How to Start a Career in Investment Banking 2021
In simple terms, investment banks work on behalf of high-profile clients with complex financial needs.
Primarily involved in raising capital by selling securities to investors, they allow clients to develop and expand through the reinvestment of funds raised.
Essentially, they make a profit for investors, in turn generating cash flow for those who need it.
Investment banks also work in several additional areas, including mergers and acquisitions, private wealth management and corporate finance.
As a potential career path, investment banking offers many opportunities for graduates.
Investment Management vs Investment Banking
Investment bankers work in corporate finance; companies (or sometimes governments) hire them to help with capital raising strategies.
Working on a consultant/analyst basis, they facilitate things like:
- Mergers and acquisitions
- New debt issuance (like a bond offering)
- New securities underwriting
- IPOs (Initial Public Offerings)
They operate on both the ‘sell’ side (selling stock and other funds to raise capital) and the ‘buy’ side (advising clients to buy into things like insurance and private equity etc).
Investment management is a lot broader. The client base is much wider and isn’t limited to the corporate world. Clients can include:
- Pension funds
- Insurance companies
- Mutual funds
- High net-worth individuals
In addition, investment managers have far more flexibility for moving money around than investment bankers do, plus they can make money for clients in a variety of different ways.
They work with a range of funds, including commodities like gold and silver, and can direct funds to areas like:
- Hedge funds
- Debt securities
Due to the lack of flexibility in investment banking, it is open to more risk when a financial crisis hits.
A bear market (where the price of securities fall) may force portfolio managers (working in investment management) to be extra-cautious in their investments, but they will always have choices.
Investment bankers, on the other hand, will either have capital-raising and advisory assignments or they won’t.
What Roles Are Available in an Investment Bank?
Investment banking jobs generally fall into three divisions:
- Front office
- Middle office
- Back office
These ‘offices’ are then sub-categorised into operational areas, each with a significant role to play.
For those wishing to embark on an investment banking career, it is vital to understand the distinctions between each to find a suitable role for their skill set.
Front Office Functions
Roles within the front office are typically defined as revenue generating and are predominantly client-facing.
The front office division is split into an additional two sections:
Investment Banking – Typically advisory and supporting functions, including underwriting, mergers and acquisitions, corporate finance and Initial Public Offerings (IPOs).
Capital Markets – Typically executional functions including sales, trading and structuring.
The front office is generally considered the most pressurised environment. It is here that revenue is generated for the bank and investments are made for high-net-worth individuals, corporate clients and organisations.
Front office roles include investment banking, private equity, fixed income sales, asset management, private wealth management and fixed income trading.
Middle Office Functions
The middle office carries out supporting activities for the front office, often in the form of compliance and risk management.
Middle office roles involve analysing, evaluating and mitigating risks, as well as ensuring the bank complies with all relevant legislation.
Middle office roles include investment consulting, risk management, IT consulting, actuarial consulting and technology.
Back Office Functions
The back office is the supporting division for all the bank’s operations. Roles within the back office include human resources, marketing, technology, finance and administration.
One of the primary back office functions is operations. Employees in this division are responsible for the clearing and settlement of deals made by front office staff.
Back office roles include marketing, advertising, finance, HR, assurance, operations and insolvency.
How to Start a Career in Investment Banking
You can find a detailed list of global investment banking firms here.
Work experience placements are generally available to A-level students or anyone without a university degree.
These are typically one- or two-week placements that offer an overview of investment banking.
They should help you decide if it is a sensible career choice for you.
Internships and Sandwich Programmes
Penultimate-year summer internships are some of the most sought-after programmes. They offer hands-on experience in many of the different departments in an investment bank.
Many firms also offer one-year placements for undergraduates studying on a four-year sandwich course.
Completing an internship or a one-year placement generally leads to a fast-track opportunity for that firm's graduate intake programme.
For those that have completed a Bachelor’s or Master’s level degree course, graduate programmes are the next step towards a career in investment banking.
While specific academic qualifications are discussed in the following section, those that hold a Master’s level qualification can sometimes begin their graduate programme as an associate, whilst those with Bachelor level qualifications will begin as an analyst.
Competition for investment banking graduate programmes is fierce. Prior work experience and completion of an internship will give you a competitive edge when it comes to the selection process.
Most firms have a limited intake and recruit on a rolling basis from late summer to early spring.
You should also be fully prepared to justify why you have chosen a career in investment banking during your application and interview.
Competition for front office investment banking jobs is fierce, so if this is your goal, it’s important to plan your academic career early.
Ideally, you’ll hold relevant A-Levels such as maths, further maths, business, accounting or economics.
While strong A-Level grades are often more important than the specific subjects, tailoring your choices will give you a better chance of being accepted onto relevant university degree courses.
Although it is not an essential requirement, a second language can also give you a competitive edge.
Generally speaking, investment banking graduate jobs require candidates to hold a Bachelor’s degree, with the top firms requesting a 2:1 or above.
Applications are accepted from all degree disciplines, though a finance or business qualification will give you the best chance of success for front office roles.
There are also several institutions that offer industry-focused degrees. For example, the University of Reading offers a BSc in Finance and Investment Banking.
The London Institute of Banking and Finance also offers specialist courses, through a BSc in Banking and Finance and a BSc in Finance, Investment and Risk.
For back office roles, you’ll likely study a degree subject relevant to your area of interest, such as IT, technology or marketing.
Candidates with an additional Master’s degree are sometimes considered for associate-level positions on investment banking graduate programmes. This can fast-track your progression by up to three years, as you will not be required to complete training in an analyst position.
You may also consider a Master of Business Administration (MBA) course, although these are now far less common in the investment banking world than they once were.
What Key Skills Do I Need?
The specific skill set required will be relevant to your chosen department. A trader on the front office floor will need different expertise from an employee in back office operations.
You should ensure you fully digest the job description and person specification before you begin the application process.
However, certain key skills will improve your chances of a successful investment banking career:
Analytical skills. You’ll need effective numerical and quantitative analysis skills to identify and present investment plans.
Time management skills. You’ll often work to tight deadlines and under significant pressure, so strong organisation is crucial.
Communication skills. You’ll be persuasive in your language and able to convey complex information.
Self-confidence. You’ll need to have conviction in your abilities and the confidence to stand by your decisions.
Resilience. Investment banking is unpredictable and you’ll need to bounce back from misfortunes.
Commitment. You’ll work long hours in a stressful environment, so you’ll need to show continued dedication.
Networking skills. If you intend to progress, you’ll need to demonstrate the ability to interact with high-profile clients to win new business and close deals.
In addition, employers will look for keen undefined and an understanding of the current market climate.
You’ll also need to demonstrate your ability to work efficiently under extreme pressure.
Working Conditions in Investment Banking
Working conditions for investment banking roles vary depending on which operational area you work in. In general, you’ll be expected to work long, anti-social hours in a highly pressurised environment.
Front office workers can work over 80 hours per week, including late nights and weekends, often over several consecutive days. Those involved in stock market activities will typically work market hours, from early morning to evening close.
While supporting back office roles may come with a more standard working structure, employees can often be called on to work outside of their normal hours during busy periods or times of crisis.
There is, however, increasing pressure on the investment banking sector to focus more on working lifestyles. Initiatives such as protected time off have been introduced by some firms in an effort to protect employees’ health.
Ultimately, the nature of work involved in investment banking requires a huge time commitment, so how such schemes will work in the long run remains to be seen.
Investment banking jobs also come with a high level of risk and responsibility. The unpredictable nature of the stock market, the value of deals and investments being made, and the long hours make this one of the most stressful environments to work in.
Investment banking is not for the faint-hearted and requires commitment if you intend to make it a successful career.
Salary and Typical Career Progression
Most graduates entering the investment banking world will start their career as an analyst in their chosen department. Typically, these training positions last for three years before progression to associate level.
Analyst Role and Salary
As an analyst, you will be required to carry out all activities that are associated with winning or closing the deals carried out by senior bankers.
An average salary for a newly qualified analyst working in London is £50k, with an additional bonus of between £10k to £30k, dependent on your employer.
In year two, you should generally see a 10% rise in your salary and your combined salary and bonus will average £100k. By year three, your total take-home pay should sit somewhere between £110k to £150k, dependent on your employer.
Associate Role and Salary
Having completed three years as an analyst, or if you entered investment banking with an MBA qualification, you’ll progress to associate level.
You will typically stay in this role for three to four years. You’ll be responsible for similar tasks to those of analysts and will likely have a small team under your responsibility.
Average starting salary for associates sits at £80k, with a bonus in the range of £30k to £60k. By the time you reach your third year at associate level, you can expect to earn a total take-home salary of around £220k.
These figures may seem appealing, but progression is tough. Fewer than half of the graduates that start as analysts make it to third-year associate level.
Director/Vice President Role and Salary
If your skill and commitment takes you above associate level, you’ll likely spend three or four years in a position that sits between junior and senior roles.
As a director or vice president, you’ll be responsible for a team of analysts and associates and for their performance. You may also be more directly involved in winning work from clients.
As you progress to the level of executive director or senior vice president, your focus will move towards winning business and generating revenue.
When established in these senior roles, you can expect to achieve a combined salary and bonus of above £300k.
Managing Director Role and Salary
To progress to this level can take upwards of 12 years. Managing directors in investment banking are responsible for an allocated section of the business, ensuring that it is profitable.
Managing directors can expect to earn high six, even early seven-figure salaries, but this does not come without years of hard work and sacrifice.
Middle and Back Office Roles
The above salary guidelines are for front office jobs within investment banking.
For middle and back office roles, career progression tends to be much slower and it can take far longer to progress from associate to executive director level.
While middle and back office starting salaries are relatively equal to front office (averaging £50k), salaries rise in smaller increments. Those who progress to management level, however, will see a sharp spike, with middle office management earning upwards of £450k and back office management £200k.
Investment banking jobs can be high-profile, high-earning and, consequently, high-pressure. It is a career path that takes a substantial amount of dedication and commitment, and not one that should be entered into lightly.
With fierce competition for all entry-level investment banking graduate programmes, you must gain as much industry knowledge and experience as possible – while completing your relevant studies – to have the best chance of success.