Investment Banking

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

• 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.

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.

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.

• Equity Research Recruiting: Guide to Networking, Interview Questions, and Stock Pitches
• Equity Research Careers: A Day in the Life, Advancement, Compensation, and Exit Opportunities

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.

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.

Read more in this article, The Front Office, Middle Office, and Back Office: How Banks Organize Their Dungeons.

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 investment banks, which we cover in our article on the top investment banks.

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

For more on this topic, please see our coverage of the top investment banks and different bank categories.

(Note that Credit Suisse is gone following the events of 2023 and should no longer be on this list – we’ll update this soon.)

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):

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 the trade-offs and other career advice, please see our coverage of the investment banking career path.

And if you’re interested in what you actually do as an investment banker and the type of work product you’ll produce, see our article on investment banking deliverables.

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: