How to Get into Investment Banking Careers: A Complete Guide
Welcome to the aristocracy of finance! Choosing to work in the field of finance and then setting your sights on investment banking careers is a little like dreaming about receiving an aristocratic title from the queen.
Why is that? Simply because investment banking has always been somewhat of a blueblood branch of finance.
Investment bankers themselves are notorious for being some of the best educated and most prestigious people in the business.
Not only that, but the jobs can be hard to get and the industry difficult to climb through.
However, don’t despair. In more recent years, investment banking careers have become a bit more democratized.
Not educationally, of course. In that sense, this is still as elitist of a job as it always was, and you won’t escape the fate of having to get an Ivy League degree.
Still, investment baking careers are more democratic in a social sense.
What does this all mean? Let’s dissect the world of investment banking careers together in this tell-all guide and see!
What Is Investment Banking?
Investment banking is a division of any financial institution or bank which serves corporations, governments, and other institutions.
Its purpose is to provide advisory services when it comes to capital raising and mergers and acquisitions, otherwise known as M&A.
An investment bank will always act as an intermediary between two parts - the investor or the person who owns capital and is looking to invest it in something, and corporations or the entities which need said capital to continue expanding and growing their businesses.
Here’s an important thing you need to know at this point:
People always confuse two notions which otherwise should be very distinct - an investment bank per se and an IBD or the investment banking division within any given bank.
If you’re looking at investment banking careers as your future, you cannot make this confusion!
An investment bank as an entity of its own focuses on a very wide plethora of services that can include M&A, underwriting, sales, equity research, commercial banking, asset management vs investment banking, and much more.
The IBD division in a bank will only provide M&A advisory services and perhaps underwriting.
Is Investment Banking Worth it?
Only if you like money.
Investment banking careers represent those types of dream jobs that have it all - the opportunity to gain an important status, a high paying salary, power, the idea that you are really achieving something every single day, the rush you feel when you take a risk, and the possibility of working with some of the most interesting people you will ever meet in your life.
The best way to describe a career in investment banking is like a roller coaster ride. Leonardo DiCaprio in The Wolf of Wall Street? Yes, he was an investment banker essentially.
However, when asking yourself why investment banking, keep in mind that you have to be made for this lifestyle and career to be able to both do it and enjoy it.
In other words, a working day lasts for 17 hours, and you cannot take a 5 minute break without making sure you are connected to your phone at all times.
Weekends and holidays are not an option and million dollar stories and selfies on Lamborghinis will come, but after a lot of hard work.
How to Become an Investment Banker
Alright, let’s get down to business and talk about the real reason why you’re here. You want to know how to be a real life version of Leonardo DiCaprio and become an investment banker.
So do I. It might not be a surprise at all when I tell you it all starts with education.
But not just any type of education. Here’s where it gets tricky. Remember when I said in the beginning that investment banking careers are elitist?
That view on the industry starts as early as college.
1. Get a college degree in a related field.
This can mean anything from finance to economics to business and accounting.
2. Attend an Ivy League School.
Do people who have degrees from lower ranking universities get jobs in investment banking? Not so much, no.
The reality is that investment banks only recruit from the uppermost colleges around the world.
Why? Because they can is the answer.
The number of applicants is so much higher than the number of jobs they offer that they simply have their choice of only the best people who meet their criteria.
Therefore, within the US, you have the Ivy League System, while in other countries, such as the UK, for example, you can attend the London School of Economics, Cambridge, and Oxford.
Finish at the top of your class to get noticed!
3. Get an advanced degree.
This would be the next step if you want to know how to get into investment banking.
It is true that you can get a job in this field with just a bachelor’s degree. However, this is all about improving your chances.
In other words, making your resume stand out. Putting your best foot forward and proving to your potential employers that you out of all the rest have what it takes to work for them and make it in this business.
4. Network as much as you can.
You can read as much literature and as many online articles about investment banking as you want. But if you ask an actual investment banker what he does, he will answer using one word - sell.
This is what they do on a daily basis. Try to convince people to hand over gigantic sums of money which then they invest.
These are the people behind the mergers and acquisitions of the Fortune 500 companies.
And you know what’s at the center of all this? Networking.
How to Get Investment Banking Internship
If you have the possibility to get such an internship, do not hesitate! Go for it!
Not all internships are created the same and not all of them will actually benefit your future career.
Only the right one will prove to be a jump start to your career.
Investment Banking Training
If you are pursuing a career in investment banking, it’s no secret you will have to spend a lot of time in the classroom.
The trick is to find the right training that will help you get straight to the top in the easiest way possible. Not to mention affordable.
Breaking Into Wall Street is a ‘self-learning’ financial training program that will allow you access to real-time case studies, high-quality courses, and an excellent community to back you up.
Not to mention the BIWS certification, a prized possession in the financial world. All you have to do is join!
What Does an Investment Banker Do?
An investment banker usually works around 80 to 100 hours per week.
That is more than half what an average person works in the same amount of time, in case you were wondering how many hours investment banker work.
Read about what do investment bankers do.
Andrew Gutmann, a now retired investment banker wrote in his book, How to Be an Investment Banker: Recruiting, Interviewing, and Landing the Job that a typical working day in the life of an investment banker starts at 10AM and ends at 2AM.
So what is it exactly that they fill those hours with?
A day in the life of an investment banker
The workday starts quite late because the capital markets in New York won’t open bright and early in the morning.
But also because most of your colleagues have been working until 2AM, and they simply can’t wake up and start working again at 7 in the morning, as you will find out.
Work in the morning is always a lot slower than the rest of the day. Associates and analysts perform tasks or adjustments requested by senior staff.
Tip - answer as many emails and messages as you can during the morning. It will help you throughout the day! Investment bankers are not allowed to take more than 15 minutes to respond to an email/message.
Therefore, it’s a sure way to lessen your workload.
Lunch is allowed as a 45 minute affair. However, you will have to lunch with your peers.
Hierarchy is very strict and rigid, and you won’t find anyone crossing the boundaries and lunching with a superior.
Since we’re on this topic, let’s talk about…
The investment banking hierarchy
Of course, the easiest way to put it is that, when you work in investment banking, you go from entry level all the way to that gorgeous corner office covered in mahogany with a view of New York’s skyline.
But what exactly lies in between? Here is the breakdown as well as an infographic to help you memorize it!
- Analyst - you will not receive any live deals and you will most likely not be given any down time.
However, you are in charge of administrative chores such as working on league tables, preparing public information books, and research on thousands of companies to find candidates for M&A deals. Yes, thousands.
- Associate - as an associate, you are basically a step above the analyst, meaning you are in charge of them. Check their financial models, train the analysts, and draft presentations.
- Vice President - it sounds grand, but it will take a lot of time and a lot of hard work to get to this position. Only Associates can get promoted to this position and only after around 4 years.
- Senior Vice President - you can almost smell the coffee from the boss’ office, but you’re not quite there yet. As a senior Vice President you have two jobs - execute deals and bring in new business. No pressure!
- Managing Director - You did it! You are the one who calls the shots and your word is law in the bank.
However, understand that this is by far the toughest position one can have when it comes to investment banking careers.
The only way to do it is to have cultivated a gigantic network which will allow you to bring in those large revenues your bank needs.
Back to your day as an investment banker.
During the afternoon, work on models and presentations for the analysts in your team.
You will see that the afternoon work is the most stressful of times, as it focuses on what professional lingo calls live deals.
During the evening, your work will be divided into two segments - before and after dinner. As an investment banker, you are expected to have dinner at the office.
Before dinner, focus on your schedule, more emails and messages, and every other task that your superiors have allotted.
After dinner, review the work you have done in the morning. Both senior investment bankers as well as analysts will spend time in the evening if not throughout the night revising the pitchbook and adding comments for you.
Which brings us to this.
What is an investment banking pitch book?
They are presentations you will have to create. There are three main types of pitch books when it comes to investment banking.
- Bank introductions or market overviews
- A deal pitch
- Management presentations
The reason why they are called books is because they usually come in hard copies which are handed to everyone involved in a meeting.
They can also be in the shape of a Power Point presentation.
How to Get Into Investment Banking
This is probably the main question that everyone wants answered - how to break into investment banking.
But the answer is as mundane as they come - education, internships, and lots of hard work.
It all depends on what level of the hierarchy you have your eye on. If you’re thinking about an entry-level job, such as an Analyst, then apply for an internship while you are getting your bachelor’s degree - it might lead to a job offer.
All investment banking jobs above that will be recruited from the inside or given to candidates who already have experience in this field.
How do I get an entry level investment banking job?
Most banks and financial institutions search actively for very talented graduates. As a result, they organize graduate recruitment programs.
Apply to one of these programs depending on what you have planned for your own future.
They will also offer internships as well as work placements that will prove to be fantastic job opportunities for you.
However, be warned that they are highly competitive and a real job will only go to the absolute strongest person in the program. It’s time to show off your best qualities!
Investment Banking Exit Opportunities
The best thing to do is to start thinking about what branch of investment banking you wold like to work in as early as possible.
This will give you the chance to tailor your education, internships, and networking accordingly. Here are some exit opportunities for you.
- M&A - also known as Mergers and Acquisitions - these types of bankers give strategic advice to clients who want to merge with their competitors or who want to buy smaller businesses. Be aware that you need to fine tune your sales skills.
- Underwriting - to put it in some simpler terms - raising capital. You will work with your clients one on one, mostly outside the bank as well as inside the bank with traders. You will focus on equity or debt and be very focused on a certain industry of your choosing, such as real estate investment banking.
- Private Equity - you can choose to work in a large bank which has a private equity department or for a smaller private equity focused company. Either way, your job will be the same - raise money for enterprises and non-public companies all the while retaining a certain portion of the profit that you made through those deals.
- Venture Capital - this is the branch which specializes in gathering capital for new and developing companies, most often in very modern fields such as green technology or biotech.
Best Investment Banking Firms
The top investment banking firms in the world are also known as bulge bracket investment banking companies. Here they are.
- Goldman Sachs - $917 billion asset wise as of 2017
- JP Morgan Chase - $2.5 trillion asset wise
- Barclays - $1.5 trillion in assets
- Morgan Stanley - $852 billion in assets
- Bank of America Merrill Lynch - $2.3 trillion in assets
- Credit Suisse - $800 billion in assets
- Deutsche Bank - $2.2 billion in assets
- Wells Fargo - $2.0 billion in assets
- RBC Capital - $2.7 billion in assets
- Jefferies Financial Group - $1.5 billion in assets.
Read about how investment firms work.
Investment Banking Skills
Education? Check. Internship? Check. Networking? Check. What else do I need?
Where to start, really? Here is a list of some of the investment banking skills you will need to develop and use as an investment banker.
- Financial modeling - this includes 3-statement models, LBO models, DCF (discounted cash flow) models, and others.
- Creating pitch books and presentations - it might sound easy, but there’s an art to creating the perfect pitch book. If you’re insecure, take a course!
- Business valuation - some valuation methods include comparable company analysis, DCF analysis, and precedent transactions.
- Preparing transaction documents - confidential information memorandums, term sheets.
- Business and sales development - this means meeting with prospective clients whenever possible to offer them your ideas.
- Relationship management - this crucial skill asks you to work with your existing clients at all times to make sure they are satisfied with the services you are giving them.
- Networking - constantly enlarging your network of people, acquaintances, colleagues, friends, etc.
- Negotiation - you must act like an important factor in the relationship between the seller and the buyer.
And here’s a bonus from me in terms of skills that a lot of people won’t tell you.
Appropriate the culture.
What does this mean? Investment banking is not a job, it’s a lifestyle.
As an investment banker, you will work alongside (or, more likely, for) some of the richest people in the world.
Not the ones you see on TV or Instagram. The actual rich people, the ones no one has even heard about.
They wear certain clothes, only drive certain cars, and holiday in special places around the world. As a result, they will only spend time with other people such as themselves.
When it comes to their assets, they won’t agree to give you their money unless you are part of their culture, if you understand and appreciate them.
Here is a study conducted by the Social Mobility Commission in the UK. It shows how most people who are applying for a job lose that opportunity not because they were not qualified but because of small mistakes they might not even have been aware of.
Mistakes such as wearing the wrong color, having a bad haircut, not wearing a certain brand of accessories, and so on.
Speaking of which, how do you break into their world? Let’s talk about the interview.
Investment Banking Interview Questions
The questions you will be asked during the interview depend very much on your background, experience, and the position you are applying for.
But here are some examples to look into right now and get prepared.
- What are the three financial statements? Can you walk me through them?
- How do you value a company?
- When do you think a company needs to issue debt and not equity?
- What are the main components of WACC?
- Can you tell me how to calculate the WACC?
- Is debt cheaper than equity?
- Here’s a logic question - how many barbers would you say there are in the city? Why? Walk me through your reasoning.
Pay special attention to your investment banking resume. Remember that this is one of the most competitive jobs you could apply for.
Tips on How to Write the Best Investment Banking Cover Letter
Never be shy in an investment banking cover letter!
This is not the time to be humble. Quite the contrary. Whatever qualifications, skills, and achievements you might have, name them all!
- Put your education, grades, and major in the introduction.
- Add your relevant experience - work, internships, training, certifications programs, and anything else you have attended so far.
- Explain why you believe you are such a good fit to work for their bank or financial institution.
- Write one paragraph as a conclusion adding your contact information and social media.
Investment Banking Need to Know
Let’s finish this one stop guide on investment banking careers with your own personal dictionary, so to say, that I’ve made just for you.
I’ve used the questions that I get asked the most, so here are some of the things you absolutely need to know.
- Investment banking vs investment management
This quite a simple one to comprehend. Investment bankers are hired by both companies and the government to run mergers and acquisitions or, in some cases, IPOs. Whereas investment managers have a portfolio of clients for whom they manage their assets.
- Private equity vs investment banking
We already know what investment banks do. Private equity firms search for investments in different businesses as well as collect funds. Private equity also cultivates performance, meaning that it’s a lot closer to sales and trading vs investment banking in this matter than investment banking will ever be. So take this into account.
- Equity research vs investment banking
Equity research is a simple procedure through which you can analyze the assets or liabilities of a certain company in order to see just how financially sound they are. Based on that, you can make an investment decision.
- Corporate banking vs investment banking
Corporate banking is better known as business banking. The term was originally introduced in 1933 by the Glass-Steagall Act specifically to distinguish investment banking from corporate banking, which are two separate activities. The latter deals with banking in the sense of corporate customers only.
- Commercial banking vs investment banking
Commercial banking is the branch of finance that deals with individuals, small companies, and their needs for small loans and deposits.
Read about how to shift from commercial banking to investment banking.
- Corporate finance vs investment banking
While related to investment banking, corporate finance is not a part of it, per se, which is a mistake many people often make. Corporate finance manages a company’s every day operations while investment banking tries to raise capital for the same company.
- Wealth management vs investment banking
Once again, wealth management can be a part of investment banking, if they happen to overlap, but it’s not mandatory. Wealth management focuses on servicing an individual’s financial needs. Should that include investment banking, the two will be performed at the same time.
- Capital markets vs investment banking
The two most basic capital markets we can discuss are the stocks and the bonds markets. Investment banking is a type of financial service that makes sure either of these capital markets runs smoothly. Choose your field wisely!
- Investment banking vs consulting
Consultants work on one case at a time for a company helping them to get organized and find the best solutions. This means you will have to travel a lot, but also than you will earn less money as a consultant than as an investment banker.
- Investment banking vs hedge fund
There is a difference in focus between these two. While an investment bank is an institution, a hedge fund is an investment avenue where you draw your investors in to contribute to financial products.
- What is real estate investment banking?
To clarify this, real estate investment banking doesn’t actually refer to ‘real estate’ per se. In fact, ‘real estate’ is a term used quite wrongly when it comes to define debt or equity brokerage groups that work on transacting at property level.
In other words, this class of investment bankers don’t deal with real estate as the wording might have you believe. They are equity and debt brokers.
- Asset management vs investment banking
In the same lines as wealth management, asset management represents the idea of managing a client’s money, that client being a company or an individual. As opposed to that, investment banking concerns itself with raising money or capital which companies want but might not have.
Read about buy side vs sell side investment banking.
- What is bulge bracket investment banking?
Even though it’s common to hear it or see it written, the term ‘bulge bracket’ is, in fact, slang. Bulge bracket investment banks, so to say, are the absolute biggest, usually multi-national, and, of course, most profitable investment banks in the world. The titans of the industry, if you will.
Their clients are equally large companies, corporations, governments, and extremely rich private individuals. Examples include JP Morgan, Credit Suisse, Goldman Sachs, Bank of America Merrill Lynch, etc.
Read about how to make a career in boutique investment banks.
- Sales and trading vs investment banking
Simply put, investment bankers work for companies who desire to raise money. In doing that, they advice their clients on how to do it - issue stocks and bonds, sell part of the company, merge with another business, etc.
A sales department within a company works with asset managers as well as investors and try to convince them to buy different things. Hence their name - sales people.
Traders, on the other hand, create secondary markets so as to provide liquidity. Bankers will usually issue securities in those secondary markets.
So, what’s the take?
Investment bankers are the actual ‘wolves of Wall Street.’ A special group of elitist bankers who work roughly 100 hours per week and cannot be parted from their phones.
They travel the world with billionaires and make almost impossible financial decisions.
But the career path to getting into investment banking involves top grades at an Ivy League school, years of hard work, and sleepless nights.
Do you have what it takes when it comes to investment banking careers?