What is an Investment Banker?

Investment bankers can help companies get the money they need by connecting them with potential investors. To do that, the investment banker has to convince the investors that your business is worth the risk of them investing their cash. In the end, they sell your company’s stock to raise capital funds. Deals often are made between companies and investors from all around the world.

An investment banker plays a unique role in the banking industry. Not only do they contribute their financial expertise through advisory services, but investment bankers also can serve individuals and companies by helping them raise capital. The position can include a variety of duties for clients at public and private corporations. They may find themselves issuing and selling securities or negotiating mergers and acquisitions.

You may think investment bankers are primarily found on wall street or at prominent investment banks like Goldman Sachs and JPMorgan. While they can be instrumental in commercial banks and on wall street, investment bankers can also manage financial services for governments, boutique firms, and other entities.

Regardless of the type of organization they find themselves at, investment bankers are a kind of middleman that connects companies with investors. New firms often seek out their help when they want to take their company public, and established firms can benefit from their expertise when issuing new shares to raise capital.

Investment banking is one of the highest-paid professions out there. However, it’s also one of the most demanding. Employers and clients can expect you to work over 100 hours per week in this position.

Unlike other bankers who work with a range of clients, including the general public, investment bankers focus on professional business owners, entrepreneurs, and investors. Their day-to-day tasks can range from raising funds, consulting, underwriting, brokerage and forex services, and extensive research.

Raising funds often is the name of the game when it comes to being an investment banker. One reason a client may need money is to finance an upcoming project or expansion. If a company needs cash to pay for a new factory it’s building, an investment banker can issue bonds to finance the operation. They’d typically plan the bond issuance from start to finish, including researching and setting the bond price, managing the documentation required from the Securities and Exchange Commission (SEC), and finding investors to buy the bonds.

Equity financing is another option. If the company wants to go public and raise funds through an IPO or through private equity, an investment banker could provide details on the terms and potential risks, make sure the process follows SEC regulations, and suggest a price for the shares of stock.

Every deal a company makes involves some level of risk. Underwriting is the process of assessing the risk against the potential for profit by researching prospective investors. They may act as the mediator to market the securities and earn a commission for each share they sell.

The investment banker may also take over the risk. In this instance, they’ll buy all of the securities from the company and sell them to public or institutional buyers. They typically markup the price of each share to generate a profit for themselves. Because there’s no guarantee the banker will find someone to buy the shares from them, they typically work with a group of investment bankers to balance the risk across several entities.

Investment bankers can often arrange for faster funding through a private placement — a sale of stock shares or bonds to pre-selected investors. This is done using an insurance company, a retirement fund, or another institutional investor. Because there are fewer regulations that govern a private placement, raising capital is quicker and easier than an IPO or underwriting deal.

Mergers and acquisitions are quite common in the business world. If an owner puts a “for sale” sign on the business, or one company wants to acquire another, it’s known as a merger or acquisition. The role of an investment banker in this situation is generally to find out what one company might pay for the other.

Negotiating between the buyer and seller can be tricky. It requires an in-depth analysis of the financial records of both companies. On one hand, you need to know how much the company that’s for sale is worth to help the buyer get a good deal. You also need to estimate how much value the buyer could expect to gain from the sale.

The investment banker can also find the best way to structure a deal between the two companies. Generally, the transaction can involve all cash, stock transfers, or a combination of cash and stock.

Corporate finance responsibilities can also fall into the lap of an investment banker. Several overlapping tasks exist between corporate finance and a typical investment banking role. Businesses may need valuation, analysis, and financial modeling to continue running a profitable operation. An investment banker can also help a company keep up on economic conditions and the stock market in case they want to do an IPO.

While some organizations may rely on an outside investment banking company to manage their deals, other firms may hire an investment banker to work on-staff in a corporate finance department.

Investment bankers can function in a variety of roles throughout an organization. Like most professionals, many start in entry-level positions. The industry is competitive, and the career track you choose as an investment banker depends on your skillset and your interests.

When you’re first getting started, you typically take on the title of analyst. You might be a recent college graduate or have some industry experience. Since this is a beginner position, you may get stuck doing the majority of the grunt work. It’s unlikely that “getting coffee” will be in your job description, but it may be a part of your daily routine.

It could take three to four years to work your way up to the next level. Until then, basic research and developing reports for those higher up in the investment banking chain can be a big part of your job. And you’ll probably find yourself arranging schedules and managing phone calls from clients.

Investment bankers who have a Masters of Business Administration (MBA) may start at the associate level. Otherwise, firms can promote investment banking analysts to the role of associate after having a few years of financial experience under their belt.

Associates, like analysts, can spend a good chunk of their time writing reports and conducting research. You’ll also arrange meetings with corporate clients to establish personal relationships and likely create discounted cash flows (DCF) to determine the worth of a business, bond, real estate, or other long-term assets.

Vice presidents are the gateway to middle management in an investment bank. Investment bankers with this title typically manage associates and analysts at the firm. Because you’ll likely have more experience in your area of specialization, don’t be surprised if you have a more active role in finding and onboarding new clients.

If you advance to a director, you should be able to anticipate changing economic conditions and make recommendations to your clients. Your expertise should allow you to predict when companies should raise capital or enter into a strategic merger and acquisition.

The top of the ladder in the investment banking industry is where you’ll find the managing director. Your primary job duty in this role is to find new clients and actively manage existing clients. As with any company, attracting new clients can ensure long-term viability. However, keeping current clients happy and suggesting new ideas for them to bring in additional revenue can help to retain their business.

One of the main draws of being an investment banker is the amount of money you can earn. A yearly salary of $100,000 or more is possible as an entry-level associate. The big paychecks come at a price. Analysts and associates regularly work over 100 hours per week, bringing the average hourly pay to around $20. If you make your way up the ladder to become a managing director, you could bring in more than $1 million per year.

The money you make can come from a few places, including:

• Base salary
• Bonus pay
• Benefits

The base pay you earn as an investment banker is usually a fixed amount in exchange for the work you perform. Your base salary doesn’t include benefits, such as 401k matching or health insurance, and is separate from any bonus you might receive. Investment bankers can also earn a bonus on top of their base pay. A bonus is typically a percentage of annual salary, and the amount can vary depending on the firm you’re at. Your bonus can also depend on your performance and how well the company did overall. The closer you get to the top of the firm, the higher your bonus pay might be. For instance, the bonus pay an analyst or associate receives is likely much less than what a vice president or director might receive.

Several industry certification programs exist in the finance industry. If you’re looking into becoming an investment banker, you might consider:

• Certified Financial Planner ® (CFP®)
• Chartered Financial Analyst (CFA®)
• Certified Management Accountant (CMA)
• Chartered Financial Consultant (ChFC)
• Certified Investment Management Analyst (CIMA)
• Certified Public Accountant (CPA)

Investment banking can be a demanding industry. Due to the continually changing economic and business environments, you could be expected to meet sudden deadlines. You should also be open to ongoing and frequent travel.

Bankers can come from different backgrounds. A strong foundation in mathematics and advanced spreadsheet skills are essential. Entry-level positions can require a bachelor’s degree, while MBAs can often begin their career at the associate level in an investment firm.