INVESTMENT BANKERS: What Do Investment Bankers Do?

Investment Bankers
Image Source: Corporate finance Institute

Investment bankers primarily work with large corporations and government agencies rather than individuals and typically have a unique salary. They work behind the scenes, making their roles less visible to the general public. Investment bankers are virtually responsible for all financial transactions in which they buy and sell stocks, such as security offerings, mergers and acquisitions, and initial public offerings. However, if you’re really curious about what investment bankers do, understanding the rudiments of the stock market and how it works will keep you abreast.

What Are Investment Bankers?

An investment banker is a professional with extensive knowledge of the financial services industry who also possesses strong analytical abilities as well as the ability to persuade others through their persuasive communication skills. Investment bankers provide corporate finance services to a diverse range of clients, including startups, established organizations, and, in some cases, governments. They are key players in the financial growth and development of a business, organization, or other corporate entity, whether they work for an investment bank or the investment banking division of another organization. There are many different types of investment bankers, from those who are just beginning their careers to those who are at the top of their game.

What Does an Investment Banker Do?

An investment banker’s high salary, extensive network, and prominent role in company success stories make this a highly sought-after profession. However, the daily work of an investment banker can be demanding, fast-paced, and stressful for those who prefer a more relaxed work-life balance. If you want to work a typical 40-hour week with flexible scheduling, investment banking may not be the right path for you.

The Roles of Investment Bankers

Investment bankers generally play a major role in the stock market. They assist companies and governments with a variety of financial activities. Investment bankers also buy and sell stocks for organizations. Here is a quick look at the main kinds of deals they make.

#1. Arranging Financing

When it comes to building a factory, a large corporation is unlikely to have the necessary funds on hand. It may be decided to raise funds for the project. The new factory’s increased output will pay for the bond’s interest. In the same way, a government may need to finance the construction of an airport, a highway, or any other major municipal project. Using a bond, it can begin the work now and repay the bond through future tax revenues.

In either case, the financing could be set up with the help of an investment banker. The investment banker would plan the bond sale, price it right, fill out the paperwork required by the U.S. Securities and Exchange Commission (SEC), and then help sell the bonds to buyers.

#2. Agent Functions

Investment bankers are financial advisors who buy and sell stocks on behalf of stock market investors. Investment bankers play multiple roles as agents. Before investing, they conduct market research in the form of legal and market analysis. When a company wants to raise money through the stock market, it goes to an investment bank to get two analyses. These analyses help the company decide if its plan is a good one. After that, investment bankers determine whether or not the company should raise capital through the issuance of debt or equity.

#3. Equity Financing

Selling bonds or stock is the most cost-effective way for companies to finance their growth and expansion. Investment bankers also play a role when it comes to organizing the sale of stocks or equity financing. Let’s say a new business decides to ton in order to raise money for growth. It would first hire an investment banker to create a prospectus for potential investors that explains the terms of the offering as well as the risks involved.

After that, the offering must be marketed to investors, explained to the media, and approved by the Securities and Exchange Commission (SEC) in order to proceed (SEC).

Pricing is very important. The IPO may be a public flop if the stocks are overpriced and no one wants to buy them. However, if the stocks are priced too low, the investment banker misses out on potential profits for the customer. Throughout the entire process, the investment banker takes the lead.

 #4. Underwriting and Sales

Underwriting entails taking a risk on behalf of a stock market seller of securities. When the company issues stock, it wants to know that even if they don’t sell some of the shares, it will still raise money for the company. Investment bankers take on capital risk and can buy all of the company’s stocks at a discount. A banker will then price and sell the securities to retail investors. If the sale of stocks fails to meet the target capital requirement, investment bankers may borrow or buy from commercial banks or sell the shares at a loss. 

Alternatively, they may invite other investment banks to participate in the underwriting process in the form of an underwriting syndicate to share the risk of loss. In some cases, the investment banker may simply act as a go-between and market the transaction without taking on underwriting risk. In this case, the investment bankers may sell some of the stocks and receive a commission based on the number of stocks sold. Investment bankers profit by selling stocks at a premium to their clients. The underwriting spread is the difference between the purchase price and the markup price.

#5. Arranging Private Placements

Not every company wishes to go public. Investment bankers also assist clients who prefer to raise capital through private placements rather than public offerings on the stock or bond markets. In these situations, the investment banker should have the contacts and reputation to make the sale happen.

For example, a company may sell the entirety of its bond offering to a single institutional investor, such as an insurance company or a retirement fund. Because there is no need to register the placement with the SEC, this can be a faster and easier way to raise funds. A lower level of regulation applies to private placements since institutional investors are considered more sophisticated by the government. 

#6. Mergers and Acquisitions

In most cases, acquiring or merging with another company is a lengthy process of planning and negotiation. Investment bankers frequently play an advisory role in this process, particularly when it comes to determining a fair price for the transaction. Investment bankers on both sides of the table evaluate a series of offers and counter-offers in mergers and acquisitions.

What Degree Do Investment Bankers Need?

You need at least a bachelor’s degree to work as an investment banker. Finance, business, economics, and accounting are some of the most common majors. To work as an investment banker, you also have to pass tests to get a license.

What Is the Average Salary for Investment Bankers?

Investment bankers’ salaries are among the highest in the industry for someone their age. As a new hire, you can expect to earn more than $100,000 right out of school, which will likely far exceed the earnings of the majority of your classmates. The hourly salary of investment bankers is a different story.

Investment bankers don’t get paid nearly as much per hour. Since many analysts and associates put in more than 100 hours per week, they can expect to make between $24 and $35 an hour on average. That’s not bad, but it’s not as appealing as $100,000 per year.

Investment Bankers Salary Table

Title Base Salary Bonus Total
Analyst $85k-100k $50k-10k $125k-200k
Associate $100k-120k $80k-130k $180k-250k
Vice President $120k-150k $100k-120k $220k-400k
Managing Director $300k-1M $200k-10M $500k-10M
Source: Industry Sources.

What Is the Pay Scale for an Investment Banker?

Investment bankers get paid in two ways: salary and bonus. The bonus is a significant portion of a banker’s total income in all positions, but particularly at the higher levels, where a bonus can be several times the base investment banker’s salary.

Why Do Bankers Make So Much Money?

Advocates assert that the banks pay them so much because they work on important transactions that result in significant fees. In exchange for such important work, they must be intelligent, hardworking, and highly skilled – and thus well-paid. An outsider might argue that the job is extremely stressful, with a military-like hierarchy and long hours, and thus warrants a high salary. It’s not uncommon for workers to earn less than the minimum wage because their hours are so long.

How do you Get a Job as an Investment Banker?

Investment banking is more accessible if you have a background in finance from your formal education and early employment, as is the case with most other financial professions. However, prior experience in financial advising, financial management, trading, or general business consulting is typical for investment bankers. Most investment banks prefer candidates who have a bachelor’s or master’s degree in business administration, finance, commerce, economics, or a statistically significant field. Investment banking is not inaccessible to those with different educational and professional backgrounds, but it does necessitate the development of quantitative expertise as well as the ability to persuade others.


The time it takes to become an investment banker varies depending on the institution and role responsibilities. According to the US Bureau of Labor Statistics, financial management professionals, such as investment bankers, typically enter the field with a bachelor’s undergraduate degree and at least five years of experience in a similar field.

Investment Bankers FAQs

Are investment bankers the highest paid?

Investment bankers are typically the highest-paid employees in the finance industry, with high pay rates even among younger employees. The typical investment banker’s starting salary exceeds that of most other finance positions, but working in this field is not without its challenges.

Who is considered an investment banker?

An investment banker is someone who works primarily to raise capital for corporations, governments, or other entities. In complex transactions like mergers and acquisitions, investment banks serve as a middleman between the relevant parties.

What degree do you need for investment banking?

To become an investment banker, you typically need a bachelor’s or associate degree in business, finance, economics, accounting, or a related field. You should be good at mathematics and market analysis, and you might also want to take some classes in your area of interest.

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