Investment banking can be extremely rewarding as a career choice, both purely financial terms as well as professionally. Not only it pays well, it can also lead to some great exit opportunities as you progress in your career.
That said, an investment banking career path can be demanding and often stressful, although a popular finance job particularly amongst those who have recently graduated from university, or who have time to dedicate to advancing their career in its early stages.
With constant high demand for expertise and talent in the sector, qualified candidates (such as those who obtain a CFA charter) can enjoy lucrative salaries. If you are considering investment banking, here’s everything you need to know about it to see if it fits you, and how to get started.
- What does an investment banker do?
- Why become an investment banker?
- Investment banking hierarchy & progressing within the role
- Investment banking salary expectations
- How to become an investment banker
- Which qualifications can help with a career in investment banking?
- Investment banking career outlook
- Investment banking exit options and opportunities
- Is an investment banking career path for you?
What does an investment banker do?
Broadly speaking here are the various divisions within an investment bank’s front office which you can choose to work in:
- Mergers and acquisition (M&A): advising buyers and sellers of companies in terms of valuation, deal structure, financing, project management and execution. Within this division, teams are often organized into sector or country teams.
- Capital raising and security underwriting: Help companies raise funds to finance investment projects or M&A via sale of stock, bond or hybrid securities.
- Sales and trading: Bank acting as the middleman to connect buyers and sellers of various finance securities, as well as proprietary trading using bank’s own funds within risk limits.
- Equity / credit research: Research analysts study and evaluate financial securities, issuing reports to its institutional client base to recommend buy, sell or hold.
Generally, most reference to “investment bankers” work in the first 2-3 divisions mentioned above, as research analysts (whether equity or credit) are often considered a separate category themselves.
Depending whether you’re in the M&A or capital markets division, an investment bankers day to day is quite varied.
For M&A bankers, junior level work typically involves:
- Preparing Powerpoint presentations and slides for client meetings
- Doing spreadsheet-based analysis and valuation
- Other project management, administrative and research tasks required for client pitch meetings
While it looks mundane at first and hours are long, junior bankers do get increasing exposure to clients in meetings to have a bigger strategic picture of what the clients want to achieve, which helps provide further context to the work they do. But the core work is helping your team’s directors win new projects with institutional clients, and when they do, help execute and project manage the live deal.
For capital markets (equity, fixed income or hybrids), junior level work are similar, but with a slight difference:
- There is less presentation work as the slides are more standardised, and work is faster paced but hours are shorter than the M&A team typically as it is more affected by the stock market trading hours.
- There is more working together with various teams, especially Sales & Trading (to get market insights on financial security pricing) and M&A industry teams (to discuss client needs on financing).
Investment bankers are often considered as the link between a company and investors, which means good social skills as well as numerical ability are required, along with attention to detail, self-motivation and a desire to succeed.
Why become an investment banker?
The high levels of compensation is one of the many reasons why a career in investment banking might appeal. Those working in the industry are typically well rewarded, with even entry level positions often offering good salaries that are significantly above most finance career paths. And with progression comes greater rewards, meaning that top investment bankers will be taking home substantial amounts of pay after a few years in the job.
The breadth of what an investment bank does makes work varied, interesting and challenging too. This, combined with the high level of satisfaction of helping clients complete transactions and capital raising objectives is a big plus for most.
Working as an investment banker can be a high pressure job, however spending time in the industry equips individuals with some great transferable skills. Investment banking graduate programs provide one of the best training grounds at the start of your career, which can lead to a range of exit opportunities after a few years of experience.
Others instead enjoy the ability to establish working relationships with top-tier clients. This can be fulfilling and also opens up a world of future opportunities within the finance sector.
To summarize, despite the long hours and stress, investment banking is attractive for some due to the high compensation, interesting work, great exposure and transferable skill gained even at a junior level, which can form a stepping stone for future career switches and exit opportunities .
Investment banking hierarchy & progressing within the role
Entry level investment banking jobs are a popular choice for those wanting to start a career in finance. At many firms there’s often a reasonably clear structure for progression, which can be helpful in terms of assessing when the time is right to make a move, or when you would expect to be promoted assuming you perform well.
Investment banking analysts
This is generally considered to represent an entry-level position. However, most analysts still need to possess a degree from an accredited institution to be accepted into a firm. These professionals are responsible for duties including (but not necessarily limited to) compiling reports, collating data and researching potential ventures. This information and analysis will then be passed on to superiors for further examination.
Entry-level investment banking is said to represent a very informative (and instructive) position due to the variety of tasks that need to be performed, and individuals would typically spend around 2 to 3 years as an analyst before looking for promotion.
Investment banking associates
The next stage involves becoming an investment banking associate. The majority of these individuals possess a significant amount of hands-on experience or have already graduated with an MBA.
As you might imagine, one of the core duties of an associate is to supervise junior analysts and subsequently report their findings to senior members. Associates will also have additional responsibilities such as checking/conducting further analysis, finalising presentations, assist with client calls and clarifying communications between senior staff and junior analysts.
Having said this, associates will also be able to further ascend the corporate ladder thanks to their ability to develop working relationships with their superiors, and would typically be looking to move up after around 3 to 4 years.
Vice presidents, senior vice presidents & directors
Those who attain the role of vice president or senior vice president can expect quite a rewarding experience. The opinions of these experienced individuals are highly valued and they will often manage client relationships directly and have a client roster to manage.
Depending on the bank, an individual may also be promoted to director level after gaining a few years experience as a senior vice president. In some ways, these positions often represent the public perception of the company itself in relation to stakeholders. They are concerned with developing long-lasting relationships with clients, and passing new investment opportunities across. Hence, they are sometimes less involved with the day to day number crunching, and are more active in regards to sales, marketing and client relationships. Commissions are likewise much higher; particularly if a large deal happens to be closed.
At larger US investment banks, these are typically the levels where annual pay starts to cross the seven figure mark, with Vice Presidents looking at around 3 to 4 years in the role before being promoted to Senior Vice President or Director.
Managing directors, CFOs and CEOs
Managing directors, chief financial officers and chief executive officers are rarely involved with day-to-day activities. They are instead required to monitor all elements of ongoing operations or a particular banking divisions to ensure that long term strategies and goals are met, with no mistakes made from a top-down perspective.
We can think of this position in a similar manner to a general. While generals create strategies before a battle, they are normally not seen on the battlefield holding a rifle. Although the salary of a managing director is impressive, we also need to remember that this individual holds the greatest amount of responsibility. Public relations, superb client management skills with top industry experience are a must.
Investment banking salary expectations
An investment banker’s salary and total compensation package depends on how much experience they possess, how high they have risen through the ranks, their team’s performance, and the bank they work at.
Let’s take a look at some actual benchmark figures in order to better appreciate what a potential banker can expect to earn over the years. We’ll focus on typical salaries in the two main financial markets of New York and London.
Expected investment banking salaries in New York
| Position | Years of Experience | Base Salary | Bonus | Total Compensation |
|---|---|---|---|---|
| Analyst Year 1 | 1 | $100k – $110k | $50k – $90k | $150k – $200k |
| Analyst Year 2 | 2 | $105k – $115k | $85k – $115k | $190k – $230k |
| Analyst Year 3 | 3 | $110k – $125k | $95k – $125k | $205k – $250k |
| Associate Year 1 | 4 | $130k – $150k | $95k – $130k | $225k – $280k |
| Associate Year 2 | 5 | $170k – $200k | $100k – $200k | $270k – $400k |
| Associate Year 3 | 6 | $200k – $225k | $120k – $250k | $320k – $475k |
| Vice President Year 1 | 7 | $225k – $250k | $200k – $350k | $425k – $600k |
| Vice President Year 2 | 8 | $250k – $300k | $250k – $350k | $500k – $650k |
| Vice President Year 3 | 9 | $300k – $350k | $300k – $375k | $600k – $725k |
| Director / Senior VP | 10 | $350k – $400k | $450k – $800k | $800k – $1.2m |
Expected investment banking salaries in London
| Position | Years Experience | Base Salary | Bonus | Total Compensation |
|---|---|---|---|---|
| Analyst Year 1 | 1 | £60k – £65k | £35k – £45k | £95k – £110k |
| Analyst Year 2 | 2 | £65k – £75k | £35k – £65k | £100k – £140k |
| Analyst Year 3 | 3 | £70k – £90k | £55k – £75k | £125k – £165k |
| Associate Year 1 | 4 | £95k – £115k | £60k – £90k | £155k – £205k |
| Associate Year 2 | 5 | £120k – £130k | £70k – £110k | £190k – £240k |
| Associate Year 3 | 6 | £125k – £135k | £90k – £120k | £215k – £255k |
| Vice President Year 1 | 7 | £140k – £165k | £95k – £120k | £235k – £290k |
| Vice President Year 2 | 8 | £150k – £170k | £110k – £145k | £260k – £315k |
| Vice President Year 3 | 9 | £165k – £170k | £145k – £175k | £310k – £345k |
| Director / Senior VP | 10 | £180k – £220k | £170k – £355k | £350k – £575k |
In the UK, entry-level investment bankers (analysts) tend to earn a starting salary of approximately £60,000. This salary can increase up to six figures within a few years; sometimes exceeding £150,000 including bonuses (which can be as high as 100% of base pay).
Associates can earn significantly more due to their experience as well as the roles that they are expected to fulfil. In London, the base salary for this position typically begins at around £100,000, or over $150,000 in New York. When taking into account other amenities such as commissions and bonuses, top performing investment banking associates working at the best paying banks may be able to clear £250,000 per annum in London, and over $400,000 in New York.
In the same respect, vice presidents and senior vice presidents enjoy base salaries of between £140,000-250,000 in London, or $250,000-350,000 in New York. However, the true amount of income that they will earn tends to come in the form of bonuses, which can often be more than 100% of their base pay and sometimes as high as 200-300% at more senior levels.
This is also somewhat true in regard to managing directors. They will normally be provided with base salaries of several hundred thousand. When these are taken into account with bonuses, commissions and possible stock options, they may be able to earn salaries that are in the millions of pounds or dollars each year.
If you’re considering a career in investment banking, there are a few things to be aware of when it comes to salary:
- Many banks and firms will offer a sign-on bonus. This size of the bonus will depend on the position, with entry level analyst signing bonuses being around $10,000 and more senior associate signing bonuses around $50,000 (in New York).
- The base salary is generally not performance related, but will usually increase on an annual basis assuming performance is satisfactory.
- An end of year bonus will typically be awarded based on performance. This bonus may be paid in cash, or in the form of stocks at larger firms, and can often be 100% of the base salary or more.
- For those working at larger publicly traded banks, some compensation may be given in the form of deferred stocks. This is typically the case for those in a more senior position, and helps to encourage loyalty.
- As well as salary, there are usually other perks and benefits provided to those working in investment banking ranging from gym, meals and drinks to health insurance.
How to become an investment banker
While the roles and responsibilities involved in the investment banking sector are impressive, you might be interested to hear that there are no specific requirements in order to enter into this field at an entry level.
However, the majority of firms will hire individuals who already possess an undergraduate degree, and who perform well at an interview.
The discipline of your undergraduate degree doesn’t have to be finance-related, when I was a junior investment banker in London years ago, I had various colleagues who studied English, Classics, Geography and History. Top investment banks have great training programs for analysts and it’s quite an experience especially if you get to travel overseas for training!
Some may then pursue an internship while working at a specific firm, and many applicants will choose to supplement this education in the form of a master’s degree (due to the sheer amount of competition on the open market). Hands-on experience in the form of an internship is an enviable quality to possess. Investment banking intern positions are highly competitive, and so the top firms can be highly selective in their recruitment process.
This tends to be the same path for those who may switch from their current career into investment banking. However, professionals wanting to move from related financial roles into investment banking may be able to start at above entry level, depending on their level of experience and transferable skills.
Of course, factors such as knowledge, performance and motivation are key to how quickly progression up the ladder takes place.
Which qualifications can help with a career in investment banking?
The number of applicants who wish to embrace a career in investment banking means those who are looking for an additional edge should seriously consider obtaining professional qualifications in order to boost their CVs and resumes. Not only will these certifications provide a greater knowledge base, but they can also help to secure a sought-after position. Let’s take a look at a handful of options in greater detail.
Chartered Financial Analyst (CFA)
The CFA is widely considered as the leading qualification for the financial sector. There are currently more than 175,000 CFA charterholders globally. A sizable proportion of these are involved within the investment banking sector.
Along with the increase in salary that comes with being a CFA candidate, there are several advantages associated with this type of certification. Perhaps the most relevant is the fact that a CFA charter can help to bolster the skills associated with a finance-related university degree. Furthermore, companies are keen to hire those who obtain a CFA charter as it illustrates superior levels of passion and motivation for the field itself.
Master of Business Administration (MBA)
Holding an MBA in investment banking is also a common qualification to obtain; especially for those who wish to switch careers into investment banking from another industry. Note that there are several differences between a CFA and an MBA. MBA graduates often join investment banks at associate level, regardless their prior work experience.
If you’re already an investment banking analyst, studying for an MBA may make less sense as there is the opportunity cost of salaries lost as well. It may be worthwhile to grind through 2-3 years of analyst life and gain the experience for Associate promotion vs. getting an MBA (costly itself with the opportunity cost of salaries). A cost benefit analysis needs to be done whether MBA is worthwhile for your circumstances.
Chartered Alternative Investment Analyst (CAIA)
Obtaining a Chartered Alternative Investment Analyst (CAIA) certification may help differentiate yourself as an alternative investments specialist, particularly helpful in a firm’s private equity division. It is estimated that more than half of all CAIA charterholders are involved with the investment sector.
This is a globally recognized designation which illustrates a superior knowledge of alternative investment opportunities; a unique skill to have when dealing with banks and clients that are increasingly eager to diversify their holdings.
Financial Risk Manager (FRM)
Investment banking is associated with a fair amount of risk, especially in capital markets, leverage finance, M&A etc.
The management and risk pricing is required in the bank’s risk management division to consider various aspects of risk holistically for a firm-wide approach. The Financial Risk Management (FRM) may be handy in this case.
ESG certifications
Environmental, social and corporate governance (ESG) considerations play an important role in the finance sector, with ESG banking emerging as a growth trend. As businesses and investors alike are keen to leverage the power of sustainable strategies and due in no small part to a greater emphasis placed upon compliance, professionals ESG qualifications in finance are in high demand.
Data also suggests that more than half of investors would be willing to accept investments that performed less well if they helped to achieve an ESG goal, and this figure is even higher when it comes to millennial investors. In fact, McKinsey points out that getting a company’s ESG proposition right creates value and delivers higher financial return, a win-win scenario for everyone.
Investment banking career outlook
Investment banking offers a dynamic career path that’s not only financially rewarding, but which can open doors to further career progression.
The investment banking sector within the United States has grown at an average rate of 4.2% each year between 2017 and 2022, with similar trends around the world.
Firms are keen to hire individuals with advanced skill sets (such as CFA and increasingly ESG certifications) due to their levels of expertise. While competition remains high, opportunities are growing too.
Overall the medium term outlook for investment banking looks favourable, both for those hoping to start a career as well as those already working in the industry. Although competitive, expected growth in the sector means that availability of positions will likely increase over the coming years, while salaries will also likely develop at a similar rate to attract the best talent.
Investment banking exit options and opportunities
One of the main reasons many people want to get into investment banking in the first place is the wealth of exit opportunities that such a role can deliver.
Investment banking is a great place to start a financial career, as it helps to build some highly transferable skills that can be used to secure roles that offer similar levels of compensation, but with better work/life balance.
Networking with clients, investors and colleagues can also help to open doors and means that investment bankers might be first in line for some exciting, rewarding and lucrative positions as they become available.
Having said this, you might also wish to progress to a higher level within your current firm. A professional qualification may help make the difference here.
For anyone looking to switch financial careers, popular routes from investment banking include moving into areas such as investment research, corporate development or private equity. Alternatively moves to other areas such as risk analysis, sales and trading, internal auditing, and associate investment strategists are available.
Is an investment banking career path for you?
Do your skills and personality fit a role in the investment banking sector? Try to answer these questions as honestly as possible:
- Do you enjoy working within a high-pressure and dynamic environment?
- Are you motivated by challenges?
- Can you handle profound responsibilities such as dealing with extremely large portfolios?
- Do you wish to progress within the world of finance?
- Are you passionate about providing objective and transparent advice to others?
- Can you work well within a team?
If you can honestly answer yes to all of the above, then investment banking might be a career path well worth considering.
While there is no doubt that investment banking represents one of the most lucrative finance careers, we need to remember that these roles can be stressful with long working hours. If you are happy to embrace this, investment banking could very well represent an amazing opportunity.
Investment banking is considered by many people to be a stepping stone; a great way to pick up valuable skills and high pay before exiting to something that isn’t quite so demanding in terms of time.
Remember that success will require effort and a certain amount of sacrifice. There is no doubt that those who accept these facts, and have the skills and personality to thrive, will be up for the exciting challenge in this investment banking career path.
We hope you learned more about investment banking from above. Do you think this career path suits you? Let us know in the comments below!
Meanwhile, here are related articles which you may find interesting:
- Finance Career Quiz: Which Finance Career Fits Your Skills & Personality?
- CFA Careers: What Are Typical Job Opportunities for CFA Charterholders?
- Why is ESG Important and Which Careers Can Benefit From It?
- Finance Career Change: Plan Your Finance Career Switch With Our Free Tool
- Epic Career Path Guides: Accounting | Private Equity | Corporate Finance | Portfolio Management | Financial Planning | Equity / Credit Research | Wealth Management | Risk Management | Hedge Funds | Fintech | Consulting
