Investment Banking

An Overview of the Investment Banking Industry, Including Key Functions, Top Companies, and Careers & Salaries

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What Is Investment Banking?

Definition of Investment Banking: Investment Banking is a segment of the financial services industry that assists companies, institutions, and governments with raising capital (underwriting) and executing transactions such as mergers and acquisitions (M&A).

Investment banks may also provide related services such as market-making and securities trading for both equities (i.e., stocks and their derivatives, such as options) and fixed income, also known as FICC (fixed income, currencies, and commodities).

Key Investment Banking Functions

Investment banking is divided into front office, middle office, and back office activities:

Key Investment Banking Functions

  • The front office drives revenue generation and includes divisions such as corporate finance, sales and trading, and research.
  • The middle office supports processes that are related to revenue generation, such as risk management and treasury.
  • The back office includes roles that exist regardless of revenue generated, such as compliance, accounting, information technology (IT), and HR.

This is the “traditional” classification, but it may be more helpful to think of it in terms of revenue-generating roles, risk-related roles, and support roles.

If you are a competitive, high-achieving person, you should aim for revenue-generating, front-office roles since they pay higher salaries and offer better career options, promotions, and exit opportunities.

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Corporate Finance

Corporate Finance includes many of the most “prestigious” roles in investment banking, including capital raising, advising on mergers and acquisitions, and helping companies to restructure.

It is also labeled simply “Investment Banking” or the “Investment Banking Division” (IBD), and it is further divided into Product Groups and Industry Groups.

Product Groups focus on a specific deal type, such as equity or debt issuances or acquisitions, but they work across all industries.

Examples of Product Groups include:

Industry Groups, by contrast, work on many deal types but specialize in a specific industry and often work with individual companies in that industry on an ongoing basis.

Examples of Industry Groups include:

Then, there are some other groups where the classification is not 100% clear or universal.

For example, corporate banking is sometimes separate from these investment banking groups, but may be combined with them at other banks and considered a “Product Group.”

Another example is structured finance, which is effectively another Product Group, but which is a bit different from the “standard groups” of M&A, ECM, DCM, LevFin, and RX above.

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Sales & Trading

The Sales & Trading (S&T) group at an investment bank helps institutional investor clients, such as hedge funds and asset management firms, to buy and sell securities such as stocks, options, and bonds.

These clients buy and sell these securities to earn a high return and make more money for their clients, also known as their “Limited Partners,” or LPs, which are often pension funds, endowments, insurance firms, and wealthy individuals.

This process is more difficult than it sounds because these institutional investor clients often place large orders that would disrupt market prices if they were executed all at once.

So, the salespeople and traders at banks must divide up these orders, match buyers and sellers, and get the clients prices that are as close as possible to what they desire.

The two main divisions within Sales & Trading are:

  • Equity Trading (primarily companies’ stocks and their derivatives, such as options)
  • Fixed Income Trading or FICC (“everything that isn’t equities,” including rates, municipal bonds, corporate bonds, CDS, FX, commodities, money markets, and more)

We cover Sales & Trading as an entirely separate topic, but we list it here since it is still a specific division at most investment banks.

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Research

The research division writes reports about companies and their prospects, often accompanied by “Buy,” “Sell,” or “Hold” ratings.

Historically, banks issued these reports to encourage higher trading volume and to solicit orders from institutional investors for the sales & trading division.

For example, if a bank liked a company’s prospects and wanted to encourage more trading to earn higher commissions, it might have issued a favorable “Buy” report about the company.

However, regulations have changed the role of research, and institutional clients increasingly pay for research reports directly (especially in Europe due to MiFID II).

Banks may use research for internal purposes as well, such as for salespeople who want to recommend ideas to clients or for investment bankers who want to read up on companies in a specific sector.

We focus on equity research on this site, but there’s also fixed income research, in which professionals analyze and recommend bonds and other debt instruments rather than stocks.

Middle Office and Back Office

There are some nuances to these “support divisions,” but many people use the following definitions:

  • Middle Office (MO) roles support processes related to revenue generation; examples include risk management and treasury. For example, a bank doesn’t make money directly from risk management, but as a result of risk management, front-office staff such as traders can do their jobs more effectively.
  • Back Office (BO) roles relate to processes and systems that must exist regardless of revenue generated; examples include compliance, accounting, information technology (IT), and HR. As a back-office employee, you’re in much the same role as any other white-collar support professional.

Middle-office and back-office jobs are OK for early-stage internships, but if you want the highest compensation and the most career options and exit opportunities, you should aim for front-office positions.

It tends to be extremely difficult to switch out of the middle office and back office, particularly in smaller markets, so if you want to leave, do it early.

If you simply want a comfortable lifestyle and you don’t care as much about high compensation or moving into industries such as private equity, then MO and BO roles might be appropriate for you.

Investment Banking Companies

Investment banks are frequently divided by size, status, region, and industry focus.

Three common categories include bulge-bracket (BB) banks, middle-market (MM) banks, and boutique banks, which we cover in our article on bulge-bracket vs. middle-market vs. boutique banks.

Here’s a summary of the main differences between these types of banks:

Bulge-Bracket Investment Banks (BBs) – These are the largest global banks that offer all products and services and operate in all regions. They work on the largest deals (usually over $1 billion USD) and have the widest brand-name recognition. Most people would say that the bulge-bracket banks consist of JP Morgan (JPM), Goldman Sachs (GS), Morgan Stanley (MS), Bank of America Merrill Lynch (BAML), Citigroup (Citi), Barclays Capital (BarCap), Deutsche Bank (DB), Credit Suisse (CS), and UBS.

Elite-Boutique Banks (EBs) – A subset of “boutique banks,” these firms are smaller than the bulge-bracket banks, and they tend to specialize in areas like M&A and Restructuring rather than underwriting, though they may still work on very large deals. Their geographic reach and industry specialization varies. They are “elite” because they are often as prestigious as the bulge brackets and also offer top-notch exit opportunities. Examples of elite boutiques include Lazard, Evercore, and Moelis.

Middle-Market Banks (MMs) – These banks offer a variety of products and services and have a wide geographical presence, but they tend to work on smaller deals, such as those worth less than $1 billion. Exit opportunities are solid, but tend to be more limited than those offered by EB and BB banks. Examples of middle-market banks include Jefferies, Houlihan Lokey, William Blair, and Lincoln International.

Industry-Specific Boutiques (ISBs) and Regional Boutique Banks (RBs) – These firms tend to focus on narrow industries, such as healthcare or technology, or they only operate in one location and tend to work on much small deals (e.g., below $100 million). There are too many examples to mention here.

For more on this topic, please see our coverage of boutique vs. middle-market vs. bulge-bracket banks.

Top 10 Investment Banks Globally

Top 10 Investment Banks Globally

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Investment Banking Jobs, Salaries & Compensation

Investment banking jobs tend to be high-pressure and high-status, but they also offer high salaries and bonuses and top-notch exit opportunities – at least, if you’re at the right bank and group and you’re at the right seniority level.

Here’s what a typical career progression would look like at a bulge-bracket investment bank in New York City, including estimates for base salaries and total compensation (i.e., base salary + year-end bonus):

Position TitleTypical Age RangeBase Salary (USD)Total Compensation (USD)Timeframe for Promotion
Analyst22-27$85-$95K$150-$200K2-3 years
Associate25-35$140-$180K$250-$400K3-4 years
Vice President (VP)28-40$200-$300K$450-$700K3-4 years
Director / Senior Vice President (SVP) / Principal32-45$250-$350K$500-$1,000K2-3 years
Managing Director (MD)35-50$400-$600K$1,000K+N/A

Total compensation is highly dependent on personal and team performance and overall market conditions.

For example, a Managing Director who does not close a single deal in the year might earn a bonus of $0, while one who closes multiple deals might earn millions of dollars.

On average, an MD who’s doing decently at a large firm should earn at least $1 million USD per year.

These numbers are lower at smaller banks and outside the U.S., especially in emerging markets.

If you work at a bulge-bracket bank, a significant portion of your bonus at the mid-to-senior levels will be deferred or paid in stock rather than cash. This is one key advantage that elite boutiques (EBs) have over bulge brackets (BBs).

For more about these topics and the trade-offs of this career, please see our coverage of the investment banking career path.

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How to Get a Job in Investment Banking

There are four main pathways to getting a job in investment banking:

  1. As an undergraduate, ideally at a top university.
  2. As a recent graduate.
  3. At the MBA level.
  4. Beyond the MBA level.

The most viable pathways are the first three: at the undergraduate level, within 1-2 years of university graduation, or at the MBA level.

Regardless of your pathway, you will need a sequence of academic, work, and leadership experience that demonstrates your interest and commitment if you want to win interviews and break in.

We cover this process in-depth in our article on how to get into investment banking, but here’s a quick summary:

If you follow this process, you’ll be better-equipped for investment banking recruitment than ~95% of candidates.

Investment Banking Courses

Investment banking has become a highly-competitive and sought-after field.

Banks have shifted from hiring raw graduates and “training them on the job” to expecting new hires to hit the ground running and add value from day one.

That’s why many future investment bankers invest in specialized courses and training to help them get noticed, get hired, and get promoted.

Some of the courses offered by Mergers & Inquisitions and Breaking Into Wall Street include:

Completing these courses will help you win interviews and job offers for roles that pay $150K+, and position you for top-tier exit opportunities such as private equity.

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