This article contains information on how to become an investment banker.
Before delving into who an investment banker is and what they do, let’s get a hold of what an investment banking is.
An investment bank is a financial intermediary that performs a variety of services. Most 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 other corporate reorganizations and acting as a broker or financial adviser for institutional clients.
Investment banking is no doubt a lucrative profession. Entry-level jobs salary in investment banking can be likened to top-level salaries in many other fields. The US Bureau of Labor Statistics groups investment bankers with securities, commodities, and financial services sales agents, and this group earned a median yearly salary of $71,720 in 2012. Investment bankers’ base salaries are often enhanced with bonuses and rewards from their employer, so one’s earnings in this field can be quite high, reaching past $100,000 within a few years as an analyst.
Who is an Investment Banker?
An investment banker is an individual who often works as part of a financial institution and is primarily concerned with raising capital for corporations, governments, or other entities. Investment bankers often work at investment banks.
When corporations and municipalities want to raise capital to fund their operation, they go to an investment bank for assistance. An investment banker works with these entities to underwrite or find buyers for, securities like bonds or stock to raise the capital the organization needs.
Investment Bankers are individuals who help companies, organizations and clients manage and grow their financial assets. They help companies make sound decisions when it comes to investing their assets with the motive of increasing the value of their investments. Investment Bankers are expected to have a good knowledge of market trading activities and profitable securities. Based on this knowledge, they can guide a client towards making better decisions when it comes to investing their money in the market through activities such as purchasing stock or securities. Apart from this, Investment Bankers also work as mediators or brokers between two parties and are often responsible for setting up deals or facilitating mergers and acquisitions.
Types of Investment Bank Activities
1. Financial Advisers
As a financial adviser to large institutional investors, the job of an investment bank is to function as a trusted ally that accouches strategic counsel on a variety of financial matters. They perform this mission by combining a thorough understanding of their clients’ objectives, industry and global markets with strategic vision trained to spot and estimate short- and long-term opportunities and difficulties facing their client.
2. Mergers and Acquisitions
Managing mergers and acquisitions is a principal component of an investment bank’s work. The main contribution of an investment bank in a merger or acquisition is appraising the worth of an attainable acquisition and helping parties reach a satisfactory value. An investment bank also assists in structuring and facilitating the acquisition in order to make the deal go as smoothly as possible.
The research departments of investment banks evaluate companies and write reports about their prospects, often with “buy”, “hold” or “sell” ratings. While research may not produce revenue itself, the resulting information is used to support traders and sales. Investment bankers, meanwhile, receive publicity for their clients. Research also provides investment guidance to external clients in the hopes that these clients will take their advice and complete a trade through the trading desk of the bank, which would generate revenue for the bank. Research maintains an investment bank’s institutional knowledge on credit research, fixed income research, macroeconomic research, and quantitative analysis, all of which are used internally and externally to advise clients.
Skills and Requirements to Be an Investment Banker
The investment banking field has gained interest over the years as investment bankers are generally very well-paid. To be an investment banker is not a child’s play specific skills, like
- Outstanding number-crunching abilities,
- Persuasive skills and Negotiation Skills
- Time management skills
- They must be well-versed in the behaviour of financial markets and in the legal requirements that investment banks and their clients must meet for each process.
- Awareness of common e-commerce technologies.
- Ability to implement strategies to increase business growth through the use of the web.
- Understanding of how e-commerce fits into the banking industry
- Development of skills needed to manage mergers and acquisitions between businesses
- Understanding of the laws governing capital structure changes.
- Ability to consult with clients about financially healthy mergers and acquisitions.
- Awareness of different types of investments available, and the pros and cons of each.
- Ability to consult with clients on investment opportunities best suited to their goals
- Understanding of various portfolio selection models.
- Exceptional verbal and written communication skills,
- and the capacity to work very long and grueling hours.
Investment bankers are expected to abide by their firm’s designated code of conduct and will generally sign a confidentiality agreement, given the delicate nature of the information they receive. Moreover, there is potential for a conflict of interest if the advisory and trading divisions of investment banks interact.
What Does an Investment Banker Do?
The job description of an investment banker is often or closely related among differing investment banks. He or she will support in large, complicated financial transactions. These may include structuring an acquisition, merger, or sale for a client or group of clients. Their job requirement also entails the issuing of securities as a means of raising money which is the core of their job. It involves creating detailed documentation for the Securities and Exchange Commission (SEC), necessary for a company to go public.
1. Risk Identification
An investment banker works to maximize their client’s time and money by recognizing uncertainties connected with a particular project before a business actuates. In theory, the investment banker is an expert in his or her field, who has a finger on the pulse of the current investing climate. Businesses and non-profit establishments usually turn to investment bankers for guidance on how best to shape their development.
2. Financial Instruments Pricing and Navigating Regulatory Assistance.
An investment banker also assists with pricing financial instruments and navigating governing requirements. Often, when a company holds its initial public offering (IPO), an investment bank will buy all or much of that company’s shares directly, acting as an intermediary. In this case, acting on behalf of the company going public, the investment bank will subsequently sell the company’s shares into the public market, creating immediate liquidity.
What you need to do to become an Investment Banker.
Investment bankers often start their professions at the analyst level and, with experience and additional education, advance into associate positions. Others enter the field as associates after working in another industry and earning a graduate degree such as an MBA.
With experience, associates can become vice presidents at their banks, supervising analysts and associates and interacting more directly with clients. After some time as a vice president, investment bankers may then become directors or principals at their bank. One of the highest ranks an investment banker can attain is managing director, and at this level, they work almost exclusively on bringing in new business.
As investment bankers move up the hierarchy of their bank, their base salary increases, but their potential for bonus earnings increases much more. These are the steps or requirement for starting off as an investment banker.
1. Get A College Degree.
Investment bankers evolve from a diversity of backgrounds, but a strong foundation in mathematics is important. Prospective investment bankers may have bachelor’s degrees in finance, accounting, or mathematics, for example, but may come from other fields like computer science or physics as well. To increase someone’s chance of getting a college degree from a top school, with a major in finance, economics, or something related to business is preferable. A college degree in finance or economics is typically the offset point for entry-level jobs at an investment bank. Accounting and business are also common educational backgrounds.
2. Attend A prestigious School
Investment banks recruit from the best colleges and universities in the world. For example, in the U.S., fledgling investment bankers are often employed from Ivy League schools. In Great Britain, the London School of Economics is consistently the top choice. No doubt, you can go to a less prestigious institution and still achieve your goals of becoming an investment banker but just like choosing the right field of study, choosing the right school will help incline the likelihoods in your favour. If you do not attend a highly-rated business school, you will need to work hard to build a network on your own by reaching out to family members, friends, acquaintances, professional associations, and your school’s alumni. The schools that investment banks recruit from are well known, so attending one of these schools is a matter of putting yourself in a position where you have the greatest plausibility of being regarded. When it comes to attracting notice, your grades are also important. Graduating with a good grade will as well put you in a good position to draw the attention of campus recruiters and hiring managers.
3. Get An Advanced Degree
Getting an MBA or some other advanced degree or certification in finance will give you an edge over other candidates. You can get a job with a bachelor’s degree no doubt but having an advanced degree is one of the ways to improve your chances and climb the professional ladder in investment banking easily. While entry-level investment banking analyst positions require only a bachelor’s degree, many investment bankers pursue graduate degrees. Master of Business Administration degrees (MBAs) are most common among investment bankers, but other graduate degrees, like law degrees, can be useful as well. Many schools offer graduate programs in financial mathematics, and a master’s degree in this field can also be valuable for investment bankers. A Master of Business Administration (MBA), accounting, or an advanced degree in math boost your application. Being a chartered financial analyst (CFA) can as well help you appear more appealing to recruiters and top investment banks.
Internships present a track for students and recent graduates to gain full-time employment in just about every profession. Investment banking is no different. Getting an internship at a top firm is vital for expanding exposure to culture and practice of an aspired career, on-the-job-training, an opportunity to attract likely employers and desired companies. It is a way of networking and getting to meet people with like goals and career ambition. An internship gives you a chance to attempt the nitty-gritty of your desired field, gain exposure to the culture, get work experience, and impress potential employers. It’s a unique approach to jump-start your career.
Investment bankers spend a greater part of their time selling their companies’ investment packages. They convince clients to invest their money with them by buying their company’s shares or stock with the promise of getting interests on the invested money. They are the movers and shakers behind mergers and acquisitions of Fortune 500 companies, initial public offerings (IPOs) of private companies that command stratospheric valuations, and other high-finance deals that generate enormous fees. Isn’t it evident that such a job requires networking with people? Networking is a critical part of the job, and conceivably even more. Large investment banks recruit prospective analysts and associates from top business schools and often fill these positions with interns who have worked with them as summer analysts or associates.
The fact that you are reading this may mean you’re considering a career in investment banking, therefore keep this in mind, before you land your first mega deal you need to land a job. Selling yourself will be your first task, so every opportunity to do so is important. Recruiters need to see how can you can yourself before they can be convinced that you can sell the company’s product. You cannot give what you don’t have. You need to mix and mingle with people who have the power to hire you or who can recommend you to people who do the hiring. The recommendation is a hook and line, making a good impression is the bait.
As your network grows, you will increase your chances of meeting someone who can offer you an opportunity to interview for a position.
Industry groups, school, the company you intern for, or even family and friends can all be good sources of networking opportunities.
5. Certification Or licensure Requirement
Once you are hired as an investment banker you must register as a representative of your bank with the Financial Industry Regulatory Authority (FINRA). Depending on your job responsibilities, investment bankers must pass an examination on a specific “series” in order to qualify for registration.
Investment bankers can also pursue voluntary certifications like the Chartered Financial Analyst (CFA) credential offered by the CFA Institute. To become a CFA, one must have four years of investment work experience and complete the CFA program, which is a three-part course of study that covers investment valuation, company analysis, and portfolio management. CFA candidates must pass an examination at the end of each of the three levels of the program. The CFA program takes two to five years to complete. CFA is a programme dedicated to training professionals in the field of investment and finances and is one of the best ways to go into this field. Many top recruiting companies hire Investment Banking professionals who have completed a CFA course.
6. Job Prospects in Investment Banking
The Bureau of Labor Statistics forecasts that hiring of securities, commodities, and financial services sales agents, including investment bankers, will grow 11 per cent between 2012 and 2020, which matches the average growth for all occupations over that time.
The BLS anticipates that, while there will be supplementary jobs, competition for positions will be strong, and that candidates with graduate degrees and voluntary certifications like the Chartered Financial Analyst certification offered by the CFA Institute will have the best prospects.
The largest investment Banks are noted with the following;
- JPMorgan Chase.
- Goldman Sachs.
- BofA Securities.
- Morgan Stanley.
- Credit Suisse.
- Barclays Investment Bank.
- Deutsche Bank.
Pros of becoming an Investment Banker
- It is one of the highest-paying sectors in the world. Successful Investment Bankers are able to provide an extravagant lifestyle for themselves and their family.
- Candidates who can subdue the initial impediments are regularly able to earn good salaries in this field.
- Investment Banking is a challenging and evolving field. Even veterans in this field come face-to-face with new challenges every now and then.
- It allows a candidate to apply and sharpen their professional skills and provides first-hand knowledge of markets.
- For a promising candidate having sound analytical and numerical abilities, the field promises unlimited and rapid growth.
Cons of Becoming an Investment Banker
- It is an extremely demanding and stressful job that cannot be said to be for everyone.
- There is no work-life balance in the field since the job requires candidates to be on alert at all times of the day.
- It is a high-risk field since the jobs and growth of candidates are majorly dependent on markets, which can crash.
- Investment Banking professionals are often diagnosed with health issues related to stress or overworking.
- Automation and AI are causing a reduction in job availability in the sector.