When considering a career in investment banking, envision a fraternity house bustling with activity. Investment banking, much like a fraternity, follows a clear hierarchy, involves specific rituals, and offers benefits and added responsibilities at each level. However, just like a fraternity or even the mafia, staying in the investment banking business for too long may lead to serious challenges.
This article serves as a complete guide to the advantages and disadvantages of pursuing an investment banking career path. We delve into the work, hierarchy, promotions, lifestyle, hours, salaries, and exit opportunities associated with each level.
Let’s begin with the basics before delving deeper into this fraternity-like profession:
What Does an Investment Banker Do?
Investment bankers provide advice to companies on large-scale transactions, such as mergers and acquisitions, as well as debt and equity issuances. Their role involves collaborating with management teams to facilitate the sale and acquisition of companies, identifying potential targets, and ensuring the successful completion of deals. They also recommend optimal terms and timing for capital raises and market debt or equity issuances to investors.
This multifaceted role combines advisory services, sales and marketing, and negotiation and deal-making on a grand scale.
Why Choose a Career in Investment Banking?
Many individuals are enticed by the lucrative compensation associated with an investment banking career. Even at the mid-levels, investment bankers rank among the top 1% of income earners in most states and countries.
Others are drawn to the excitement of high-stakes deals and negotiations with influential individuals, such as CEOs and Board Chairs. Some find fascination in the intricacies of deal mechanics.
Moreover, investment banking careers offer a wide range of exit opportunities, particularly for junior bankers, such as Analysts and Associates.
Requirements for an Investment Banking Career
The investment banking career path attracts highly competitive, high-achieving individuals who are willing to work long hours. Attention to detail is crucial, and while strong reading, writing, and math skills are advantageous, they are not necessarily exceptional.
Those interested in investment banking careers focus on deals rather than merely tracking markets or investing in public companies and other assets. Additionally, some aspire to pursue specific exit opportunities that often require prior experience in investment banking, such as private equity or corporate development.
Junior investment bankers typically graduate from top universities, such as Ivy League institutions in the U.S. or prestigious schools like Cambridge and Oxford in the U.K. They complete finance-related internships during their undergraduate studies, secure internships at prominent investment banks, and ultimately earn full-time offers from those institutions.
However, it is also possible to break into investment banking by working full-time in a related field, such as valuation at a Big 4 firm or corporate banking. Additionally, individuals with relevant work experience can enter the industry at the MBA level if they attend a top business school.
Regardless of the entry level, breaking into investment banking requires a combination of the following:
- Relevant work and leadership experience
- Strong academic credentials (grades, test scores, and university reputation)
- Extensive networking and interview preparation
- Demonstrating qualities that make you stand out as a person, not just a robot
It is important to note that breaking into investment banking at the mid-levels is exceedingly challenging. Therefore, the most common entry points are either early, immediately after undergraduate studies, MBA programs, or as recent university graduates. Alternatively, individuals already holding C-level executive positions in other industries may break into investment banking at a later stage.
The Investment Banking Career Path
The investment banking career path follows a well-defined corporate hierarchy that has remained largely unchanged over time. Let’s explore each level in detail below.
- Intern or Summer Intern – Assistant to the Monkeys
- Analyst – Monkey
- Associate – Better-Trained Monkey
- Vice President (VP) – Manager of the Monkeys
- Director or Senior VP (SVP) – Manager and Rainmaker-in-Training Managing Director (MD) – Rainmaker
While some variations and alternate titles exist, this structure represents the fundamental investment banking career path.
Here’s a summary of what to expect at each level:
| Position Title | Typical Age Range | Base Salary (USD) | Total Compensation (USD) | Timeframe for Promotion |
|---|---|---|---|---|
| Analyst | 22-27 | $100-$125K | $150-$200K | 2-3 years |
| Associate | 25-35 | $175-$225K | $250-$450K | 3-4 years |
| Vice President (VP) | 28-40 | $250-$300K | $500-$700K | 3-4 years |
| Director / Senior Vice President (SVP) | 32-45 | $300-$350K | $600-$800K | 2-3 years |
| Managing Director (MD) | 35-50 | $400-$600K | $700-$1500K+ | N/A |
Please note that the salary, bonus, and description provided above refer specifically to front-office roles in investment banking, not to the supporting functions in the back or middle office. Compensation figures are based on pay in the U.S., particularly at large banks in New York. Salaries in other regions, including London, and at smaller banks may be lower.
Job Description of an Investment Banking Analyst
As an Analyst, your responsibilities include Excel and PowerPoint work, as well as administrative tasks like tracking buyers and sellers, managing the data room and deal documents, and responding to client and potential client requests.
Age Range: Most full-time Analysts have recently completed their undergraduate studies, while others have finished Master’s programs, military service, or another full-time role. Therefore, the typical age range is around 22-27.
Salary + Bonus: Compensation varies annually, but base salaries usually range from $100K to $125K USD at major banks, accompanied by bonuses that are approximately 0.5 to 1.0 times the base salary. As a result, total compensation typically falls within the $150K to $250K range (as of 2022).
Hours: Analysts typically spend 70-85 hours per week in the office, although they are not working continuously throughout this time. Investment banking hours are demanding, but downtime is also prevalent. Weekends are generally less demanding, and some protected weekends offer Friday night through Saturday off. While certain groups may have previously subjected Analysts to consistent 90-100+ hour workweeks, such occurrences are now rare.
Promotion Time: Traditionally, it took around three years to become an Associate, but many banks have shortened this timeline to incentivize long-term employment. Consequently, the promotion to Associate often occurs within two to three years.
Exit Opportunities for Investment Banking Analysts: Analysts at major banks have access to a wide range of investment banking exit opportunities, includingprivate equity, hedge funds, asset management, corporate finance, corporate development, venture capital, and more. However, at smaller banks, the opportunities may be more limited to other banks, corporate finance, and corporate development roles.
Job Description of an Investment Banking Associate
As an Investment Banking Associate, you are a more experienced and skilled professional who earns a higher salary and undertakes more interesting work. While the Analyst handles much of the groundwork, the Associate assigns tasks, reviews their completion, and occasionally engages in Excel and PowerPoint work, particularly in complex presentations and models. Associates also attend more meetings and have increased client interaction, although speaking roles in most meetings are uncommon.
Some Associates are recruited from top MBA programs, while others are promoted from Analyst positions. It is rare for Associates to be recruited from entirely different industries. Historically, Associates were seen as long-term hires at banks, while Analysts tended to leave after a few years. However, banks have been striving to change this trend by encouraging Analysts to remain in their roles for longer periods (results are yet to be determined).
Age Range: Associates come from diverse backgrounds, so the typical age range is around 25-35. Becoming an Investment Banking Associate before the age of 25 is highly improbable, unless you graduated from university at an early age (18 or 20).
Salary + Bonus: Associate compensation ranges between $300K and $550K USD for total compensation, with base salaries increasing from $175K to $225K at major banks. Smaller banks generally offer lower bonuses.
Hours: The average workweek for Associates ranges from 65 to 80 hours, as they are not called in for as many last-minute emergencies.
Promotion Time: If performance is exemplary, Associates may need three to four years to advance to the next level as a Vice President (VP). However, getting promoted to VP can be more challenging, as the bank may not require another VP immediately or may question the individual’s potential as a rainmaker in the future.
Exit Opportunities for Investment Banking Associates: Exit opportunities for Investment Banking Associates are more limited. Headhunters do not actively pursue Associates during the on-cycle private equity recruiting process as they do for Analysts at major banks. Thus, Associates must proactively seek opportunities. Careers in corporate finance or corporate development are viable options, but securing positions in private equity or hedge funds requires a targeted and proactive approach, typically focusing on smaller firms.
Job Description of an Investment Banking Vice President (VP)
Investment Banking Vice Presidents assume a project management role and are not as involved in day-to-day tasks as Analysts and Associates. VPs communicate with Directors and Managing Directors, interpret their requests, and collaborate with Associates and Analysts to implement those requests and review their work. For example, if a Managing Director wants to pitch a potential client on a specific deal, the VP will gather the required information and instruct the Associate and Analyst on completing the task. VPs engage in more client interaction and may contact potential buyers to promote clients the bank is representing, a task rarely assigned to Analysts or Associates.
VPs gradually build relationships and secure clients, making it one of the most demanding positions in the industry due to the delicate balance between deal execution, relationship development, and rainmaking.
Age Range: Since VPs usually transition from an Associate role, the typical age range falls between 28 and 40. Individuals from outside the industry find it extremely challenging to enter at this level.
Salary + Bonus: Base salaries for VPs range from $250K to $300K USD, with total compensation falling between $500K and $900K at major banks (as of 2022).
Hours: VP-level professionals work an average of 55 to 70 hours per week, primarily focusing on project management rather than last-minute presentations and requests.
Promotion Time: Typically, it takes three to four years to be promoted to Director/Senior Vice President (SVP) if performance is commendable. However, getting promoted to this level may be contingent on the bank’s immediate need for another VP or the individual’s potential to become a successful rainmaker.
Exit Opportunities for Investment Banking VPs: Exit opportunities for VPs are even more limited compared to Associates. Traditional private equity or hedge fund roles are unlikely at this level. Options include switching banks, transitioning to corporate development roles, or pursuing an entirely different field. However, transitioning to a different industry often entails accepting significantly lower compensation, making it challenging for VPs to justify such a move.
Why Does Everyone at a Bank Hold the Title of Vice President?
You may have noticed that many individuals working in banks hold the title of “Vice President.” Banks often use this title to provide employees with a sense of advancement and promotion without necessarily offering true advancement opportunities or a clear pathway to the top. Unlike at Fortune 500 companies, where VPs possess substantial decision-making power and seniority, the title of “Vice President” in a bank holds less significance.
Job Description of an Investment Banking Director
Directors, also known as Senior Vice Presidents (SVPs) or Senior Directors (SDs), assume a hybrid role combining aspects of both VPs and MDs. The specific responsibilities of Directors vary depending on the bank and department. Some Directors focus on developing relationships and securing clients, while others concentrate on execution work and project management. Regardless of the specific duties, Directors must gradually transition toward winning clients to advance to the next level—Managing Director.
Age Range: To become a Director, an individual must have experience as an Associate and VP. As a result, the minimum age usually falls in the early 30s. The typical age range for Directors is approximately 32-45, with the maximum age being plausible for those who pursued business school at a later stage.
Salary + Bonus: While Directors receive a slight compensation increase compared to VPs, the raise is not necessarily dramatic. Total compensation typically ranges between $800K and $1.2 million per year, with a significant portion derived from bonuses (as of 2022).
Hours: Directors work approximately 50 to 60 hours per week, but they may travel more frequently.
Promotion Time: On average, it takes around 2 to 3 years to be promoted to Managing Director, assuming exceptional performance warrants such a promotion.
Exit Opportunities for Investment Banking Directors: Exit opportunities for Directors primarily involve transitioning to other companies or switching banks. With an extensive network, some Directors may secure positions in buy-side firms such as private equity. However, such opportunities remain relatively rare, as private equity firms generally prefer to hire bankers at earlier stages and develop them over time, viewing mid-level hiring as less common.
Job Description of an Investment Banking Managing Director (MD)
Managing Directors are solely focused on generating business and cultivating client relationships. They dedicate their time to winning clients, meeting with companies, and developing and nurturing relationships. MDs often travel extensively to fulfill these responsibilities. Within the investment banking hierarchy, MDs hold the highest level and possess authority over all lower-tier professionals, who execute their directives. While MDs may occasionally participate in deal negotiations, their primary objective is to secure deals.
Age Range: Reaching the MD level typically occurs in an individual’s early 30s, making the age range approximately 35-50.
Salary + Bonus: MDs receive base salaries in the mid-six-figure range, with total compensation ranging from high six figures to low seven figures. An MD performing well can earn between $1 million and $3 million annually, and in some cases, a multiple of that amount (as of2022).
Hours: MDs typically work around 50 to 60 hours per week, but their travel time increases significantly.
Promotion Time: There are additional levels beyond MD, such as Senior Managing Director, Group Head, CEO, COO, and more. The path to these roles and the timeframe for promotion are not clearly defined. The banking industry at this level does not strictly adhere to an “up-or-out” culture, and banks will retain MDs as long as they continue to bring in clients, deals, and fees.
Exit Opportunities for Investment Banking Managing Directors: At this level, MDs may have the opportunity to transition to other high-level positions in companies or potentially secure roles in private equity or other buy-side firms. Sales and networking skills are highly valuable at the top levels, opening up possibilities in various fields. However, many MDs who voluntarily leave the industry do so to pursue different interests, retire early, or focus on family, as the job is demanding and high-pressure.
What are the Careers Beyond the Managing Director Level?
Beyond the Managing Director level, roles such as Senior Managing Director, Group Head, CEO, COO, and others exist. The paths to reach these positions vary, and success at these senior levels is entirely results-driven. Similar hierarchies and career paths can be found in buy-side roles, such as private equity.
For example, to reach the pinnacle in venture capital or private equity, a track record of successful investments with solid returns is crucial. Without such a track record, individuals may remain at the mid-levels and eventually be forced to leave.
Advantages and Disadvantages of an Investment Banking Career
To summarize the trade-offs of an investment banking career path, consider the following advantages and disadvantages:
Benefits/Advantages:
- High salaries and bonuses at all levels.
- Potential for quick advancement based on performance.
- Access to top-notch exit opportunities, especially at the Analyst level.
- The industry is unlikely to be significantly disrupted by technology, as relationships play a vital role at the top levels.
- Exposure to diverse companies, industries, and management teams.
- Acquisition of valuable hard and soft skills applicable to various industries.
- Advancement is directly tied to performance and contributions.
Drawbacks/Disadvantages:
- Poor work/life balance and long working hours, including extensive travel.
- Work can be monotonous and involve considerable downtime.
- Difficulty in advancing to the top levels, resulting in potential stagnation in the middle.
- Limited exit opportunities if attempting to transition out of the field at the mid-levels.
- Limited positive social impact unless one achieves significant wealth to contribute to charitable causes.
- Challenging to break into the industry with a late start, career change, or non-target educational background.
Ultimately, determining if an investment banking career is suitable for you depends on personal preferences and goals. Visualize an environment resembling a fraternity house, where ascending the stairs leads to increasing piles of money. If you can endure the challenges, abuse, and demanding lifestyle without succumbing to exhaustion or detrimental health effects, an investment banking career may be the right path for you.
Frequently Asked Questions
The typical career path starts as an Analyst, then progresses to Associate, Vice President, Director, and Managing Director.
Analysts handle tasks such as financial modeling, conducting industry research, preparing presentations, and supporting deal execution.
Advancement to the Associate level usually takes around 2-3 years, depending on individual performance and the bank’s policies.
Associates have more experience and responsibilities, including assigning tasks, reviewing work, client interaction, and participating in deal execution.
While possible, transitioning to private equity or other fields from the Associate level requires proactive targeting and networking due to limited opportunities.
The career progression beyond the Associate level includes Vice President, Director/Senior Vice President, and ultimately Managing Director.
Managing Directors primarily focus on client relationships, winning deals, and overall business development, holding the highest level of authority in the hierarchy.
