Become an Investment Banker
Don’t let the job title fool you. An investment banker is not a person who helps customers find and make good investments. An investment banker works with new businesses or existing businesses who are seeking to raise capital for a variety of reasons.
Either they are a start-up business, or they are expanding, launching a new product, etc.
An investment banker specializes in helping businesses raise the capital they need, usually through a stock offering. The first time a business offers stock in the company, it is called an Initial Public Offering or IPO. When investors buy shares of stock they are buying part ownership of the company. The company may or may not pay a dividend on that stock, depending on its financial circumstances. Most investors are more concerned that the value of the stock increases over time, thus realizing a return on their investments. Existing public companies may issue more stock after the initial offering, but this could dilute the value of the IPO stock. The company uses the money raised to meet its capital funding needs. It is a way for a company to raise money without having to take out large loans. However, investors do expect a solid return on their investment and have voting rights on how the company is managed.
The investment bank takes on the responsibility of underwriting the capital amount needed and selling the shares of stock. In this way, the business is guaranteed to receive the money they need, and the investment bank is shouldering the lion’s share of the risk. Most banks do not offer this service. Usually it is investment banks only that do this kind of banking. However, some very large banks, like JP Morgan Chase, do have investment banking services.
An investment banker works with a company through the stock offering process. He or she must obtain all of the information the bank needs to approve underwriting the offering. The underwriter must meet with the company’s representatives to gain a deep understanding of the business, its overall financial picture, and how well it is being managed. Once he or she feels it is in the bank’s interests to underwrite the offering, the investment banker manages and oversees all remaining aspects of the offering process.
Investment bankers also assist large companies with mergers and acquisitions, as this often involves combining the companies’ existing stock. There are detailed federal regulations that public companies must follow both during the offering, and thereafter. Investment bankers must communicate all of these regulations to the company.
Banks and investment banks require all investment product specialists to possess a bachelor’s degree in finance, economics, business or a related degree. Many banks highly prefer candidates who also possess a master’s degree in business administration or are working on obtaining one. Most banks also require candidates to have a minimum of five to ten years of experience in investment banking.
The US government, through the Financial Industry Regulatory Authority (FINRA), may require investment bankers be licensed. The employer may also request that the investment banker receive his or her CFA designation, or Chartered Financial Analyst, sponsored by the CFA Institute. To qualify, the banker must have a bachelor’s degree and four years of related work experience. Then he or she must pass three exams.
Knowledge, Skills, and Abilities
The investment banker must have deep knowledge of stock markets, stock valuations, business management and basic accounting, and bank and federal policies and regulations concerning investments. He or she should have a demonstrated successful track record with managing capital fund-raising for clients.
Because the investment banker meets with prospective and existing clients, he or she should have excellent presentation skills. Additionally the investment banker should possess very strong financial modeling/valuation, analytical, communication, and organizational skills. Banks also look for investment bankers with high integrity.
Salaries can vary greatly from bank to bank and city to city. Most investment bankers are very well-paid for their time and expertise. The average yearly salary can start at around $100,000 per year. Very successful investment bankers can earn more than $300,000, depending on their experience and the financial institution where they are employed. Here’s the latest salary information:
Potential Career Paths
Investment bankers are advanced positions at banks. However, investment bankers can be promoted to executive positions within the investment banking department of large commercial banks. At investment banks, very successful investment bankers have the potential to become president, director, or managing director of the firm.