Is Investment Banking a Good Fit for You?

What Is Investment Banking?

Investment Banking (IB) provides financial services to corporations and institutions, such as investing and raising capital and arranging Mergers & Acquisitions (M&A).

A good investment banker is:

• Is willing to work long hours - 80+ per week
• Has strong attention to detail
• Works proficiently in Excel, Word, and PowerPoint
• Has strong finance and accounting knowledge

People debate whether a career in investment banking would suit them because they are unsure that the rewards outweigh the cost, such as sacrificing the majority of their time, being constantly on the line, and constant pressure from management.

To see whether this career path fits you, you must first understand what IB is. This article will explain how people get a job in this industry, their career path, their day-to-day activities, and where they go after quitting.

Is Investment Banking (IB) A Good Fit For You?

Investment banking is a profession that focuses on large financial transactions such as Initial Public Offerings (IPO), which help companies raise capital, and Mergers & Acquisitions, which is primarily revenue generating operation for both the company and the investment bank.

Junior investment bankers complete many tasks, such as financial modeling and analysis, due diligence, market research, and presentation creation.

On the other hand, senior bankers are responsible for generating revenue for their firm by doing things like landing clients, closing deals, negotiating with clients and lawyers, and bringing industry and market expertise to guide junior bankers on their work.

Investment banking follows a corporate hierarchy system ranging from summer analyst all the way to managing director, so being an investment banker can be an entire career for some.

For others, it is a high-paying job for top-performing undergraduate students that can give people the experience and ability to exit into other career paths later on.

It is important to know that a very small percentage of applicants receive internship offers, and many who make it into an analyst position quit or exit the bank within a few years due to the lack of work-life balance.

They might as well get enough of it since there are only so many things they get to do on the job. After all, it’s a never-ending cycle of M&A transactions or raising money for corporations.

However, banks can raise money for them in many ways, including:

• Initial Public Offerings
• Secondary Offerings
• Private Placements
• Debt Issuance
• Syndicated Loans
• Others

Example of What Investment Bankers Do

Let us take an example of what investment bankers do.

Let’s say you are the CEO of a microchip manufacturing company. You want to raise capital by taking your company public so that you can invest in new manufacturing plants to increase your production.

You can’t do this IPO alone, so you can call an investment bank for help. In the following months, investment bankers from the bank will review your financials to help you determine the IPO price and the number of shares to issue to the public.

They also assess the company’s value, market conditions, and investor demand to determine the offering price. Ultimately, they bear the risk of purchasing the shares from the company and offering them to the public for you.

That’s because if they don’t sell the majority of the shares to the public, or their value drops right after listing on a stock exchange, they pay the price. 

Investment Banks’ Activities 

Among the things mentioned above, investment banks also provide:

• Due Diligence - assessing the company's financials, operations, legal issues, potential risks, and growth prospects
• Documentation and Filings - preparing legal and financial documents required for the IPO
• Marketing - generating interest in the IPO by meeting with potential investors
• Stabilization - supporting stock price and managing volatility after the IPO

Investment banks play an essential role in the economy by linking companies seeking money with the investors seeking to invest. They help allocate capital to profitable and meaningful projects, enabling companies to grow more rapidly.

Leading banks in 2022 by IB revenue include:

1. JPMorgan Chase & Co ($6.2 billion)
2. Goldman Sachs ($6.0 billion)
3. Bank of America ($4.6 billion)
4. Morgan Stanley ($4.2 billion)
5. Citi ($3.1 billion)
6. Barclays ($2.5 billion)
7. Credit Suisse ($1.9 billion)
8. Jefferies LLC ($1.7 billion)
9. Deutsche Bank ($1.5 billion)
10. RBC Capital Markets ($1.5 billion)

The Day-to-Day Life In IB

Investment bankers are like financial advisors to corporations and, sometimes, to governments.

They help their clients complete complex financial transactions such as raising money and issuing stocks, floating a bond, negotiating an acquisition of a competing company, or selling the company itself.

Let’s take a look at what a typical day of an investment banker looks like, so you can see if you can align yourself with this routine:

On a typical morning, an investment banker usually arrives at work at 9:30 AM and checks email, text messages, conducts financial research and company analysis, and makes adjustments requested by senior staff.

The afternoon is dedicated to the active deal. Investment banking teams are usually assigned to one deal, where they pay strong attention to detail as the deal involves millions and sometimes even billions of dollars, and there is no room for mistakes.

At the end of the day, when markets are closed, investment bankers usually eat dinner at the office and take a break to hit the gym to relieve stress. That is followed by reviewing the morning's work and making adjustments to the pitch book.

Of course, it is important to mention that the typical day revolves heavily around the group you are assigned to, so treat this as a general guide because everyone has a different experience and routine.

Duties of an investment banker include:

• Financial research
• Creating financial models
• Conducting valuation methods
• Maintaining client relationships
• Creating investment pitches and presentations

Since money never sleeps, and investment bankers are responsible for managing loads of money for their clients, you can’t expect anything else. 

Essential Qualities Required To Fit In Investment Banking

To enter and be a part of the investment banking industry, you must have these skills to be considered a good fit and do the job well. These skills are essential to master before getting into IB, as it is a fast-paced industry with no room for error or confusion.

Some of the qualities include:

1. Willingness to work long hours

As mentioned earlier, investment bankers can sometimes work up to 100 hours a week, and I cannot stress this enough. It doesn’t matter what day or time it is; investment bankers are always expected to answer calls or emails. Money never sleeps.

You could easily get a call from your VP at midnight on Friday when you are sitting in a bar with your friends that there is a particular type of emergency, and you need to get on it ASAP.

2. Strong attention to detail

Nothing can't be overlooked when you are responsible for verifying models for 100+ million deals. Navigating yourself efficiently through all the numbers and data about a company is crucial, but doing it with absolute precision is even more important.

3. Team player

Effective teamwork is very beneficial in investment banking, as deals often require coordinated efforts from multiple individuals with different areas of expertise to provide comprehensive and valuable advice to clients and execute transactions successfully.

4. Excellent at Excel, Word, and PowerPoint

These three programs are where you will spend most of your time as an IB analyst. That’s why being able to work with them proficiently will not only make your job easier but might also earn you a good reputation for being efficient and fast.

5. Strong accounting and finance knowledge

You need to know finance for a job in finance. The majority of investment bankers come from business schools and have an above-average understanding of finance, economics, and accounting.

6. Excellent financial modeling skills

This is a combination of understanding finance, accounting, and Excel. 

But What Is The Lifestyle Of An Investment Banker Like?

As you have grasped by now, the life of an investment banker is very demanding. It involves long hours spent in the office, constant stress, and occasional burnout. Sacrifices must be made to make it in this industry.

On the other hand, many investment bankers can offset the negatives by working out and enjoying the rich lifestyle this occupation brings. From luxury islands and tropical hotels to food and fine wine, everybody can spend their hard-earned money according to their taste.

IB Career Progression

An investment banking career can take many forms, depending on each individual. Some use it to get a great exit opportunity in private equity (PE), hedge funds (HF), or venture capital (VC), while others spend their whole lives in this industry.

This field offers substantial rewards for success, both financially and in terms of personal growth and networking opportunities. Below are the Ranks and Career Progression:

Summer Analyst (Intern)

Intern analysts are hired to learn. They work alongside analysts, helping them with financial models and presentations. Their main purpose is to gain experience in the field and secure a return offer after graduation from university.

Additionally, intern analysts also handle various administrative tasks, such as scheduling meetings, organizing documents, and coordinating with other team members and departments.

Analyst

The analyst position involves extensive use of Excel and PowerPoint, administrative tasks, client responses, and deal document management.

The role is usually fit by recent college graduates in their 20s. Analysts are expected to work 70 - 80 hours a week, which includes a decent downtime. They can expect to earn $100,000 - $125,000 + bonuses typically 0.5x - 1.0x base salary.

Associate

After 2 - 3 years, good analysts can be promoted to an associate position. This position involves assigning work to analysts and occasionally jumping in to do some Excel and PowerPoint. They also participate more in client meetings but are usually not allowed to speak.

The work hours can decrease to 60 - 80 a week, but the salary grows to $175,000 - $225,000 with bonuses doubling this range. Associates are either promoted analysts or MBA recruits at 25 - 35 of age.

Vice President (VP)

Vice Presidents represent a bridge between the managing director, analysts, and associates. They interpret the director's requests and then work with the analysts and associates to implement them.

They also get more client interactions as they pitch their clients to buyers. This way, they also develop new relationships in the industry, which can sometimes be tricky as they need to balance it out with deal pitching.

VPs are usually in their 30s and work roughly 55 - 70 hours weekly. They can earn $250,000 - $300,000 + bonuses of 1.0x - 2.0x base salary.

Director

The role of SVP differs from bank to bank. Some focus on developing client relationships, while others focus on project management.

Directors are usually older than the rest of the investment bankers, usually around 40. They work between 50 and 60 hours a week and are compensated with $750,000 - $1,300,000 in salaries and bonuses.

Managing Director (MD)

Managing directors are there to make it all work - win clients, meet new companies, and develop relationships. And they travel a lot to do so.

MDs get paid a lot if they do their job well. Their salary can reach up to $1,000,000 - $3,000,000 annually for their 60-hour weeks. They make so much because of their experience and knowledge, as they are typically 35+ years old and have been in the industry for a while.

Career progression after reaching the Managing Director title is specific to each individual. They can divert to private equity or other buy-side roles, stay with the bank as an MD, or wait to be promoted to Group Head, COO, or CEO.

IB Exit Opportunities 

Exit opportunities represent the fields you enter after a few years in IB.

These fields include:

• Private Equity
• Hedge Funds
• Venture Capital
• Startups
• Corporate Finance
• Education (MBA)
• Equity Research
• Investor Relations

Many bankers flee towards the buy-side after 2 - 3 years of IB for better pay, intellectual stimulation, and work-life balance. Other reasons include:

• Exposure to different asset classes - equities, fixed income, real estate, commodities, alternative investments
• Longer-term investment horizon
• Decision-making autonomy - an opportunity to conduct research and take ownership of investment strategies
• Closer alignment with investor interests - directly generating returns for them
• Career progression opportunities - portfolio management, research, risk management, business development

Many assumptions made about quitting IB are only partially correct. As times change, so do industries. Buy-side positions no longer offer much better work hours than 20 years ago.

Moreover, the jobs are similar. If you hate financial statement analysis as an investment banker, you will not love it as an investor. The same is true about other aspects of the job.

But, What Are The Exit Opportunities?

The recruiting process is more challenging than it seems. For higher chances of landing your big-fund job, you need to be part of a Bulge-Bracket or Elite-Boutique Bank with relevant experience to the position you are applying to (sector, etc.).

Thinking about where you want to work plays a significant role too. There are far more exit opportunities in New York or London than anywhere else. You must pick your city in advance, as transitioning from coast to coast (in the U.S.) is quite challenging.

But no matter what city you pick, you must come prepared. For example, a solid stock pitch is essential to landing a job in a hedge fund because the “Pitch me a stock” question pops up in almost every hedge fund interview.

How To Get A Job Offer In IB?

First of all, it won’t be easy as it’s one of the most competitive places in the world. Most applicants are academically strong, have technical and fundamental knowledge of the markets, and can differentiate themselves during an interview.

For those reasons, knowing how to get a job offer can be considered an art. Believe it or not, the preparation starts in high school when you are applying to college. From then on, it’s an ever-lasting fight to be better than everyone else.

Let us understand how we can receive a job offer by looking at some of the ways:

1. Networking

Networking is one of the most important aspects of landing a job in IB. Reaching out to current bankers and building connections impacts whether you will be offered an interview for your dream job.

You should direct most of your effort here. It’s very different to know how to do the job and how to get the job. You may know the answers to all the technical questions that could be thrown at you, but you won’t even get a chance to show them without an interview.

2. University

Many top NYC investment banks hire from a small number of target schools. These include:

• The Ivies
• NYU
• Stanford
• MIT
• U Chicago
• Notre Dame
• U Michigan
• UVA

However, that doesn’t mean you can’t get a job from a non-target. You can land a job from almost any school through proper networking, hard work, and good grades, though it will be significantly more challenging.

It is important to focus on good grades, extracurricular activities, and completing internships or programs related to finance.

3. Grades

You will need at least a 3.70 GPA to be a competitive applicant. Some people strategize by focusing on fewer courses at a time in the summer or by taking easier classes unrelated to their major to “artificially” boost their GPA.

Even though grades don’t demonstrate your knowledge of valuation, modeling, or other IB-related skills, they show that you are a hard-working individual, which is necessary to succeed in IB.

4. Major

Students from target schools can major in history and still get a job offer. That’s not the case for most of the applicants. You should pursue a finance, accounting, or economics degree to maximize your chances of getting hired.

To say the least, these majors will at least teach you the terminology of finance and how certain things in business work. 

5. Experience

If you are in university or just entering your first year, it is crucial to start early. You should focus on getting an industry-relevant internship after your first year at university to gain relevant experience for the future. Loose-related experience is not going to cut it.

Conclusion

Now it’s up to you to decide whether this path is right for you. Some people conclude that it is worth hustling the long hours, enduring stress, and making sacrifices for the reward, while others don’t feel the same way.

The IB industry can be very lucrative for individuals around the world, so if finance is something that interests you, giving it a try in the form of an internship as a student, switching career as an adult, is something you could try.

As with all career paths, before making a final decision, one should think deeply about all the positives and negatives of the job. We can’t make the decision for you.

We have provided you with an overview of the investment banking industry, and now it’s your time to look into more specifics. 

Take your time and utilize the resources provided on our website ranging from the finance dictionary to pro-level courses. If you have more questions about the industry, use our forum and ask thousands of members for their opinions.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Investment Banking Internship Program
• Investment Banking Job Description
• Investment Banking vs. Commercial Banking
• Private Banking
• Private Banking Internship