What is investment banking?
Investment banking is part of the financial services industry that facilitates and creates capital for companies, individuals, governments, and other organizations via an investment bank.
What is an investment bank?
Investment banks provide clients advice on how to invest their money and services such as buying and selling securities on their behalf. Some of the most common services provided by investment bankers include asset management, research, and trading and sales.
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Investment banks also provide exclusive services for large private companies and corporations to help them facilitate their growth and operations. These include capital raising, which ranges from initial public offerings, bond issuances, and underwriting — usually involving the sale of securities to investors — to advice on mergers and acquisitions.
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What does an investment banker do?
An investment banker facilitates transactions and services on behalf of a bank’s clients. In mergers and acquisitions, for example, they would help their clients look for potential companies to take over. If the client is seeking to sell their company, the investment banker would reach out to potential buyers and serve as an intermediary in negotiating the sale, attempting to secure a favorable price for the transaction. Among other duties, an investment banker can advise a country's top officials, particularly its head of finance, on marketing and selling its government securities to international investors.
How much do investment bankers make?
As of October 2023, according to Glassdoor, the average annual investment banking salary in the U.S. is $131,021. In New York City, where the cost of living tends to be the highest in the country, the average salary is $316,432. That compares to an annual median salary of $57,200, based on U.S. Bureau of Labor Statistics data.
Career investment bankers typically work their way up from analyst, to associate, and then on to vice president and director. New York is typically the center of investment banking in the U.S., and salaries there tend to be the highest in the country as pay is commensurate to the high cost of living.
Goldman Sachs’ careers page for New York City-area jobs lists its base salary for newly hired analysts at $80,000 to $110,000 and new associates at $130,000 to $175,000. Experienced professionals at the vice president and director levels can command pay of up to $250,000 to $300,000, or higher.
Still, pay at all levels in investment banking can be higher than in the past as investment banks try to retain talent because of competition within financial services and from other industries and sectors such as technology and manufacturing. Perks such as bonuses, housing allowances, and paid time off can lure applicants to investment banks.
How to become an investment banker
There isn’t a single sure path to investment banking, barring connections. Investment banks typically recruit from colleges and take in graduates with records of high academic achievement. Recruits with backgrounds in science, mathematics, and engineering tend to receive higher attention than those with undergraduate economics or business degrees because of their ability to analyze and solve problems. But graduates with majors in the liberal arts and other coursework or who show strong aptitude and analytical thinking can also be recruited.
Investment banks typically hire recent college graduates to work in entry-level positions, as analysts in research or in a particular department such as mergers and acquisitions. Successful recruits usually work for three years or so before venturing into business school. An MBA degree at a prestigious business school can land a graduate an associate position, the next level above analyst, at a top-tier investment bank.
MBA graduates from top schools typically have a faster track to promotions than those who stick with their undergraduate degree or complete the three levels necessary to be a chartered financial analyst (CFA). Associates who are promoted may move into vice president and, later, director positions.
What are the top investment banks?
Goldman Sachs (GS) -), Morgan Stanley (MS) -), and JPMorgan (JPM) -) have traditionally been considered the top investment banks in the U.S. Other well-known investment banks such as Bear Stearns, Lehman Brothers, and Merrill Lynch have either closed shop because of the financial crisis of 2007–2008 or folded into commercial banks due to the 1999 repeal of the Glass-Steagall Act, which in 1933 had separated commercial banking from investment banking.
