The Structure of a Financial Intermediary's Management System
Investment banks, known for their rigorous hierarchy, operate more strictly than many other corporate or financial institutions. In his book "How to Be an Investment Banker," Andrew Gutmann compares this structure to the military - rank matters and there's even a social status between certain titles.
Here's the typical career order you'll find within an investment bank:
- Investment Banking Analyst
- Investment Banking Associate
- Vice President
- Senior Vice President
- Managing Director
Non-U.S. investment banks often use different titles, with more director designations. For example, an investment banking associate might be called an associate director, or a senior vice president might be a junior director or executive director.
The main purpose of an investment bank's hierarchy is to establish a structured system for managing roles and responsibilities efficiently. This organized framework allows for clear lines of communication and effective decision-making within the institution.
Let's dive into what each level of the hierarchy entails:
1 - Analyst
Most investment banking analysts start as recent graduates from top schools with strong academic backgrounds. They spend their early years as grunts for higher-ranking employees, working long hours filled with Excel, PowerPoint, research, and minimal sleep. Some analysts move up to the associate level, but having too much experience in other jobs can lead to being labeled "overqualified."
Base salary for analysts ranges between $100,000 and $120,000, with bonuses averaging 10% of the annual salary.
2 - Associate
Associates are the most common gateway for those not following the traditional route. Most still come from top MBA programs or were groomed as analysts for several years, but some impressive performers from other financial firms, particularly in equity research, might also make the cut.
First-year associates act as group leaders, spending a lot of time overseeing analysts and performing similar tasks. Third-year associates are groomed for vice president roles by the higher-ups. Base salary for associates ranges between $150,000 and $200,000, with bonuses ranging from 50% to 100%.
3 - Vice President
Vice presidents are the most junior of the senior bankers. They are expected to create pitch books and manage client relationships. Their life revolves around completing pitch books and dealing with clients. Salaries at this level are more varied, depending on bonuses and the bank's activity. The base salary ranges between $200,000 and $225,000, but bonuses can be higher than the salary in a good year, up to 150% of their base salary.
Other Staffing Considerations
Investment banks often have a diverse set of support staff, including operations managers, HR professionals, compliance officers, administrative assistants, and IT personnel. These roles are crucial for the smooth functioning of the investment banking firm.
In addition to these roles, investment banks may hire temporary staff or interns to help with groundwork, and they may be governed by a board of directors and various committees to oversee the firm's management, set policies, and approve major strategic decisions.
Now that you have an idea of the investment bank hierarchy, you might be wondering: How do commercial banks and investment banks differ?
While commercial banks focus on traditional banking activities like accepting deposits, providing loans, and offering retail banking services, investment banks are more involved in capital market activities like securities, mergers and acquisitions, and providing financial advisory services to corporate clients and institutional investors.
One last note, if you're considering a career in investment banking, be prepared for long hours, intense workloads, and an intense competitive environment. But there's also the potential for high earnings, especially as you move up the ranks.
So, will you break into the investment banking world and start climbing the ranks?
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As the investment banking business flourishes and evolves, it's essential to adopt new finance strategies, possibly including token trading and ICOs, to stay competitive in the modern financial landscape.
