Introduction: Careers in Investment Banking
But for those who are willing to put their personal lives and hobbies to the side and embrace the grind, investment banking can be extremely lucrative and fulfilling. Indeed, the ability to embrace the grind is key. Those who are doing it just for the money may find themselves quickly burned out and unable to keep up. For those who truly enjoy the work, however, the opportunities for both career advancement and financial success are exceptional.
At its core, investment banking is about helping companies raise capital to expand their business operations. Investment bankers raise money in capital markets by issuing bonds and selling equity in their clients’ companies.
Bonds represent debt in the company issuing the bond. The bond’s buyer is thus loaning money to the company in exchange for a fixed rate of interest over a specific number of years, after which the company will need to pay back the principle to the investor. Equity is stock in the company.
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Companies often work with investment banks to sell equity to the public for the first time — commonly known as their ‘initial public offering’ or IPO for short. IPOs often make headlines, so it’s critical for both the firm and the investment bank to structure the IPO in most appealing way, making the strongest possible case to new investors.
In sum, investment bankers help structure bonds and other financial products related to their clients’ companies. And they help their clients find investors willing to buy bonds and equity for huge sums of money. This high-stakes game requires professionals of the highest calibre.
Certifications for Investment Bankers:
Chartered Financial Analyst (CFA)
Investment Banking: Qualifications
Investment banking is one of the few careers where hires can make six figures in their first year of work. And the barriers to entry are not, strictly speaking, that rigid. A bachelor’s degree in finance, economics, or business is often enough (though an MBA helps) and the necessary exams — the Series 7, Series 79, and Series 63 — are less rigorous than the equivalent tests for other fields.
Thus, despite the industry’s reputation, investment banks receive far more applicants than they have positions for. And investment banking is one of the most competitive fields to get in to.
While many banks require only a bachelor’s degree in a relevant field, the most competitive candidates have degrees from Ivy League universities and, if not those, then other elite schools known for their connections to the banking industry such as NYU, MIT, the University of Chicago, and the London Business School, among others.
Investment banks receive so many applications that most hiring managers will start screening candidates by immediately purging all candidates not from the most elite universities. (It’s nothing personal, really. There’s just not enough time to go through them all.)
That being said, if you have not graduated from a top tier school, it is still possible to find a way into the industry. (And graduating from an Ivy League school is no guarantee, either.) In this case, networking and strong communication skills become even more important. A double major in finance and economics from a top tier university won’t help a candidate who lacks the ability to show what they know. Conversely, a candidate with a degree from an outstanding but less-than-elite school can get their foot in the door if they know who in the firm to talk to, how to reach that person, and how to make a compelling case for themselves when the time comes.
Lastly, in addition to the standard suite of financial skills and business knowledge, successful investment bankers must have an unstoppable work ethic, they must have strong ambition, and they must be fast-talkers who are able to persuasively express their viewpoints and defend their findings to clients, stakeholders, and other analysts. And hiring managers have gotten quite good at telling who can make it and who can’t. So be prepared to show up to an investment banking interview with your A-game.
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Investment Banking: Career Paths
Investment banking is a relatively specialized industry, but there are still a variety of roles an investment banker might find themselves in. And while in some firms bankers will take on a multiple responsibilities, in others they will be assigned to much more specialized roles.
Some investment bankers spend long hours at their computers building and modifying spreadsheets full of financial data on clients companies or on other firms their bank is interested in investing in. Others are research analysts who specialize in a particular industry or sub-sector. They have a more varied set of tasks, including not only modeling, but writing, researching, and taking part more directly in their speciality industry. And of course, many investment banking professionals — especially new ones — spend time as part of their bank’s sales group, at phone banks aggressively churning through vast rolodexes of leads, selling equity and bonds in their clients’ firms to wealthy investors and funds. Want to develop your interpersonal and business communication skills? We can help.
Here are two specialized roles found at almost all investment banks — Mergers & acquisitions (M&A) broker, and research analyst:
Mergers & Acquisitions (M&A) Broker
M&A brokers work with companies that are either looking to acquire another firm or that are looking to be acquired themselves. Some firms may decide they would like to acquire another firm with certain assets and approach an investment bank to help identify a suitable target (or vice versa, for firms looking to be acquired). Other companies will have already decided that they would like to merge and need assistance making the merger happen.
M&A is the most high-profile speciality within investment banking. Multi-billion dollar mergers are one of the few financial news items that can make headlines outside of the finance reports. And though most mergers are mutually agreed-upon, M&A is often associated with the so-called ‘hostile takeover’. Adding to the above, most companies try to keep their merger plans secret until the deals are done, making M&A a prestigious sector to work in.
The work itself is much less glamorous, however — involving many hours spent in front of spreadsheets and financial statements, doing due diligence and building the often quite complex structure of the merger. An since mergers are discrete projects with tight deadlines and often significant involvement from regulatory agencies, M&A work can be demanding even compared to other investment banking roles.
In investment banking, both fixed-income and equity researchers are considered ‘sell-side’ analysts because their core function is to provide the research and analysis needed to 1) create viable financial products that their institution can sell to investors, and 2) to build persuasive sales pitches in support of these products.
Compelling and comprehensive market data is the backbone of any investment bank. So research analysts at play key roles throughout their institutions. They work directly with client companies to better understand each firm’s structure, financial situation, and place in the market. Research analysts also work with their institution’s investment bankers and traders on financial products, market forecasts, and pricing models. And they work closely with their institution’s sales group, providing up-to-date information on client companies, relevant market trends, news items, and their firms’ newest financial products, allowing their sales team to make compelling, fact-based pitches to potential investors.
Investment Banking: Getting in the Door
Even if you do not plan to become a life-long investment banker (very few people do), an investment banking position is a great way to immerse yourself in corporate finance and to hone research and analysis skills that will serve you well in a variety of business and financial roles. It also looks great on a resume. And you can safely say that if you can make it for a few years at an investment bank, you can make it in just about any other area of finance.
Whether you’re from an Ivy League university or another institution, you will want to get an internship. Building a relationships and demonstrating your competence and interest in a specific firm is the best way to secure an offer when you graduate. However, even internship positions at top investment banks are highly competitive. If you are uncertain if your application will be enough to land you an interview, reach out one of Shoo-In’s career advisors for a free 30 minute consult.
Internships represent real professional experience. All else being equal, many hiring managers will prefer a candidate with a BA and internship experience at an investment bank over a candidate with an MBA and no internship experience.
Investment banking internships are competitive, so make the most of both your internship search and the experience itself by carefully researching the firms you would like to apply to. Figure out if you would prefer to work at a large and prestigious firm or — and this is especially the case if you’re not an Ivy Leaguer — if you would prefer working at a smaller boutique outfit.
And be sure to network! Here are some quick tips:
- Niche firms are a great option for those with strong networking skills as they may have less structured internship and recruiting programs and their hiring managers are usually easier to get in touch with. Play to your strengths!
- Use your school’s alumni network and your LinkedIn connections. And use your own personal social network! Did we mention that investment banking is extremely competitive? Be bold but not overbearing. Especially if you’re not from an elite university, you should give yourself every advantage.
Lastly, remember that once you’re in, the competition isn’t over. While smaller firms may be more willing to invest in new hires that they have committed to, in the biggest firms it is a trial by fire. And the turnover rate is high. Unless you have considerable prior experience, you will start off ‘in the trenches’ with supporting duties that can be tedious, difficult, and far from glamorous. These duties are designed to weed out those who are not cut out for investment banking — often those who are in it for the money and not for the love of the work.
And remember that new hires spend a great deal of time on the phone selling their firm’s financial products. This is why investment bankers need to not only have strong finance and math skills but must also be fast and persuasive talkers with strong skins. Treat your job search as an opportunity to hone your communication skills.
Investment Banking: Industry Outlook
Competition for a limited number of positions at leading investment banks has always been intense. With the implosion of a number of Wall Street banks in recent years this competition has only grown more fierce. Those who believe themselves prepared for the huge workload and uncertainty of an investment banking career should also be ready to devote exceptional time and energy to the job search. This is especially true for students who are not from the most elite universities.
The bottom line is this: whether or not you will find a job as an investment banker has much less to do with the state of the investment banking industry as a whole, and much more to do with your own qualifications are how much you are willing to put into your pursuit of a career on Wall Street.
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