Complete Guide: How to Become an Investment Banker

Investment banking is one of those professions everyone’s been familiar with since middle school. However, unlike other aspirational professions, like medicine or law, not everyone is exactly sure what investment bankers do.

What investment bankers do is raise capital for large entities, like governments and corporations. Unlike financial advisors, investment bankers do not concern themselves with individual investors. Instead, they deal with activities like mergers, acquisitions, and initial public offerings (IPO).

Many bright and ambitious high school students are tempted to enter a career in finance due to the glamorous life and generous salaries lavished upon investment bankers. But learning how to become an investment banker can be a frustrating process for some students once they realize how much of an influence factors like course load and school prestige have on the hiring process.

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What Do Investment Bankers Do? (Job Description, Responsibilities, and Day-To-Day Work)

What investment bankers do is help companies and governments raise capital. They help facilitate high-volume, very complicated financial transactions. When a large company needs the funds to expand into new markets or a government needs to finance a public project, they are looking for an enormous amount.

what do investment bankers do

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These large bodies can obtain financing by borrowing money from the public (bonds) or selling equity in their company (stocks). What does an investment banker do in this case? In this case, it helps to underwrite the debt or help a public company prepare an initial public offering, which is the necessary step if a private company decides to go public.

What Does an Investment Banker Do in the Case of Private Companies and Governments?

Private companies and government bodies issue bonds, and what investment bankers do is help facilitate this. A bond is a fixed-income security, and it is considered one of the safest investment vehicles. A large number of individuals lend specific amounts which contribute to a larger amount of money for that company or government. These bonds have a date regarding when the lender will receive the principal back (the maturity date).

In exchange, the bond issuer (the government or company) pays an agreed amount of interest, and this is usually paid semi-annually. What does an investment banker do to help facilitate this process? They help:

  • Price the bond
  • Prepare the necessary documents for the United States Securities and Exchange Commission (SEC)
  • Underwrite the debt

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What does an investment banker do to determine how a company should price its bonds? An investment banker must conduct some research to determine what interest rate businesses with a similar credit rating are offering. This will ensure that the bonds are priced at a rate the public will accept.

Investment bankers also help to prepare the necessary documents that must be filed with the SEC in order for the company to issue bonds.

In some cases, investment bankers will underwrite the debts, which essentially means that they are guaranteeing all or some of the bonds will be sold. What does an investment banker do in order to make this happen? As part of the investment bank they work for, they determine at what price the public will be willing to buy the bond. Once they know this, they will buy all or some of the bonds at a slightly lower price from the company and then sell the bond for a slightly higher price to the public. If they priced them right, they will make a profit.

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What Does an Investment Banker Do in the Case of Companies Going Public?

What investment bankers do in the case of initial public offerings is similar to what they do in the case of issuing bonds – there’s just more steps involved.

The role of the investment banker is even more vital when preparing an IPO. Not only do they have to help price the stock, they have to help a company determine when the best time to sell the stock is and ensure there are actually interested investors. What investment bankers do, in the case of initial public offerings, is a lot of research and strategic planning.

Part of an investment banker’s job description, in this case, is also handling documentation for the Securities and Exchange Commission. This means preparing reports about the company’s management, management’s compensation, its financial health, any legal issues, and more. They then have to wait until the SEC verifies all of this information before they have an effective date, which is when the stocks can be sold.

In the meantime, the high profile part of an investment banker job description is touring to prospective investors and hyping up the IPO. As with bonds, the investment bank has usually underwritten all or some of the stocks, so there is an additional incentive to make sure they are all sold.

What Is a Day-To-Day Investment Banker Job Description?

An investment banker’s job description can include a wide range of financial tasks. This is why versatility, work ethic, and effective communication skills can be just as important as comprehensive financial knowledge.

What does an investment banker do in his/her day-to-day work? They can be asked to analyze industry trends, track financial trends using models and spreadsheets, and produce reports and financial literature at a moment’s notice.

how to become an investment banker

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Working long hours is part of the investment banking job description. Associates at some of the top investment firms will clock 80-hour workweeks, a sharp jump from the usual 40-hour workweek. The dark side of the high salaries and generous bonuses associated with an investment banking job is the lack of a work/life balance and the constant cancellation of family functions and plans with friends. In fact, Bloomberg News reported that many high-flying investment bankers were jumping ship to work for start-ups where they could enjoy a healthier company culture and better quality of life.

Then again, if you like the rapid pace and high rewards, you may still be dying to know how to become an investment banker.

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How to Become an Investment Banker (Education, Skills, and Steps)

If you’re wondering how to become an investment banker, the first thing you should know is that most investment banks are looking to attract the best and the brightest. They routinely recruit for top-tier students at top-tier schools.

Investment banks typically hire people with degrees in business or finance and a graduate degree, usually a Masters of Business Administration (MBA). Banking is one of those industries where the school you went to really does matter.

Investment bankers typically look for candidates from the best schools. The first question for a high school student hoping to work for a large investment bank isn’t really “how to become an investment banker” but rather, “how do I get into an Ivy League school?”

Those considering graduate studies typically plan to earn a Masters of Business Administration. However, this takes another two years dedicated primarily to school, and if you do not have the time or the money, this may not be an ideal path to take. If you’re agonizing over how to become an investment banker without an MBA, you’ll be happy to know there is another option but not necessarily an easier one.

The Chartered Financial Analyst (CFA) designation is an alternative answer to the question of how to become an investment banker. This is a way for investment banking hopefuls to secure an entry-level position that will allow them to work their way up. A lot of the skills that are required of an entry-level analyst (e.g., number crunching, analysis, etc.) are skills that you will more readily acquire through a CFA program as opposed to an MBA program.

Then again, it is important for candidates considering earning their CFA designation to recognize how much work is actually involved. It is a globally recognized accreditation, and becoming a charterholder requires:

  • A bachelor’s degree/equivalent work experience
  • 4 years of professional work experience in making investment decisions
  • 3 professional references
  • CFA-specific requirements

Once you’ve become a member and enrolled in the program, there are a number of tests, which require about 1000 hours of studying, that candidates must pass in order to receive the designation. After all that, are you still wondering how to become an investment banker?

If you thought the alternative would be an easier option, it’s not. At best, it’s just a little more convenient since it is a self-study course, although some people choose to hire a tutor. The program takes candidates, on average, four years to complete. It is also cheaper, at a few thousand dollars, than an MBA, which can cost tens of thousands of dollars. A CFA is not an easier way to become an investment banker, but rather the answer to the question “How to become an investment banker on a budget?”

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Show Me The Money: How Much Do Investment Bankers Make?

Asking how much do investment bankers make may only elicit a response regarding their base pay. However, investment bankers also collect a lovely bonus based on performance at the end of the year.

Naturally, the amount varies depending on whether you’re a first-year analyst or a managing director. A 2012 report based on investment professionals in the Boston area gathered the following numbers:

  • First-year analyst: $85,300 (estimated bonus $28,700)
  • Third-year analyst: $111,400 (est. bonus $51,600)
  • First-year associate: $120,000 (est. bonus $39,900)
  • Third-year associate: $149,000 (est. bonus $60,700)
  • Vice president: $225,700 (est. bonus $116,800)
  • Managing director: $273,400 (est. bonus $135,600)

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You can also get an approximate answer to how much do investment bankers make by looking at their position at a given bank and the volume of the transactions they facilitate. Senior managers will make more money because of the volume of investments they are handling.

In fact, some investment banks will turn down clients if they aren’t considered worth their time. For instance, if an investment bank is already dealing with a number of high revenue clients and Company A wants to use its services, but their company is only making $150 million dollars, that’s most likely not worthwhile to a large and busy investment bank.

Think of investment bankers as brokers. Like any broker, they take a percentage of the money they handle or grow. So how much do investment bankers make? That depends on how much money they are handling since they usually take a percentage, also known as a commission. It can take years to reach a management or director role, or even an executive role where your job is more focused on cultivating relationships with companies and generating deals for the office.

While the high pay of working as an investment banker does sound appealing, once you figure out what investment bankers do, it becomes clear that the money has a number of trade offs. It is a demanding career that commands long hours from its professionals and expects top-notch performances on limited sleep and at the drop of a hat. Then again, with motivation, brains, and determination, people have made it happen and successfully at that.

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