What Does an Investment Banker Do? Role, Skills, and Career Path

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An investment banker is a financial professional who helps companies, governments and other large institutions raise capital and complete complex transactions, chiefly issuing stocks and bonds, buying or selling businesses, and merging with other companies. The banker’s job is to advise the client on how to structure a deal, price it, satisfy regulators and find the investors or counterparties on the other side.

What does an investment banker do?

The work splits into two broad areas.

Capital raising. When a company needs funds, an investment banker helps decide the form: new shares (an initial public offering or a follow-on offering), bonds, convertible securities or a private placement with institutional investors. The bank prepares the disclosure documents, which in the US include registration statements filed with the Securities and Exchange Commission (SEC), such as Form S-1 for an IPO. It then gauges investor demand, recommends a price and distributes the securities.

Mergers and acquisitions (M&A) advisory. On the sell side, bankers help an owner find buyers, run an auction process and negotiate terms. On the buy side, they help a client identify targets, value them and structure an offer. Bankers may also deliver a fairness opinion, a formal view on whether the price in a deal is fair to shareholders from a financial point of view.

Underneath both areas is valuation. Bankers estimate what a business is worth using methods such as discounted cash flow analysis, comparisons with similar public companies, and precedent transactions. Concepts like enterprise value and the weighted average cost of capital appear in almost every model. Good advice also means spotting risks before a client commits, whether a regulatory hurdle, a weak financing structure or a valuation the market will not accept.

Many banks organize bankers into coverage groups (focused on an industry such as healthcare or technology) and product groups (focused on a transaction type such as M&A, equity capital markets or leveraged finance). A deal team usually draws on both.

How an underwritten offering works

In a firm commitment underwriting, the investment bank, or a syndicate of banks, agrees to buy the entire offering from the issuer at a set price and resell it to the public at a higher price. The difference is the underwriting spread, and it is the bank’s compensation for distribution and for taking on price risk. In a best efforts arrangement, the bank only agrees to sell as many shares as it can and does not guarantee the proceeds.

Before pricing, the bank typically markets the deal to institutional investors in a roadshow and collects indications of interest in a process called bookbuilding. That demand shapes the final offer price. Many IPOs also include an over-allotment (greenshoe) option that lets underwriters sell additional shares to help stabilize trading after the listing.

Example

Hypothetical, for illustration only. Suppose a manufacturing company decides to go public and hires an investment bank on a firm commitment basis. After valuing the business, the bank agrees to buy 5 million shares from the company at $18.60 each, a total of $93 million. It files the registration statement, runs the roadshow and sets the public offer price at $20.

• Strong demand: all 5 million shares sell at $20, bringing in $100 million. The bank’s gross spread is $1.40 per share, or $7 million, before its own expenses.
• Weak demand: the bank cannot place the shares at $20 and has to cut the price to $18 to clear the book. Proceeds are $90 million, so the bank loses $3 million on the shares.

In both cases the company receives the $93 million agreed in the underwriting contract (before its other offering costs). The price risk sits with the underwriters.

Skills investment bankers need

Bankers need:

• Strong numeracy and financial modeling, including accounting, valuation and measures such as internal rate of return.
• Clear written and verbal communication, since bankers produce pitch books, memoranda and presentations and must explain complex terms to executives and boards.
• Industry knowledge deep enough to judge a client’s competitive position and the risks in a deal.
• Stamina for long hours, particularly at junior levels, where live transactions drive deadlines.

Ethics and confidentiality are part of the job. Bankers handle material non-public information, so they typically sign confidentiality agreements for each client and must follow their firm’s code of conduct. Because the advisory side of a bank could benefit its trading or research side, firms maintain information barriers (often called Chinese walls) to manage conflicts of interest and comply with insider trading laws.

Career path, education and pay

A typical hierarchy runs:

1. Analyst (junior to senior)
2. Associate
3. Vice president
4. Senior vice president or director
5. Managing director

Analysts build financial models, prepare pitch materials and run due diligence. Associates check the analysts’ work and manage deal workstreams. Vice presidents and directors run transactions day to day, and managing directors focus on winning clients and originating deals.

Most entry-level analysts join from undergraduate programs in finance, economics, accounting or quantitative fields. Many associates are hired after an MBA, ideally from a highly ranked school, and some bankers hold advanced degrees in mathematics or the chartered financial analyst (CFA) designation awarded by the CFA Institute. In the US, bankers who deal in securities generally must pass FINRA licensing exams once hired.

Pay is high and weighted toward bonuses. One salary-data aggregator reported total compensation for entry-level investment banking analysts of roughly $137,000 to $235,000 a year for 2024. Senior bankers can earn considerably more, with bonuses tied to individual performance, deals closed and the firm’s results.

Where investment bankers work

Investment bankers work at financial institutions that range from large global banks to specialized advisory firms. The largest, often called bulge bracket banks, include Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Deutsche Bank. Elite boutiques focus mainly on M&A advisory, and middle-market banks serve smaller companies and deal sizes. Some corporations also employ former bankers in in-house corporate development teams that handle acquisitions.

Limitations and common confusions

Investment banker vs. commercial banker. Commercial bankers take deposits and make loans to individuals and businesses. Investment bankers arrange securities offerings and advise on transactions. In the US, the Glass-Steagall Act of 1933 separated the two activities; the Gramm-Leach-Bliley Act of 1999 repealed those restrictions, which is why one institution can now house both.

Investment banker vs. stockbroker or financial advisor. Brokers and advisors serve individual investors, buying securities for them or managing their portfolios. Investment bankers serve issuers and corporate clients. New offerings are usually sold to institutional investors by a bank’s sales and trading division, not by investment banking itself, though winning mandates involves heavy selling of the bank’s services.

Investment banker vs. private equity or venture capital investor. Bankers advise on deals and earn fees and spreads; private equity and venture investors commit their own funds’ capital and own stakes in the companies they back, from buyouts to start-ups that may grow into a unicorn.

The role also has real limits. A banker’s fee usually depends on a deal closing, which can create an incentive to favor completing a transaction. Valuations rest on assumptions about future cash flows and market conditions that can prove wrong, and a mispriced underwriting can cost the bank money, as the example shows. The workload, particularly at the analyst level, is a major reason people leave the field after a few years.

The Bottom Line

Students weighing a finance career and executives planning an offering or acquisition benefit most from understanding the role. Investment bankers structure, price and sell deals, and under firm commitment terms the bank absorbs the loss if demand falls short. Fees that depend on a deal closing and valuations built on uncertain assumptions are real limits, and demanding hours at junior levels push many people out of the field.