What Is Investment Banking?

The investment banking industry has grown each year since 2017. Learn about careers in investment banking.

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by Tessa Cooper

Published August 23, 2022

Edited by Amelia Buckley
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What Is Investment Banking?
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An investment bank refers to any person or institution that works as an underwriter for a person or corporation that issues securities. Investment banking also includes broker and dealer operations for securities.

Investment banks function as an intermediate between businesses and investors. They facilitate large money transactions with many moving parts and temporarily hold new business shares that investors can buy. Investment banks make it easier for businesses to grow by connecting them with investors, which helps the economy grow. Keep reading to learn about investment banking, including careers in the industry.

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Investment Banking and Securities

Securities is a financial asset with monetary value, often in certificate form. Two common examples include bonds and stocks. Investment bankers provide underwriting services for secure transactions.

Some investment banks play an even greater role in the U.S. financial system. For example, they may advise businesses and government sectors on how to achieve financial goals and secure financing.

Types of Securities

Equity Securities

These investment securities represent a portion of ownership of an entity's assets. These certificates show how much stake an individual holds in a company, trust, or partnership. People who hold equity securities may not earn regular payments. However, they may profit from capital gains and dividends.


Debt Securities

Debt securities certificates show records of borrowed money with repayment stipulations. When a person holds debt securities, it shows that they lent money to an entity. The lender usually receives regular interest payments. With secured debt securities, the borrowed backs the securities with collateral. The lender may receive the collateral if the borrower fails to repay the debt.


Derivatives

These financial instruments entitle a holder to interest and principal payments. Some people refer to them as secondary investment securities because they link to other securities. Their value and risk depend on how well another security performs.

Investment Banking Glossary
Term Definition
Bulge Bracket Investment Banks These institutions provide financing and advisory banking services. Their clients typically include large corporations and governments.
Elite Boutique Banks A type of investment bank that provides niche financial services, like restructuring or mergers and acquisitions. This is a non-full-service bank.
FICC This stands for Fixed Income Clearing Corporation. This type of entity handles settlements and delivery of fix-income assets.
Industry-Specific Boutiques This small financial firm provides specialized services to one market segment or industry.
Initial Public Offerings (IPOs) IPO refers to the process of offering shares of a private corporation to the public for the first time.
Mergers and Acquisitions (M&A) This refers to the consolidation of multiple assets or corporations.
Middle Market Banks Middle market banks offer financial services to small companies, local governments, and nonprofits.
Underwriting Underwriting occurs when an entity assumes the financial risk for a fee.

Careers in Investment Banking

People who want to launch a career in investment banking can start to gain professional experience while in college. For example, they can learn banking fundamentals by working as a teller. However, a bachelor's degree may prepare professionals for higher-paying roles. A common degree for aspiring financial professionals is a bachelor's in finance.

After a few years in the field, professionals who want to take on more advanced roles and increase their earning potential commonly pursue an advanced degree like a master's in finance, or an MBA. Those looking for continuing education without the commitment of a degree can consider graduate certificates.

Bachelor's degree graduates can earn jobs as loan officers at investment banks or pursue careers as insurance underwriters or financial analysts. Those with an advanced degree are eligible for financial manager or portfolio manager positions.

According to the Bureau of Labor Statistics (BLS), people working in the business and financial occupation field earned a median income of $76,570 in May 2021. The organization also projects this industry will grow by 8% between 2020 and 2030.

Several factors influence a person's exact salary. These include position, location, employer, experience level, and ability to negotiate higher salaries.

Financial Analyst

A financial analyst studies market trends and consults businesses and individuals on how to invest. These professionals evaluate businesses and determine their current and potential value. They prepare written reports to communicate their findings. Sell-side analysts provide advice to agents who sell investments like stocks and bonds.

Median Annual Salary
$81,410

Career Outlook
6% projected job growth from 2020-2030

Degree/Experience Level
Bachelor's degree

Securities and Commodities Associate

Associate-level professionals in investment banking often work as sales agents. They sell securities, commodities, and financial services. These professionals connect sellers with buyers. These professionals may also offer advice on buying and purchasing commodities like oil. They also study cost and revenue agreements and evaluate their quality.

Median Annual Salary
$62,910

Career Outlook
4% projected job growth from 2020-2030

Degree Level
Bachelor's degree

Vice President

People working in top executive finance positions create policies that meet income goals for an organization. They look for ways to decrease costs and increase revenue. They make hard decisions surrounding mergers and downsizing and work closely with chief operations officers to make strategic plans for long-term success.

Median Annual Salary
$98,980

Career Outlook
8% projected job growth from 2020-2030

Degree Level
Master's degree or significant industry experience

Financial Director

Financial managers and directors develop long-term monetary plans for the organization they represent. They create reports and oversee investment activities. They also supervise professionals who create departmental budgets. They aim to increase profits for an organization.

Median Annual Salary
$131,710

Career Outlook
17% projected job growth from 2020-2030

Degree Level
Master's degree or significant industry experience

To learn more about working in investment banking, check out our guide on how to become an investment banker.

Is Investment Banking Right for Me?

People who enjoy studying stock market trends and the current state of the economy may enjoy working in investment banking. This career requires strategic thinking, math, and communication skills. However, this high-stakes career may not suit everyone well. People who do not function well under pressure may not succeed in investment banking.

Investment banking professionals normally work in office settings. They typically work full-time and may work more than 40 hours per week during busy seasons.

Since many investment banking jobs only require a bachelor's degree, more people qualify for these jobs. This, coupled with relatively high earning potential, means that many investment banking opportunities feature competitive applicant pools.

Pros and Cons of Working in Investment Banking

Pros of Working in Investment Banking

  • Many roles offer a higher than average income.
  • This career has a positive job outlook.
  • Many professionals find the fast-paced atmosphere compelling.
  • The industry offers potential for continuous career growth.
  • Professionals gain knowledge on how to invest for their own futures.

Cons of Working in Investment Banking

  • Investment banking is a high-stakes and high-stress industry.
  • Financial careers require long hours, especially early in one's career.
  • It is impossible to predict exactly how certain stocks will perform.
  • Investment banking jobs are competitive.

The Future of Investment Banking

IBIS World projects the investment banking industry to increase by 17.6% by the end of 2022. There are currently 11,946 investment banking and securities dealing businesses in the United States. JPMorgan Chase & Co. is the largest business in the investment banking industry. New York, California, and Texas host the most investment banking and security dealing businesses.

With an increase in the investment banking business, more jobs in this field may appear. However, the investment banking industry will need to adapt to continue the steady growth. Investment banks must create digital products for optimal user experience to serve a tech-savvy generation.

Frequently Asked Questions About Investment Banking

Is investment banking a competitive field?

Investment banking is a growing but competitive field. For example, the BLS projects the need for securities, commodities, and financial services sales agents to only increase by 4% between 2020 and 2030. This is slower compared to the job market as a whole. However, since this job offers a higher-than-average income with just a bachelor's degree, many people pursue this profession.

The general business and finance industry may grow more quickly during the same time frame. The BLS projects this industry to grow by 8%. So, majoring in business or finance can lead to other faster-growing positions.

Can I work in investment banking without a degree?

People can still work in investment banking without a degree, but it can be more difficult to secure a position when you're applying next to others with more credentials. Without a degree, you can earn administrative jobs at investment banks. Or, you can work as bank tellers at retail banks to gain entry-level experience. However, more advanced roles usually require at least a bachelor's degree.

Investment banking involves complex transactions and deals with large money quantities. For this reason, many clients and employers may prefer to work with people with formal education.

How much money can I make in investment banking?

According to Payscale data accessed in July 2022, investment bankers earn an average of about $101,300 per year. Investment bankers with more years of experience may earn more. Payscale finds these professionals with more than 20 years of experience earn an average of $150,000. For reference, investment bankers with less than one year of experience earn an average of $63,000.

Pursuing additional higher education may increase an investment banker's salary. Additionally, employers in areas with higher costs of living may pay investment bankers more.

What are the biggest investment banks in the U.S.?

According to IBIS World, the top investment banks in the U.S. include JPMorgan Chase, Goldman Sachs, BofA Securities, and Morgan Stanley. JPMorgan Chase makes up 13% of the market share, making it the largest investment bank in the U.S. This company employs more than 256,000 full-time employees. In 2018, JPMorgan owned nearly $2.6 trillion in assets.

Morgan Stanley follows as the second largest investment bank, owning a market share of 9.6%. Bank of America follows next with a market share of 9.1%.

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