If the financial services world was the US Navy, the average investment banker would be rocketing through the sky as a Top Gun jet pilot. Or, to present another metaphor, investment bankers are the rock stars of Wall Street.
The reasons for this reputation are many, and it certainly isn’t undeserved—but it’s hard work, so you will want to plan carefully if you set your sights on an investment banking career.
In brief, investment bankers command some of the most desirable and rewarding positions in any banking or business sector. However, the benefits that they enjoy come at a cost, and it takes a special type of person to overcome the significant challenges associated with becoming an investment banker. Read on to find out if you have what it takes!
What Is Investment Banking?
Investment banking involves the planning, organization, facilitation, and execution of large, multifaceted financial transactions that include initial public offerings (IPO) underwriting and merger and acquisition (M&A) oversight. Primarily serving a client base of large companies, municipal entities, and other organizations, investment banks make money for organizations in several ways.
Essentially, investment bankers act as financial advisors to corporations and, sometimes, to governments. Common strategies undertaken by investment bankers range from underwriting the issuance of specific stocks, bonds, and other securities to arranging the sale of the very companies they serve. Their areas of M&A expertise include negotiating the acquisition of rival business ventures and reorganizing business structures in the aftermath of an M&A.
Both inside and outside the corporate finance industry, investment bankers are probably most well-known for the services they provide to young companies that are preparing to go public. When a promising industry innovator launches an IPO, the investment bankers behind this launch can make business world headlines.
Is a Career in Investment Banking Worth It?
If you have ever considered a career on Wall Street, you have likely been tempted by the recognition, respect, and healthy compensation associated with the investment banking sector. But before leaping into an investment banking position, you must note the long working hours and high levels of stress that commonly go hand in hand with this line of work.
In his recent article, “How to Become an Investment Banker,” Forbes contributor Matt Whittle calls the role of the investment banker a “demanding” one that “often entails workdays that are 12 or more hours long, adding up to 100-hour work weeks.” Beyond the challenges associated with navigating this considerable workload, investment bankers constantly face the stress of financial uncertainty.
The economic fate of investment bankers is tied to the investments that they make. This means that their pocketbooks tend to suffer when the markets fail. However, as the trusted investment information resource Investopedia puts it, “when the capital markets are doing well, investment bankers tend to do well.”
But just how well is “well” in the world of investment banking? PayScale currently places the average annual income for an investment banker at $120,000. Even new investment bankers in entry-level positions can generally command six-figure salaries right out of business school. By the middle of their investment banking careers, ambitious professionals can earn tens of millions of dollars each year.
Furthermore, investment banking is a growth sector in the United States. According to the Bureau of Labor Statistics (BLS), employment prospects for investment bankers – as well as securities, commodities, and financial services sales agents in general – are expected to grow by 10 percent through 2031. This is twice the 5 percent growth rate that the BLS projects for all occupations nationwide. However, the BLS warns that automatic trading systems and consolidation trends within the financial services industry may gradually slow the expansion of investment banker positions over the next decade.
Types and Areas of Investment Banking
Investment banking benefits from a broad scope of specific functions and categories. Here are just a few areas in which investment bankers operate:
Corporate Finance
Investment bankers operate in the corporate finance space by providing sources of funding and managing corporate capital structures. They help companies raise capital using a variety of methodologies, including IPOs and M&As.
Industry Coverage
The corporate finance divisions of many investment banks include internal teams referred to as industry coverage groups (or “industry groups” or “coverage groups”). These groups specialize in corporate finance processes, negotiations, and transactions within a specific industry or category of industries. Industry coverage investment bankers advise and conduct all types of deals within their chosen industry or industries of focus.
Equity Financing
We have already singled out the investment banker as the superstar of the IPO world. Managing IPOs is just one way that investment bankers direct equity financing to raise business capital, offering shares of the company to the general public, institutional investors, or financial institutions.
Private Placements
Investment bankers employ private placement processes to raise business capital by selling securities to a small number of private investors. By restricting offerings to a limited pool of investors, companies can avoid federal securities registration requirements and the many compliance hurdles that go hand in hand with IPOs.
Venture Capital
Venture capital generation defines activities that raise company startup funding through private equity investments. Investment banks often serve as intermediaries in various financial transactions between companies and the venture capital and private equity firms that support them.
Foreign Exchange
Foreign exchange (“forex” or “FX” for short) involves the strategic exchange of one country’s currency for that of another at current exchange rates. A global market by nature, the forex market allows investment bankers to generate profits by “buying” currency at a low price and then “selling” it for a currency that is worth more. Although individual investors can now trade on forex, investment banks and other financial institutions have the experience and volume to make the most out of this market.
What Does an Investment Banker Do?
Depending on the career paths they choose, investment bankers may be called upon to spearhead any number of specific tasks and comprehensive projects. Here are just a few of the most common professional responsibilities and tactics of the average investment banker:
Financial Modeling
Financial modeling involves using a company’s past and current expense and earning data to calculate the prospective impacts of impending events and company decisions. One of the most common goals of financial modeling is to anticipate how a company’s stock might perform in the near and distant future.
Relationship Management
A common responsibility across most private and public sectors, relationship management involves maintaining productive communication and high levels of engagement with clients, customers, and company stakeholders. Investment bankers commonly use relationship management techniques to foster rapport with corporate clients and generally promote policies and procedures that further client acquisition, retention, and income generation efforts.
Arrange Financing
Individual consumers and families might go to their local bank when they need to arrange a home mortgage, small business, or automotive loan. The large investment bank performs a similar financing function in the corporate world. In fact, many investment banks focus specifically on startups in urgent need of seed funding.
Underwrite Deals
There’s a very good reason that corporations turn to investment bankers to oversee highly complicated IPOs. The average investment banker possesses an exceptional ability to analyze the risks and liabilities of a given deal and do their due diligence to safeguard companies against potential damage and loss.
How to Become an Investment Banker
Due to the tremendous work expectations and pressure placed on investment bankers, the profession isn’t for everyone. In fact, a good investment banker will need to have tenacity, charisma, and many other characteristics and abilities that can be difficult to develop solely through formal education. If you feel that you have the right stuff to succeed in investment banking, you’ll want to follow these three steps:
Consider Earning a Degree from a Quality Business School
When looking to fill mid-level and advanced positions, investment banks and other relevant employers generally seek professionals with a Master of Business Administration (MBA) or another business-related graduate degree. While you may be able to land an entry-level investment banking position with just a bachelor’s degree, you can greatly expand your employment marketability and secure far better jobs with an MBA. Most MBA programs will give aspiring investment bankers a solid classroom education and practical experience in the form of an internship or other methods of hands-on involvement.
Pass the Necessary FINRA Exams
The knowledge you gain from a quality MBA program will help you pass the required securities examinations of the Financial Industry Regulatory Authority (FINRA). While all securities professionals must pass the Series 7 exam, you must also pass the Series 79 exam before you can register as an investment banker with FINRA. Although it isn’t an official requirement, most employers prefer candidates with Series 63 licensure as well. The time and energy needed to pass these exams are considerable, to say the least. According to the business education resource Wall Street Prep, the average aspiring investment banker will spend between 60 and 100 hours preparing for the Series 79 exam alone.
Maintain FINRA Registration and Secure Beneficial Industry Certifications
After securing the FINRA licenses that you need to pursue your professional dreams in the investment banking sector, you’ll have to carefully maintain those licenses by ensuring that you adhere to all relevant FINRA continuing education (CE) requirements. Depending on your chosen career path and goals, you may also want to consider becoming a Chartered Financial Analyst (CFA) or pursuing other industry certifications that are relevant to your chosen career path and goals.
For More Information
At The University of Tennessee at Chattanooga (UTC), we offer a general MBA program as well as several areas of concentration. Our MBA with a concentration in finance can provide an exceptional foundation to support a lucrative career in investment banking. Even better, you can earn your MBA in finance or any other graduate business degree from UTC entirely online through our 100% Online MBA or through our hybrid online and in-person Flexible MBA program. To learn more about your various graduate business degree and program format delivery options at UTC, visit the UTC Gary W. Rollins College of Business Master of Business Administration page today.
