What Can I Expect From a Career in Investment Banking?

So currently you are an undergraduate or graduate student pursuing a degree in finance, accounting or some other variant. The term “Wall Street” is used commonly in business, but it doesn’t clearly define the numerous careers paths available to new graduates. As a result, we felt it prudent to highlight a few of the alternatives available in the world of finance.

Investment Banking:
Considered to be one of the tougher industries to break into, investment banking consists of financial firms whose primary role is to assist companies with one or any combination of the following services:

Sell Side Advisory- When a company is looking to be sold, they will typically hire an investment bank to (1) locate buyers, (2) give them an opinion of the company’s value, (3) handle negotiations, and (4) provide advice on the effects the sale will have on other portfolio companies they own (if applicable).

Buy Side Advisory- When a client is looking to purchase a company, typically they will hire an investment bank to (1) formulate an opinion of value of the target company, (2) identify any synergies (savings) that can be realized by purchasing the company, and (3) conduct due diligence of the target company’s management, operations, and financial statements.

Capital Raising- In a capital raising role, an investment bank will be hired (“engaged”) to raise capital and also provide advice as to which type of capital structure will be most effective in accomplishing the client’s goal (i.e., purchasing a company, funding a project, refinancing existing debt). This typically involves the use of financial models built in Excel to get a picture of how each different capital structure affects the company’s key ratios.

Valuation- Companies who may need to issue stock options or are thinking of selling their business will engage an investment banker to conduct a business valuation. This process involves (1) extensive research of the company’s industry, (2) creation of financial valuation models, and (3) identifying all inherent risks for the company looking forward.

In investment banking, the hierarchy is pretty well defined and structured, and even more so in large institutions like Goldman Sachs or Morgan Stanley. The titles and roles are as follows:

Analyst- The core of the execution activities fall on the hands of the analyst! As a first or second year analyst, you will be responsible for (1) creating all projections and financial models (this will comprise the majority of your day), (2) creation of all pitch books or investor road show presentations, (3) creating lender, buyer, or investor databases for each deal, and (4) many other ad hoc tasks delivered last minute by your superiors. Being detail oriented is key to the success of being an analyst.

Associate- While still involved on the execution side, the associate will typically manage the execution activities being done by the analyst. This involves double checking all of the analyst’s work for errors, coordinating conference calls, and relaying communication with the client. While the associate has more responsibility and less grunt work, the downside is that all the blame typically falls on the associate for the analyst’s errors should they go unchecked.

Vice President- The vice president is typically an individual who has worked for 3-4 years as an associate. The vice president’s role has more concentration on relationship management than on the pure execution of each deal. In short, a VP will typically lead and handle all calls with the client, screen and source new deals, and manage the “work in progress” of multiple ongoing projects simultaneously.

Managing Director- The managing director is directly responsible for bringing in new engagements. As a relationship manager, the managing director spends the majority of his/her time on the phone or on business trips with lenders, clients, and investors. Most likely, as an analyst you will not get much exposure to the managing director unless you are working for a small boutique firm under 25 people.

And for the next issue (a big issue for many), is making the pay grade in investment banking—is it worth it? Well, to some, most definitely! As an investment banker you’ll be working anywhere between 70-100 hours per week. Get ready for late nights finishing an investor presentation due at 8:30 AM the next morning (and not knowing you had to complete it until 6:30 the night before).

Also, investment banking compensation is divided between your base salary and the bonus. As a first year analyst, you can expect to earn a base salary of between $55,000 and $70,000 to start (with higher salaries achieved at larger firms) and a bonus of $15,000 to $50,000...or more...the bonus all depends on how active your firm is. In short, the more deals closed, the nicer your bonus will look. It has not been uncommon to see bonuses of 1 to 2 times (or even 3 times) your base salary. The pay grade basically goes up from here.