Investment Banker vs Stock Broker: Career Paths Compared

Investment bankers typically work long hours, with some reports suggesting they spend up to 100 hours per week on the job.

Their workday is often unpredictable, with deadlines and client demands dictating their schedule.

Investment bankers often have a strong background in finance and economics, with many holding advanced degrees from top universities.

Consider reading: Do Investment Bankers Work Weekends

As you climb the corporate ladder at an investment bank, you'll move away from labor-intensive tasks and toward handling marketing and people-skills tasks, such as cultivating relationships with clients.

Investment banks typically divide their staff into working groups assigned to cover specific industries or market sectors, with a managing director overseeing a team of directors, vice presidents, associates, and analysts.

The job of an industry group is to solicit new client business and service existing clients within their assigned sector of the market, which includes tasks like presenting pitches and ideas to clients, preparing pitch books, and writing industry reports.

Individual teams are often assembled within an industry coverage group to handle specific projects for clients, while other projects may be assigned to teams of managing directors, directors, vice presidents, associates, and analysts within the corporate finance or mergers and acquisitions divisions.

As you progress in your career, you'll have the opportunity to specialize in a specific area, such as corporate finance or mergers and acquisitions, and work on a variety of projects that involve executing transactions and providing advice to clients.

Broaden your view: Corporate Bonds vs Stocks

Investment banks divide their staff into working groups assigned to cover specific industries or market sectors, with each group headed by a managing director overseeing a team of directors, vice presidents, associates, and analysts.

These industry groups focus on soliciting new client business and servicing existing clients within their assigned sector of the market. Their tasks include presenting pitches and ideas to clients, preparing pitch books, writing industry reports, and executing transactions.

Determining IPO stock prices can be a delicate balance, as investment banks must strike a balance between providing maximum funding for their client company and attracting a maximum number of investors.

Consider reading: Commercial Banks vs Investment Banks

Vice presidents are middle management personnel at an investment bank, who usually directly supervise the analysts and associates.

Directors represent the next rung up the ladder, supervising teams in their area of specialization and actively involved in soliciting clients and handling client relationships.

Managing directors are the firm's principal "salespeople", tasked primarily with attracting new clients and serving as the main contact person for key existing clients.

Their job is to keep existing clients happy, so as to retain their business, and suggest possible new undertakings to clients, such as an acquisition, that will generate additional revenues for the investment bank.

Check this out: Salary of a Loan Officer at a Bank

Mergers and Acquisitions are complex transactions where one company buys or merges with another. Investment banks play a crucial role in these deals, advising clients on the value of the company being acquired and the most favorable way to structure the offer.

Investment banks determine the reasonable asking price for the company being acquired by analyzing its value. This valuation is critical in determining what one company is willing to pay for another.

In acquisitions, companies can make deals involving all cash, stock swaps, or a combination of cash and stocks. Investment banks advise their clients on the best approach to take.

Investment banks serve as financial advisors to their clients in relation to capital markets, providing guidance on equities and debt instruments. Their expertise helps clients navigate the complex world of mergers and acquisitions.

Investment banks divide their staff into working groups assigned to cover specific industries or market sectors. Each group is headed by a managing director overseeing a team of directors, vice presidents, associates, and analysts.

These industry groups focus on soliciting new client business and servicing existing clients within their assigned sector of the market. Their tasks include presenting pitches and ideas to clients, preparing pitch books, writing industry reports, and executing transactions.

Individual teams are usually assembled within an industry coverage group to handle specific projects for clients. Alternatively, specific projects may be assigned to teams of managing directors, directors, vice presidents, associates, and analysts within the corporate finance or mergers and acquisitions divisions.

Investment bankers spend hours analyzing market reports and databases to get relevant information for their industry coverage work. This research may range from finding and comparing stock performances to building company profiles for reports.

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In an S&T Superday, you'll likely get a mix of interviewers from across different desks, potentially including middle-office roles like risk management. This is in contrast to IB interviews, where you'll usually face interviewers from the specific group you're interviewing with or closely related groups.

IB interviews tend to start with the "Walk me through your resume" question, followed by fit questions about your strengths, weaknesses, leadership experience, and previous internships. These questions are similar to those asked in S&T interviews.

In IB interviews, you'll get questions about recent deals and your own deal experience, as well as technical questions covering accounting, valuation, DCF analysis, M&A and merger models, and LBO models. Math and brainteaser questions are also likely to come up.

S&T interviews, on the other hand, focus more on the markets and investment/trade ideas. You can expect math and brainteaser questions, and even coding questions could pop up. Knowing a specific product, such as equity derivatives, very well is also important.

For sales roles, you'll face questions about difficult client situations and how to pitch trade ideas. Math and brainteaser questions are less likely to be asked in sales interviews.

Here's a quick comparison of IB and S&T interviews:

To become a successful investment banker, you'll need a solid foundation in business and math. A bachelor's degree in business or a math-related field like accounting is a good starting point.

Having an MBA, or master of business administration, can also give you a competitive edge and help you advance in your career.

Financial modeling and valuation are crucial skills for investment bankers. They need to be good with numbers and know how to perform financial modeling, do company valuations, and calculate financial metrics.

Investment bankers should expect to fulfill these responsibilities on a daily basis. They need to be an Excel Poweruser to perform these tasks efficiently.

Valuation multiples are essential to predict company performance. Investment bankers need to know how to use them to make accurate predictions.

For another approach, see: Why Do Investment Bankers Work so Much

Preparing presentations can be a daunting task, especially for new investment bankers. They are required to prepare pitch book presentations that outline proposals, benefits, risks, and timelines.

New investment bankers often have to do the majority of the work, from preparing slides to making presentations, after factoring in comments and markups from the seniors. This can be a challenging task, especially when dealing with sudden and unreasonable deadlines for the pitches and presentation materials.

To become a banker, you'll typically need a bachelor's degree in business or a math-related field like accounting.

Having a strong foundation in finance and numbers is crucial for a career in banking.

A bachelor's degree can open doors to entry-level positions in banking, but it's not always enough to advance in the field.

Consider pursuing an MBA, or master of business administration, to gain advanced knowledge and increase your chances of moving up the career ladder.

A business or math-related degree can also provide a solid base for specialized roles within banking, such as financial analysis or portfolio management.

Intriguing read: Stock Broker Degree

Sales and trading is a career path that's often misunderstood. In sales and trading, the work itself doesn't change much as you move up the ladder, unlike investment banking where the work changes significantly.

You'll start out assisting traders, then get more client or trading responsibility, and finally get higher and higher risk limits as you prove yourself. Even as a Managing Director (MD), you'll still be trading, unless you move to the managerial side and stop trading.

In sales, senior salespeople simply sell more and work with more important clients. Sales and trading compensation is generally lower than investment banking compensation across all levels, but some top traders could out-earn bankers.

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Analysts and associates are the backbone of investment banking, doing the "grunt" work of producing endless reports and pitch books. They're often recent college graduates or individuals new to the financial industry.

Analysts typically work their way up to becoming associates within three or four years, requiring additional education and work experience. Most investment banks prefer their associates to have an MBA or other graduate degree related to finance.

Analysts are responsible for producing pitch books, lengthy reports designed to pitch the bank's services to new or existing clients. A pitch book is essentially a sales pitch in report form, highlighting the bank's success stories and potential outcomes.

A typical analyst's day is occupied with doing research and writing reports, often becoming experts at generating spreadsheets in Excel. They're also responsible for handling their supervisors' schedules and fielding phone calls from clients.

The keys to success as an analyst include not complaining, fetching coffee and snack orders properly, and giving your supervisor all the credit. It's also crucial to learn how to stay out of the line of fire when something goes wrong.

Associates possess all the skills of analysts and are counted on to generate solid discounted cash flow (DCF) valuations of companies, arrange meetings with clients, and price new offerings. They're also responsible for producing weekly newsletters with the help of analysts.

Curious to learn more? Check out: Citi Financial Analyst

Recruiting for sales & trading is similar to investment banking, but with some key differences. You'll typically network via alumni or LinkedIn/email to win interviews, and use on-campus recruiting if you're at a target school.

The recruiting process for sales & trading is similar to investment banking, with an initial online application, video-based interview, and phone-based or in-person interview. You'll also attend a Superday if you're in the U.S. or an assessment center if you're in EMEA.

One key difference is that MBA-level recruiting is far more prevalent for investment banking roles, especially in the U.S. Sales & trading groups tend to recruit from business schools, but the percentages are far lower, and it's more difficult to break into the field as a career changer.

In sales & trading, you generally don't pick a specific group upfront, so the assignment process happens along the way or when you win an offer. The main differences between recruiting in both fields lie in the details, but the article about investment banking networking also applies to sales & trading.

Here are the key differences between sales & trading and investment banking recruiting:

Keep in mind that these are general differences, and the specifics may vary depending on the firm and location.

Sales and trading compensation can be volatile, with bonuses making up a smaller percentage of base salaries compared to investment banking. In sales and trading, bonuses tend to be lower percentages of base salaries, something closer to 50-75% is more likely than 100%. This means your pay can fluctuate significantly based on your individual and team performance.

Senior traders earn a small percentage of their P&L, so if a trader earns $20 million for the bank one year but only $5 million the next year, their bonus will fall significantly. This is in contrast to investment bankers, who face a similar issue but tend to earn more stable fees from closed deals.

As of June 2024, the average pay for an investment banker was $395,741, according to Glassdoor estimates. This includes additional pay like bonuses and commission, which can vary greatly.

Here's a rough idea of what you can expect in sales and trading:

Keep in mind that these numbers are for investment banking, but sales and trading compensation tends to be lower.