Why Investment Banks Make So Much Money

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How Investment Banks Make MoneyIt’s a question as old as Excel itself.

“If investment banking is not that hard, why do you make so much money doing it?”

Sure, the hours are terrible.  And as an Analyst or Associate, you’re respected just slightly more than a primate.

You’re always at the mercy of the client, sacrificing your spouse, children, friends, and social life in the process.

It’s extremely competitive, requiring a top-notch education, stellar grades and previous finance summer internships.

And you need to sit motionless in front of a monitor for 28 hours at a time.

All of these points are valid – but they do not directly explain why bankers make as much money as they do.

What Bankers Actually Do

When I say “banker,” I don’t mean Analyst or Associate and I certainly don’t mean Models and Bottles AJ; I mean a Group Head / Managing Director / BSD-type character.

You know, Ari Gold.

entourage_s4e6.jpg

Bankers sell companies just like Ari Gold sells movie stars.  And they get paid the same way as well: commission.

Just like movie agents, the higher the price, the more investment bankers can earn in commissions.

Ari Gold Wannabes

Think about a used car salesman: they’re paid a commission based on the profit earned on the cars they sell.

So let’s say they sell a car for $15,000, of which only $500 is profit – they might earn around $100 (20%) from that.

Not bad, but they’re going to have to sell a lot of cars to make bank.

Now think about another variation of Ari Gold: real estate agents. They’re selling much higher-priced items, ranging from hundreds of thousands of dollars to millions of dollars or even more than that.

They might only make 5% or 6% on that, but 5% of $1 million is $50,000. Not bad for one sale.

But now picture the investment banker: he sells companies for millions, hundreds of millions, or even billions of dollars.

Deals worth less than $1 billion might come with a 1% commission, while deals worth more than that will scale down to around 0.1%.

But even 0.1% of $50 billion is… $50 million.

So that’s part 1 of why investment bankers make so much money: high-priced items with high commissions.

Other Financiers

But if you just stopped there, you might think that commercial bankers and wealth management guys would make bank as well: they manage billions and also earn commissions on their funds.

However, those commissions are lower than what bankers get and they have significantly higher expenses as well.

Expenses – What Expenses?

So now we arrive at the second reason why investment bankers make so much money: the margins.

Think about all the expenses that a commercial bank might have: you have to pay for all those physical branch offices, ATMs, tellers, checkbooks…

And you can’t exactly charge someone a 1% fee on $1 million just for depositing it in a checking account.

People Are Not An Asset, But They Are An Expense

Banks, by contrast, have almost no real expenses.

All you need to advise a company on a deal is a small office and 3-4 bankers – no factories, no manufacturing costs, no hordes of employee salaries to pay.

They do have to pay for office maintenance and other fees, but they’re tiny next to the expense profiles of “real” businesses.

Travel? Food and hotel expenses? On a deal, the client pays for those.

And even if the client didn’t pay, these expenses are nothing next to multi-million dollar fees.

Investment bankers make a lot of money because they sell companies for huge amounts of money while earning a generous commission and spending hardly anything in the process.

And what do they do with that generous commission?

Traditionally they have paid out 50-60% of revenue to employees in the form of salaries and bonuses: and that’s why investment bankers make so much.

Private Equity & Hedge Funds

The same principles apply to hedge fund and private equity compensation: both make a lot of money because a lot of money passes through their fingertips and they take a good chunk of it without spending much.

Private equity firms and hedge funds earn money from a management fee – what they charge to cover expenses and “manage” funds – and carry – a percentage of their return on investment.

The typical management fee at these funds is 2% – so at a $10 billion fund, you could earn $200 million just for sitting around and “managing” the money.

The carry is dependent on performance: funds typically charge 20% on their returns. So if they invest $100 million and turn it into $200 million, they would earn $20 million and then distribute $80 million to their own investors.

“2 and 20″ is the term used for this structure.

A few funds perform extraordinarily well and make most of their money from the carry – but plenty of under-performing funds actually earn more from the management fees.

Wait, But Shouldn’t the Markets Be Efficient?

If you’ve studied economics, you might be wondering how these types of business models with high marginal profits can last.

Shouldn’t the markets be efficient and force fees, salaries, and bonuses down?

Nope.

Applying economic theory to this scenario is problematic because you can’t quantify reputation and relationships, both of which are essential to advising companies.

It can take 10-20 years to become a trusted advisor to companies – so yes, marginal expenses are low and profits are high, but the barriers to entry are extremely high as well.

Will It Last?

Let’s look at private equity firms and hedge funds first.

In the old days, the “2” part of the “2 and 20″ fee structure allowed investors to “keep the lights on” before they exited any of their investments.

It was never intended to generate more profit than the firm’s actual investments.

And most investors in hedge funds and private equity firms would say that they’re greatly over-paying for these management fees.

But who will be the first to propose lower fees?

As long as the investing process requires skilled individuals with years of experience, fees are unlikely to come down.

The only way this will happen in the future is if computerized investing takes over – but while that has happened on the flow trading and prop trading side, it’s not viable to let computers run $50 billion deals.

On the investment banking side, there’s even more of a case to be made for lower fees: in a lot of cases, bankers simply don’t add that much value.

It seems ridiculous that banks can often charge 7% on IPOs and 1% on M&A deals given that they take on little risk most of the time.

But once again, we come back to the same problem as above: who will be the first to undercut everyone else?

And that’s why the fee structure will continue: no one wants to accept lower fees if they don’t have to, and the high barriers to entry prevent disruption.

If The Market Were Efficient…

If the market were 100% efficient, fees would come down, firms with sub-par performance would go out of business, and companies would stop paying high prices for commodity services.

But the market is not efficient and bankers are creatures of habit, which means that high pay will continue into the future.

So if you’re breaking into investment banking right now, there’s no need to worry: you’ll still make a lot of money.

Even if, on an hourly basis, it’s not much better than McDonald’s.

About the Author

is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys learning obscure Excel functions, editing resumes, obsessing over TV shows, and traveling so much that he's forced to add additional pages to his passport on a regular basis.

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95 Comments to “Why Investment Banks Make So Much Money”

Comments

  1. Hilary says

    hello, i am a senior student working on a research paper
    and i was wondering if this is an accurate site.
    if i could recieve an answer as soon as possible, that would be great!

    • says

      Hilary: That depends on your definition of “accurate.” :) This is a blog and it is all my opinion, based on my own experiences. It is NOT a research paper backed up with tons of facts or anything so I would recommend against citing it in any paper you write. :)

  2. says

    Compensation for careers in finance will likely come down significantly after this latest financial meltdown. The market has adjusted.

    • says

      True, but compensation levels will remain above those of most other fields. For PE/hedge funds in particular, there’s no way you can compete with 2% management fees on $20B under management if you make money by selling services or even high-end products.

  3. Viewer says

    in your example, you said that iBankers make so much because they sell companies for millions to zillions of dollars @ .1% profit.

    if a company is sold at, let’s say, $50B so .1% of that is $50M…

    how is it split? does the iBanker get that whole $50M? or x% goes to the analysts, associates, vps, mds of the group?

    does it benefit only the group that sealed the deal?

    how many groups are there in an investment company?

    how many people are there in a group? what are their functions/positions?

    thanks so much!!

    • says

      It all goes “to the bank.” The $50M itself is not actually split among the group – at the end of the year, the group’s revenue total is taken into account for bonus calculations but pay is not directly proportional, except at the higher levels.

      So even if an Analyst didn’t close any deals, he will still get paid the same as other Analysts… but higher than that, and the difference can be significant. In 2002-2003, some VPs made more than MDs if the MD did not close any deals.

      Groups at a bank really varies by bank, but maybe around 10-20 main ones at a large bank? People in a group again really varies by bank and group but at minimum there is 1 set of Analyst-Associate-VP-MD and usually multiple people within each of those categories… so one group might have 20 Analysts, 10 Associates, 5 VPs, and 3 MDs (for example).

  4. Ionut says

    Dude, bankers used people money for their own expences, and now they want bailout money to spend even more.Forget about plans, investments.Is plain and simple, they waisted huge sums of money.

  5. Ionut says

    I agree there are out there some smart bankers, but most bankers cannot justify their income.I mean just buying a crapy bussiness doesnt mean you get rich.That bussiness must work.I believe that despite the fact that the general population is poor, very poor(they cannot afford a reasonable house,education,car,etc) the dept their local comunity is HUGE.There are a lot of money missing.Who waisted all these money.Well the answer is obvious.The sad part is all these money were spend building golden pools filled with shampain.History is repeating itself.If there is no head, then pitty for the body.All the latest “progress” was just thin air.What can be done?Stop waisting money on stupid things, cause it wont help.Invest more in research and education, and try to live a more honest life.

  6. Mark says

    Interesting post, but there is one item on which you are completely incorrect. Anyone can get into investing banking. It is in limited. You can start your own firm. Yes if you want a job at one of the big investment banks, that’s hard to come by, but that holds true in any profession. Stop complaining, if you think this is easy work and easy money start your own company and watch the dollars roll in.

  7. Miguel says

    “But once again, we come back to the same problem as above: who will be the first to undercut everyone else?”

    I’m an investment banker in Southeast Asia. As one of the largest IHs in the country, we experience many of the other firms trying to undercut fees in order to gain relationships with our preexisting clients. Of course, we don’t want to lose mandates to other firms so we tend to match these undercut fees once the other investment houses dive. So my thoughts are, to answer your question, “whoever isn’t closing as many deals as you are”.

    As the investment banking climate in the US is obviously very different than it was back in ’07, do you see the same thing happening there at present? IHs undercutting each other?

    • says

      You don’t see undercutting as much in developed markets – it’s more in places like SE Asia where the market is fragmented and up-and-coming. Even with the recession, banks don’t do that quite as much in the US because often times only the top 2-3 places will even have access to executive at F500 companies.

  8. says

    if someone enters the investment banking industry (i.e. M&A), is there a statistic as to how much an average investment banker earns over the course of his/her life? I’m not talking about the top performers but an average M&A or Capital Markets Banker? What is his net worth, say at the age of 45?

    If someone has a business generating $300k a year after tax, would you suggest that they pursue the family business or do you reckon they could do substantially better as an I-Banker? I know I sound greedy, but I hope you see that when one thinks about life (having you own family, etc) money does come into play.

    Thanks!

    • says

      I don’t know of any statistic like that – my guess is that net worth numbers are far lower than you’d expect. Here are the numbers for top business schools:

      http://www.businessweek.com/interactive_reports/mba_pay_the_haul_of_lifetime.html

      If you make $300K after-tax, personally I would not get started in i-banking at all – to match that as a banker you’d have to get to the mid-levels (VP) at least and even as an MD you may not make much more after-tax, so it’s not really worth it.

      • says

        Hi M&I,

        Thanks a lot for your response! I got a 2:2 from LSE so I thought if I didnt get into IBD, life could be very difficult but you’ve really reassured me.

        I have an acquaintance who works at Nomura (DCM) and he mentioned that associates can make over GBP 150k a year. He mentioned that VP’s make over $1m a year and his MD can make $10m in a decent year. Do you think thats a real exaggeration?

        Thanks as always!
        Dan

        • says

          That is an exaggeration – VPs rarely make over $1M and MDs usually make in the low millions. Group heads and higher-level executives might make over $10M. But no way you would get to that level without 20+ or so years of experience.

          • says

            Thanks M&I,

            This leads to yet another question (forgive me for trying your patience). What percentage of associates who enter an organisation actually make it to the MD level? Also, Im assuming you mentioned those finances before tax? Lastly, $1M before tax is still higher than $300k after tax right so (monetarily speaking) wouldnt being a banker make more sense than running a family business?

          • says

            Very few make it to the MD level, maybe 5% or less. $1M before tax is still more than $300K after tax, but consider the hourly rate: 80-100 hours per week in banking vs. much less in your own business (hopefully anyway). If you’re already making $300K money stops being the most important criterion after a point.

  9. Tim says

    I find this site very interesting, I had a conversation with an ex banker who now works as a successful wealth manager for an independent firm and he told me the reason he left banking was simply the hours and that he has a life. He still earns around £200k and spends alote of time on the golf course and takes regular holidays and still only 33. Do you think it’s worth perhaps working in an Investment bank for a couple of years to build up your network and credibility and then say move to wealth management sector?

    • says

      It depends what you want and what you define as “enough.” If that’s £200k, then sure. Lots of people reading this site want to make billions of dollars (not realizing that it makes no difference after a point), so hedge funds are better for them.

  10. Major says

    Hey Brian. This is the first time I leave u message. I have one question about your business. Season 5 episode 8, Ari Gold made Dana Gordon head of the studio. I realized Dana had her times almost all given by Ari (since she was working for him). How the hell does that happen? (Despite the facts that she licked his balls and it was win-win for the Ari VS Amanda game)
    Does this actually happen in real life? Why would this work??

    • says

      ??? I’m not sure I understand your question. What does “Dana had her times almost all given by Ari” mean? She was not working for Ari, she was at a studio and Ari had his own agency. Also this site is about investment banking – I just use Ari Gold as an analogy. But I don’t actually know anything about Hollywood outside of what’s on Entourage.

      • Major says

        Even I’m a little bit confused with my question now..I believe I was wondering why does a buy-side character(Dana) helped so many times by a sell-side guy in her career. Do IBkers get to maintain similar relationships in real life?

  11. PrancingPotato says

    Suppose one goes to a top undergraduate school, a top business school, and then goes into investment banking at a top firm until 30-33 years old. It seems reasonable to me that at this point you’d have a good chance to be at the point where making more money won’t affect your quality of life in any real way. At this point, how plausible/easy is it to pull out of the investment banking world, and what are the typical options available to such a person who wants a more enjoyable job with fewer hours but doesn’t want to sacrifice too many hours?

    • says

      Maybe around 1,000 at bulge bracket banks, if you include boutiques and other firm types it might rise to a few thousand. The entire securities industry in the US is only around 1 million people, and IBers / analysts are a tiny fraction of that, most others are stock brokers etc.

  12. Michael Wyrsta says

    What would be a typical commission structure for today’s cost of money? X%/YM$…starting at small numbers?

    • says

      1% for M&A deals under $1B, scaling down to closer to 0.1% at much higher levels i.e. $50B deal. For IPOs fee is 7% for debt deals it’s usually 2-3%.

  13. zoblot says

    What is the difference in compensation over a three to five year period for an associate, if one works for a top three BB ibank versus a midmarket ibank, assuming top quantile perfomance.

    • says

      Not much for BB vs. MM, maybe $50-100K over 3-5 years? Not much each year as a % of total comp. Much bigger diff. at regional boutique vs. BB.

  14. Himanshu says

    Interesting and the same information I got from other sites.
    Well I would like to seek advice on raising capital.
    The answer I am not able to find out on the question is being an indian citizen how can I raise capital for IPO/pre-IPO from investment banks,private equity,asset management firms,commercial banks,hedge funds,sophisticated investors etc keeping in view that I am not an accredited investor.
    I also found out that according to Regulation D,506 a non-accredited investor can raise as much capital,but not being able to get answer from where to raise capital?
    Is there any way I could raise capital by being a non-accredited investor,though on quora when I asked this question I got reply as NO.Please give me advice on this.

      • Himanshu says

        Thanks for your reply M&I.I understood your point,as being a non-accredited I would invest.Just try to understand my re-framed question.

        Let us assume if I had asked this question 6 months ago before Linkedid
        IPO.Hence I was interested to invest in Linkedin IPO and suppose I wanted to buy

        shares worth $50Milllon.It boils down to this that how would I have raised $50Milllion not being

        an accredited investor and from

        which areas as I mentioned above.That is my question.

        • M&I - Nicole says

          I don’t know your background – whether you have family connections, a family office, institutional investor connections or whether you are an institutional investor yourself or not. If you hv/are either one of the above, I assume you know how to invest in IPOs. If neither, you’d have to raise the 50 mn from your own connections. And then, the best bet to get in an IPO is to open an account with one of the bookrunners of the IPO and invest in the IPO. Sorry other than this, I can’t help much here.

  15. Himanshu says

    Interesting and the same information I got from other sites.
    Well I would like to seek advice on raising capital.
    The answer I am not able to find out on the question is being an indian citizen how can I raise capital for IPO/pre-IPO from investment banks,private equity,asset management firms,institutional investor,commercial banks,hedge funds,sophisticated investors etc keeping in view that I am not an accredited investor.
    I also found out that according to Regulation D,506 a non-accredited investor can raise as much capital,but not being able to get answer from where to raise capital?
    Is there any way I could raise capital by being a non-accredited investor,though on quora when I asked this question I got reply as NO.Please give me advice on this.

  16. Logan says

    Hello, I love doing math and I’m good at it. Im also good at accounting and interested in economics. Is this enough of a reason to go into the career of investment banking?

  17. keith says

    i have always want do do something in the banking area i have the determination and i had a couple of questions first do the bankers get the money up front or over the year and what degrees do you need also in a year how much do they make can they afford a million dollar house

    • M&I - Nicole says

      No they get it after the year. You need to get into a top school to get into IB. You can afford a million dollar house maybe 10 years down the line. But since you are so so interested in money with little passion or interest in IB, I wouldn’t suggest you to apply btw.

  18. Raghav Sharma says

    Please contact me information on where to go for an intership , currently in gr 12 thinking about a furture and really want to figure out the experinece of this industry!

  19. yana says

    Great Article. I am reading this from a research POV for my project at work. I am researching the Canadian industry so Im not sure if its much different than US but either way… without getting into too much boring detail, I am trying to construct a clean simplified list of the service/products provided by IB firms and their associated revenue generation. It would be helpful if you can answer the folowing questions

    1. I understand that When an IB completes an IPO, they receive a % commission on the deal amount.
    a.how much does this % vary based on deal characteristics other than $ amount (such as length of project, amount of people working on it, type of company etc)?
    b. if the deal is done by a syndicate of IBs, how does this commission get shared?
    c.Would they also get to keep some of the IPO shares for ‘free’ and then sell them and collect a “spread”?

    2. For M+A type transactions, do they also receive a commission % or are there advisory type fees based on the time spent? What if a company goes for a broad buy side deal but then does not find a suitable candidate and pulls out, how do the bankers get compensated for their work when no money was exchanged?

    3. What does the equity capital markets team do, and how do they generally get compensateD?

    4. is it common for companies to turn to IB firms for general financial advice, how do the advisers get compensated for this work?

    5. is there any brokerage type activity (ie. simply matching buyers and sellers without taking possession of the securities)

    6. What are the most revenue generating activities (generally) for IBs? what proportion of revenue is in these activities?

    I realize the answers depend on a lot of factors, but I am just trying to figure out the general business structure of these firms. If you have access to a true IB firm org chart that would be useful as well.

    • M&I - Nicole says

      Yana, thank you for your lengthy, in-depth and thoughtful questions. However, please note that this site is only intended for people looking into the industry (not as a way to finish projects at work), and we usually don’t answer lengthy questions like yours, even if the person is asking the questions to break into the industry. If you want to learn more about ECM, check out http://www.mergersandinquisitions.com/equity-capital-markets/

  20. Y says

    I realize the intention of the site, I actually just started this job and with a minimal finance bg was thrown into an individual project that requires me to know this very complex industry and its fee structures in and out and present it to my bosses.
    This is a very informative blog, and I hoped someone would understand the desparation of researching info that is not available on a tight deadline, and help me out. Plus I dont wanna waste bankesr’ valueble work hours on my juvenile questions.

    Please reconsider and help me out just with #1?? Ive done a lot of research but the firm sites seem to boast rather than describe what their departments actually do, and there is almost nothing about fee structures other than here.

    Thanks for the link.

    • M&I - Nicole says

      1. I understand that When an IB completes an IPO, they receive a % commission on the deal amount.
      a.how much does this % vary based on deal characteristics other than $ amount (such as length of project, amount of people working on it, type of company etc)?
      fees are generally pretty standard though they can change. Doesnt really depend on length, amt of peeps, type of company though. Below article shd address your question
      http://www.bloomberg.com/news/2010-08-31/ipo-fees-hit-record-low-in-hong-kong-as-jpmorgan-deutsche-bank-cut-prices.html?dbk

      b. if the deal is done by a syndicate of IBs, how does this commission get shared?
      the syndicate IBs decides. Usually joint book runners split the fees equally though this split depends

      c.Would they also get to keep some of the IPO shares for ‘free’ and then sell them and collect a “spread”?
      No not free.

  21. Monster says

    Well… author is not really familiar with financial business… or simply ignorant.

    I bet he was never involved into running financial company, bank, or any investment fund (not even a private, closed, for-friends-only fund). Never ran any business, I think. Otherwise he wouldn’t say that there is no expenses to run a bank (or any financial / investment company).
    Forget the cost of the office space, disregard salaries and other compensation, ignore the cost of compliance. Consider just one thing: insurance. You can’t really run any legit business of the visible size without it. If you ever ran any business, the word ‘insurance’ will pop up first when you just THINK about offering ANY services to ANYONE. Bank insurance is mandatory. You can’t take any deposits without being FDIC (or similarly) insured. Which means, before you take even dollar from your customers, you have to pre-pay something to insure it. You are not doing anything yet, you are not making anything yet – but you already in the negative territory. More money you take – more money you spend. How do you make money now? You lend. You give all those money away, profit margins will pay for those silly insurance fees, right? Not exactly. First – you can’t give away all the money from the bank, you have to keep certain amount untouched. That kills overall profit margins (for uninititated). Now, ignore all that reasearch to estimate creditworthness of the borrowers. No expenses. Except – you pay insurance! Yes, again. Before it was for the business of accepting money. Now, it is for giving them away.
    No expenses, hah?

    • says

      That’s for a depository institution. Investment banks do not LEND money – they advise on deals, and take a % of the deal size as commission. We’re talking about totally different things. Commercial banking != Investment Banking. There are expenses obviously but pre-bonus margins are way higher in other industries.

  22. alilbitlost says

    Great post mate.

    On your comments re banks undercutting fees, we’re starting to see alot of that in Asia, especially China and India where upcoming banks and boutiques are flooding the market.

    Do an APAC IPO league table run and you’ll see a lot of Chinese names popping up on the top 10 list. These are investment banking arms backed by huge commercial/consumer banking machines. Try getting on a deal with them, you’ll fully realize the term “smiling assassin”.

    In HK/SG, an IPO fee is 2.5% if you’re lucky. The Chinese banks would happily do it for less. (They have an army of relatively low-paid, paper-pushing “bankers”) You’d be lucky to get a 1% fee on Indian deals.. That’s a whole different animal right there.

    So yeah.. it’ll be interesting to see how things pan out in the ibanking industry over the next few years.

    What is your thought on this?

    • M&I - Nicole says

      I agree with you. I can only comment on HK/China deals, not familiar w Indian deals.

      In the ECM/DCM world, China is driving global IB revenues on that front because there are still quite a few companies that aren’t public yet, while many large and well-known US/European companies are already public. For instance, the recent Agricultural Bank of China IPO was the largest IPO in the world, even though ABC forced a 30% cut in IPO bank fees and withheld nearly $50m of the pool to pay “incentive” fees that it will allocate based upon how it thinks IBs have performed. This will likely be the upcoming trend given the increasing bargaining power of Chinese companies. http://www.ft.com/intl/cms/s/0/9e6bb830-90ff-11df-b297-00144feab49a,s01=1.html#axzz1eWZ8DXzE

      In regards to Chinese banks doing IPOs for less, there’s always the appeal of having a global bookrunner involved in a deal (i.e. a Morgan/Goldman) vs a local bookrunner (i.e. a Citic) because a global bookrunner has access to institutional investors worldwide and has better brand name than local bookrunners, esp if the company is looking to issue on international exchanges. Furthermore, if you have dealt with the various bookrunners, some global bookrunners do offer work of higher quality though whether they act in the company’s best interest or not is another question

    • Monkey says

      The same is happening in Korea. Here, even the global bulge brackets are cutting the fees to win the mandates, driving the market price (i.e. fee) down. I thought this trend was due to the relatively small size of Korean market, yet it is interesting to hear that it’s happening to other parts of Asia as well. I guess somehow the market is more efficient in the East.

  23. Jimmy says

    very interesting site. but that is for real big deals.
    What if the deal is smaller, say a 10 million usd acquisition deal. how much % commission can an investment banker charge/make?

    • warren says

      Jimmy,

      Without knowing the details of the deal (real or not real) or who you are working for (the buyer or the seller) I’ll say 2% is a smart number to guide you.

      Side note: When I first started I signed a buyer at 4% on a deal that ended up being purchased by a large strategic buyer. I was naive and simply did not know how unreasonable my expectations were. The buyer, my buyer, signed the 4% buy-side agreement just before we went to lunch with the owners of the company. Although, in the end, none of that mattered as my buyer was not the one who bought the company.

      “Who you work for” is defined by who promises to pay you.
      Having a well executed buy-side agreement in place is absolutely necessary.

      Many times I’ve represented a top PE group at 1.5-2% and brought them targets (I do not call them ‘sellers’) only to find months later that the target company has hired a banker and that they are working an auction.

      I hope this helps.

      The question was:

      “What if the deal is smaller, say a 10 million usd acquisition deal. how much % commission can an investment banker charge/make?”

  24. Ryan says

    Where can I find info on how much boutique firms charge on M&A deals ranging from $10M-$50M? I’m trying to put together a value proposition for a higher starting salary, and this would be helpful.

    • warren says

      “Where can I find info on how much boutique firms charge on M&A deals ranging from $10M-$50M?”

      Ryan,

      1) I will suggest that you call some boutiques directly and ask them what they charge. You need to do more that simply dial their number and ask the question. You will need to work your way in.

      Ask them some smart questions about something they know a lot about. Research deals they’ve done and build your questions from there. Build some rapport.

      Ask the “right person” in the firm. Find a talker.

      “I’m trying to put together a value proposition for a higher starting salary, and this would be helpful”

      2) My experiences have shown me that people who seek a cushy salary
      are less likely to be a deal maker. You’ve probably heard the line, “No floor, no ceiling”, right?!! In my life I’ve never focused on the floor, the base salary. Instead, I am interested in creating a way I can bring in new deals for the firm. Think about it: A smart value proposition for the the firm will be for them to be able to grow their income without increasing their expenses. Until you bring in a deal you are nothing more than an expense.

      If you can make it rain– negotiate from that point of view.
      If you cannot — do something else.

  25. JJ says

    I absolutely love this blog/website, I’m 16 and strongly considering heading into investment banking, I love it because you don’t make it sound better than it really is, you describe all the stuff you go through everyday and I really appreciate it!

  26. Nick says

    These are really insightful! One question. I understand that u really are never alone, always taking calls and checking your blackberry and what not, but as an investment banker, are u able to take a vacation and travel? I assume ud still take calls and whatever, but could u be away from the office & country for a week for vacation?
    Thanks. God bless

  27. Stacey says

    Luv all your post! keep it coming. Im a personal banker right now in JP Morgan bank do you think it should be a easier transition?

  28. Zohair Kham says

    Hello, since there are many positions in finance, Which type of investment banker makes the most money?

    • M&I - Nicole says

      I assume you’re talking about front office roles. It really depends on the cycle of the economy, your bank, team & individual performance too. Its hard to say.

  29. Questions says

    Hi, I’m from a smaller city, Ottawa, Ontario, Canada. Would most of these articles still apply to me even though I live in Canada and in a smaller city? I’m finishing up university and am highly interested in going into finance, my only question is, some of the salaries here seem unrealistic from what i’ve heard. For example, in this article: http://www.mergersandinquisitions.com/private-equity-promised-land/ — some salaries are mentioned to be 150k to 500k to even 1million usd (in the longer term). If I assumed these are salaries for wall street or big companies, would I be wrong? Is it possible for me, living in Canada, to get a job in PE(if possible) and start making that much money within the first few years of my career?

    • Questions says

      I have also heard of Canadians moving to America for job opportunities and vice vera, is this common?

    • M&I - Nicole says

      It really depends on how good you are, the firm you’re working for & the markets. Yes it is possible.

      • Questions says

        I see…I’m good at what I put my mind to, i just have anxieties revolving around, well, lets call it bad luck. Are working at larger, well-known firms (like goldman sachs) and getting into something like private equity or a hedge fund a realistic goal for someone who has not attended an ivy-league school? I’ve many questions regarding my career, although information regarding those questions seems so limited, unfortunately. My friend has recently become a surgeon, he’s a few years older than I am. It will likely be perceived as a shallow comment, but I’m worried I will never quite make as much as he will. I don’t know much, but I’ve heard surgeons start off with high salaries (around 100-300k) and peak even higher (around 500-700k). With hard work, and well focused talent, will I (with the information I’ve provided) ever realistically be able to rival my friend in the aspect I’ve earlier mentioned? I know this is not exactly an easy question to have to answer, I’d just like to know what you think, from your experience..

  30. Richie says

    Which is the best way for me to make big money…..

    Assume that I’m equally interested in all possible fields on this earth except politics, acting and entrepreneurship :)

    I have 2 years of experience working for a tech company.

    Here are some options:
    1) Get into top tech companies like Google or Microsoft
    2) Get an MBA and enter management consulting
    3) Get an MBA and enter Investment banking

  31. Andrey says

    Am I the only one who misses the timestamps for comments? Because it can make a difference whether they are made last month or back in 2009?

    • M&I - Nicole says

      95% of the content here is relevant regardless of whether it’s 2005, 1995, or 2015 – for example, telling your story in interviews and networking with bankers do not change much from year to year.

      If we added dates to articles or comments, you would be biased against older content – even if it’s still completely relevant.

      There actually are dates on news commentary articles or anything related to current events.

  32. Ted says

    Hello, great site guys,

    I am lawyer with an MBA, 40 yo. My main skill is to bring in top paying clients and negotiate fees. IB seems like the kind of business world I would love get into. How do you think I would fit considering my age and backround? Frankly speaking, my idea would be to earn more than 120k a year. Is this realistic?

  33. Aditya says

    I get all this, but what I don’t understand is why they are criticised for earning this much? It would be great if wealth was equally distributed sure, but compared to the millions earned by sports stars and actors who often can’t even do simple math, the amount earned by bankers seems underpaid if anything! When somebody is actually earning top grades in difficult masters and then working like hell using his brains, it certainly seems more worthy of reward then just acting or juggling a football or dunking a basketball!

    P.S. I love art and soccer, just don’t find double standards acceptable!

    • M&I - Nicole says

      Great points. Yes, because of societal pressure and of course, some “misbehaviour” from certain individuals in banking which led to economic crisis made things worse. So while there maybe some “truth” to bankers being “overpaid”, this is relative, and yes there are probably people in other industries/professions who are may not be too “ethical” nor contributing to society but making even more money than bankers, but they probably don’t get “criticized” as much because they weren’t “directly” responsible for the crisis and not in the limelight (as a scapegoat)

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