision
- Evaluate and answer customer inquiries/requests
- Use Data Analytics to extract, analyze and mitigate risk
- Inform customers about upcoming investment decision
- Create, maintain financial modelings
- Lead and conduct research studies on different assets opportunities
- Manage the client’s portfolio, align the portfolio with the financial goal of the clients.
- Pitch the investment ideas to the clients
- Report weekly or monthly to the clients
- Manage investors relationships
Working as an Investment Banker means intense workload and long working hours. An average day in life of an Investment Banker should be like this:
3.1 Work-based on Client Demands
Investment bankers always have to work around the client’s schedule so they can’t control the working hours actively, they have to work according to the client’s demand. Sometimes, to deal with urgent requests, investment bankers work overnight. Also, the actual work of an investment banker starts truly after the stock markets are closed. So they usually have to stay in the office till late hours of the day.
Precision and accuracy are the basic requirements of all the works in the investment banking industry. A small mistake can lead to the loss of millions or billions of dollars. So investment bankers need to be extremely careful about the data they work with, double or maybe triple check is required every time. Thus, perfecting all the work can consume loads of time.
3.3 Intense Workload
Service such as M&A requires a huge amount of time and effort to work on. This means investment bankers have to spend a lot of time working on different kinds of models, terms sheets before the deal is executed.
4. How much do Investment Bankers Make?
|Position||Promotion Timeline||Base Salary (USD)||Total Compensation (USD)|
|Analyst||2 -3 years||80K – 90K.||150K – 200K|
|Associate||2 -3 years||150K – 180K||250K – 400K|
|Vice President||5 years with strong performance||200K – 300K||500K – 700K|
|Director/Principal/Senior Vice President||5 – 10 years||250K – 350K||500K – 1,000K|
|Managing Director||–||450K – 600K||1,000K+|
5.1 Consulting Fee
Investment banks provide services for clients as a form of consultation. So they charge to the client. The amount of money charged can be calculated by 2 ways: Effort-charged and Value-charged. With effort-charged, before starting the work, investment bankers would estimate how much effort they would put in the project. Then they charge a fixed rate per day or per hour over the total duration of the project as consulting fee. Meanwhile, the value-charged is based on the same logic that the intermediary receives the commision over deals they advise on. The investment bankers would charge a certain percentage of the money of valuation of the project. This method is commonly used in M&A deals and securities issuance in the stock market.
5.2 Interest on Funds Raised
One of the most common services that investment banks provide for the clients is raising funds. The money can be raised as the loan from the bank to the clients or from an external party. For the first case, investment banks earn money by the interest coming from the loan. Usually the money will be paid monthly or annually till the time the loan is completely paid, but sometimes, it can be a bulk payment at the beginning of the loan. For the second case, they would charge a certain percentage as a fee to help clients raise the fund.
Investment banks also provide trading services to the clients. So as they execute transactions, they charge a certain percentage on the transactions which they do on client’s behalf. The percentage is different between investment banks.
6.1 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 created with 6 steps (embed a link to 6 steps) 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:
- Resume / Cover letter
- Internship / Relevant Banking Experience
If 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 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.
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 (link to our product), 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 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 (embed a link to network products) with pro-investment bankers.
For a detailed assessment of your chance of getting into these Tier 1 & 2 division/ careers, leverage our Wall Street Career Tool.
Make your resume stand out and finance-oriented
The investment banks generally look for two key differentiators on your resume.
- 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.
- Interest for finance, specifically investment banking (i.e. school major, clubs, related coursework)
- 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.
Beyond basic mistakes listed out above, what are some of the other common mistakes candidates make? If your resume is not “bankified”, it will be difficult to get past even the 1st screening round. BankingPrep Resume Toolkit is here to make your resume stand out among the piles of thousands of prominent candidates, and make it finance-oriented even for non-target backgrounds. Your profile will be proofed properly to make sure it has absolutely NO mistakes.
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. (Need a template for this type of networking)
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.
The 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.
- 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. This is an example of a student’s resume without an internship (link to resume product)
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.
The interview process will include multiple rounds. Normally, there will be three rounds. The first round of application is to screen candidates’ resumes. The second round of application 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 of application 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 (embed a link to interview question articles). 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:
- Introduce a little bit about yourself / Walk me through your resume
- Your strengths and weaknesses
- Your achievements and failures
- Future plan and why Investment Banking?
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.
- Accounting: Financial statements (types of financial statements, links between different types of financial statements), revenues, operating costs, EBITDA, debt & equity, etc.
- Finance: Equity Investments (stocks), Fixed Income Investments (government bonds, corporate bonds, commodities, currencies) , Derivative Investments (options, futures, forwards, swap), etc.
- Valuation: Valuation metrics and multiples, (Discounted Cash Flow, LBO modeling, etc.), knowledge about mergers and acquisitions, etc.
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.