Investment banking can seem like an attractive sector to get into due to the high salary and career progression prospects. However, you may be wondering how investment bankers can make so much money when other types of bankers, such as those in commercial banks, often make a significantly smaller salary.
Many companies, even the government to a certain extent, rely on investment bankers to help them raise money and make sound investments.
The sector attracts many young graduates as they can start earning six-figure salaries almost immediately and use the role to springboard into other financial and business-based careers.
In this article, we’ll take a look at how much investment bankers can make, along with the demands that come with the job and the potential career progression.
What are an investment banker’s responsibilities?
Companies and organizations go to investment bankers when they want to raise their capital through investing. These bankers are highly skilled and are able to analyze the financial health, goals, and capital needs of these companies and form a strategy to help them improve their finances and reach their goals.
An investment banker will be given access to a company’s financial information, including otherwise private documents, to form a detailed strategy. The strategy could involve buying and issuing stocks, selling bonds, and taking on loan debt. After the company has approved the strategy, the banker is tasked with finding and working with investors who seem suitable for the strategy and who could help the entity raise its capital.
Companies are willing to pay well to raise their capital, but this usually means that they put an enormous amount of pressure on investment bankers so that they can see results. For this reason, investment banking has a reputation for being a stressful industry, but it is also well rewarded. Individuals in this type of role usually work over 12 hours a day, six hours a week.
Organizations and companies may want to invest privately, which is when they will approach private equity firms that can source investments that don’t have to be made on the public stocks and shares market. They may also want to invest in hedge funds, which are usually part of a private limited partnership, which deals in liquid assets and can help build financial portfolios. Investment bankers may approach hedge fund managers to help build their client’s portfolios and earn above-average investment returns.
Individuals must take the Series 79 exam, otherwise known as the Investment Banking Representative Exam, to practice as an investment banker in the United States. This exam is designed to test the competency of entry-level applicants to prove that they can perform their job properly.
Applicants must also pass Series 63, which is a security exam that permits investment bankers to solicit orders in every state for any type of security. Some states, such as Colorado, Florida and Louisiana, do not require applicants to take the Series 63 exam.
How much do investment bankers earn?
Investment bankers can earn around $60,000 to $80,000 on a base salary to $10 million as a managing director. While there is a big difference in the pay between a junior role and senior management, investment banking generally has higher pay across all roles in the sector than individuals at an equivalent level in most other fields.
While some investment bankers earn over $100,000 in their first job, their hourly rate is relatively low. Many analysts and associates work over 100 hours per week at an hourly rate of around $25-$35 per hour. This means that although an investment banker’s annual salary may sound impressive, their hourly rate can seem fairly low.
Some investment bankers earn commissions and bonuses in addition to their salaries. An investment banker may work with multiple clients simultaneously to increase their chance of commissions and potentially increase their overall income by a significant amount.
An investment banker’s bonus will usually increase as they climb the ranks in a company. A senior investment banker could get a bonus that is in the region of the base salary for someone in a junior role.
It’s also possible for investment bankers to earn a second income by investing in new businesses and helping reap the profits themselves.
What factors influence an investment banker’s salary?
There are several reasons why an investment banker earns a high salary. One main reason is they work with companies that pay large sums of money for results. These entities want to improve their capital, so they expect their investment bankers to be intelligent, hardworking, and skilled.
Another reason why investment banking pays well is that it involves working in a stressful environment for long hours every day and superiors constantly chasing up on work. Clients may call on their investment banker at any time and at short notice, which means that the bankers are expected to meet tight deadlines and work extremely hard to please the client.
Below are the other factors that will affect how much an investment banker will earn throughout their career:
As a minimum, investment bankers need a bachelor’s degree in a subject such as financial management, economics, or accounting. A Master’s degree isn’t always required, but companies will usually look more favourably on applicants who have them.
Post-graduate qualifications can also help individuals to earn higher salaries and get promotions quicker. An investment banker with a Master’s degree in economics may have knowledge and skills that are valuable to their employer and clients, for example. This may increase the number of jobs that they are put on, especially if the project is more complex and requires their particular expertise. The more jobs an investment banker works, the more commission they are likely to make.
A major influence on an investment banker’s earnings is their experience in the field. Someone who has landed their first job will have minimal experience and will therefore be on the base salary (usually between $60,000 to $80,000). While analysts usually earn the lowest salary, they can still earn a decent commission or bonus that can sometimes double their initial salary.
An associate is usually a mid-level banker who has been working for around two to five years. They will have gained more skills and knowledge, and their salary will increase to reflect this. Associates can earn around $100,000 to $120,000 and could earn between $80,000 to $130,000 in bonuses and commission. This can take their overall salary to somewhere in the region of $180,000 to $250,000.
The next rung on the ladder, which requires years of experience and proven results, is the role of vice president. Senior bankers in this position usually earn a base salary of between $120,000 to $150,000, with bonuses and commissions in the region of $100,000 to $150,000. This can take the overall salary for a vice president to around $220,000 to $400,000.
As these examples show, commission and bonuses majorly impact an investment banker’s total remuneration. They can more than double the individual’s base salary, which is why investment bankers often earn much more than their contracted pay.
The highest level at an investment bank is the managing director. Someone in this role will have various people that report to them, including directors, vice presidents and associates. The directors from various teams will report to the managing director and the associates, analysts and vice presidents will report in turn to the directors.
Due to the responsibility of managing directors, they require decades of experience and skills and knowledge that they have gained from working with clients on various projects. Managing directors can earn anywhere from $300,000 to $1 million as a base salary, depending on the size of the company and the type of projects they work with.
Managing directors’ bonuses and commission rates cover a wide scale from around $200,000 to an incredible $10 million. While investment banking analysts can work around 15 hours a day on stressful projects, it is with the hope that they will gain more experience and skills that can earn them promotions and increase their salaries until they can become directors and earn a high wage.
Most investment banks offer additional benefits on top of the base salary. This includes commission, which is a percentage of the overall fee that companies pay for investment services. Companies may also offer performance bonuses, which an investment banker will receive if their superiors and clients are happy with their work on a project.
Employers may give their employees other offerings, including paid vacation, sick days, and retirement schemes. An investment banker’s food, travel, and accommodation will also usually be covered by the company or client if they are asked to travel for a project.
An investment banker may offer their services to clients on a freelance basis if their company allows them to. This could be anything from working as an asset manager on an independent project to acting as a financial advisor. This can help junior bankers improve their client relations, branch out into other areas in the financial sector, and earn additional pay.
What are the skills that an investment banker needs?
Investment bankers require the following skillset to accomplish their work:
Good mathematical skills
It’s important to have strong mathematical skills to calculate financial ratios and work out which investments could provide clients with the best returns. Investment bankers need good analytical skills to decipher the clients’ accounts and come up with good investment options based on their financial modelling.
Strong interpersonal skills
Investment bankers work closely with customers, which means that they need good communication skills, are empathetic and seem trustful so that clients can rely on them to reach their financial goals. Investment banking is also a difficult industry to get into due to the appealing salaries, so applicants tend to network both formally and informally to make the right connections with the hope of landing good positions.
Good computer proficiency
It’s common for investment bankers to use various programs and software to help them research and manage accounts. At a minimum, investment bankers must be proficient with the use of spreadsheets and contacting individuals through email.
Strong financial management skills
Investment bankers deal with large sums of money and have to analyze the solutions and investment options. Not only does the client’s happiness ride on making the best financial choices, but a large chunk of investment bankers’ wages rely on deals being successful.
Good time management
It’s common for investment bankers to be working on multiple projects at once. To meet tight deadlines, investment bankers need to have good time management skills and be able to prioritize tasks when necessary to reach the best outcomes for their clients.
Investment banking is renowned for being a well-paid sector. However, while the salaries can seem impressive, investment bankers must work long hours, which means that the hourly rate for junior roles is fairly low. It’s not unusual for analysts and associates to work over 12 hours a day for six days a week.
This stressful job offers high rewards as investment bankers can double their take-home pay with bonuses and commissions. Most companies give their employees a percentage of the project’s profit, which can amount to thousands of dollars.
Various factors can help investment bankers climb the ranks at their companies and earn higher salaries. Experience counts for a lot, as clients want to trust the person they rely on with their finances and investments. This means that the best way for investment bankers to earn promotions and pay rises is to put in the hours when they are at a junior level so that they can hone their skills, build experience and build trust with their clients and employers.