Why do people in Investment Banking make so much money? The question has been oft-heard and is as often as Excel gets heard in financial analysis. When it is just another banking job, why should one get paid so high that every career aspirant wants a job in IB?
Yes, IB has those punishing hours of 80-120 hours at times per week and do have such high-stress values that it is an accepted fact that 44 per cent look for alternative careers even before they get promoted upwards and hardly have a social life. It is also true that you are at the client’s mercy and that it is a competitive field where every other person is highly educated if not more. All valid points that could be also be applied to entrepreneurs and other careers too? So why?
What People in Investment Banking Actually Get Paid?
Commissions: In Investment Banking at the level of MD/Group Head/ VP, you really start earning well. That’s because every sale gets you commissions just like the car selling agent or real estate broker does. Banks sell the companies for acquisitions, mergers and restructuring. Higher the deal amount betters the commissions. And when the deals run into many millions, billions or thousands of them calculate the commissions! They are just selling very high-priced commodities.
Expenses and margins:
Well if that’s true then the wealth management and commercial finance people should also make as much. No, they do not. Because the commission rates are lower and they have more incidental expenses like effective profit margins. The ATMs, branch offices, cheque books all cost money. Even when you deposit money into your savings accounts and the money is larger than the ceiling limit you have to pay the bank for depositing your money with them. However, paying 1per cent on USD 1 million in the checking account is not fair right?
Banks, in contrast to real businesses, have very few staff, small offices, tiny payrolls by contrast, and almost zero real expenses like infrastructural costs, manufacturing processes, or maintenance and operational expenses. Perhaps they do have a tiny bit of travelling and hotel expenses which the client gladly pays for the banker’s role as intermediaries and custodians besides the regular multi-million dollar fees for their services.
About a generous 50 to 60per cent of such revenue goes to the IB employees as bonuses, salaries and commissions. Now that’s why they get paid so much.
Why Investment Banking is a Popular Career Choice?
Are you aware of why most foreign banks have an office in and operate from India? The factors that contribute to their presence are
• Availability of skilled local talent in data analytics.
• Large English speaking population.
• Presence of services like LPOs, KPOs, back-offices and transcription services.
• Lower costs in financial operations.
• Availability of reliable firms like Infosys, Wipro, TCS, Syntel to do business with.
• Training institutes for technological skills and the latest trending skills are world class.
These banks need to run profitably and promote the use of local talent who find well-paying prestigious jobs and make investment banking their careers.
Investment Banking Services:
Certification in IB helps.
The Investment Banking certification measures your skills in the services of an investment bank. Namely,
• Advice on buy-outs and acquisition of firms.
• Acquisition and mergers
• Trading in securities
• Corporate finance
• Services involving Custodianship
• Restructuring of debts
• Other allied services.
• Capital market investments
The career progression in Investment Banking requires sound financial knowledge. A graduation degree is not mandatory and IB encourages disciplines like finance, economics, business administration, and mathematics which do give you an upper hand. Doing an IB certification endorses and enhances your skill sets for the job and your resume. Certification also serves the purpose of being a measurable index of practical implementation skills in the basics of IB. The career progression ladder may also have an odd-ball who starts as an Intern, moves to an Associate role, and then upwards to Vice President, CFO, MD job roles etc.
The banking field’s crucial skills are
• A graduate degree for Associate roles.
• Adept at Microsoft PowerPoint presentations and Excel manipulation techniques, and MS Office and Word suites.
• Extremely long working hours of 80 hours with hardly any holidays.
• Being a team player and effective learner from feedback.
• An eye for details and data organization.
• Conceptual knowledge of accounting and financial issues and solutions.
• Investment banking certification course.
• Financial and business modelling knowledge.
In parting, the Investment Banking career aspirant does make a wise choice for some fantastic pay-packages. The demand for them is high. If you want to be in IB then do the course at Imarticus Learning who even offer assured placements to the deserving in this hallowed field.