I am trying to understand how do investment bankers have such stable jobs. It is my understanding that most trades are done by computers these days. So are investment banker0s…. just the male equivalents of pretty female receptionists?
If they are not, how do they have job security. No one knows how stocks will move. So …how?
In: 0
They steal… err earn a small percentage of every transaction and/or sometimes monthly. It doesn’t matter whether you actually gain or lose money.
This way they always get paid.
Investment bankers are different from stock brokers. Investment bankers advise companies on funding growth (stock offerings, bond issues, other financing/credit lines), mergers & acquisitions, etc. and get fees for advising on such matters.
Investment banking is a broad industry with different ways to make money. But to make it simple you can break it down into two areas: buy-side and sell-side.
**Buy-side** is represented by your funds. These can be mutual funds, hedge funds, ETFs, etc. The investment bankers (aka advisors) running these funds are making the decisions on what is bought with the individual investors’ money. Buy-side bankers generate revenue for themselves through fees typically based on a % of the assets under their management. The individual bankers earn their spot and bonuses for doing two things: 1) Bringing in more investors and 2) Choosing investments that perform well against the market. Lots of hands-on client servicing for the former thing, tons of technical modeling and advanced finance for the latter thing.
**Sell-side** are your big investment banks like JP Morgan (JP Morgan also has buy-side funds within it) as well as advisory firms. These bankers work with corporations or anyone else trying to raise financing and thus need to sell corporate debt/equity. These bankers make their living by successfully facilitating these sales and taking fees as a result.
>It is my understanding that most trades are done by computers these days.
Trades are just the facilitation of a deal. The strategies being devised and employed, deal-structure, and advisory stuff is still all a human process.
There are a few types of investment bankers. Usually we talk about the front office roles, but there’s also some back office roles which deal with operations and tech etc.
M&A advisors make money by providing advice to companies who are buying other companies. That job is not getting replaced by computers any time soon.
Capital markets advisors make the securities, usually by underwriting them – basically advising companies on what terms they should launch stocks / bonds / etc on. Sometimes they don’t advise companies, but rather create certain more structured or bespoke products using the banks own assets.
Sales and Traders make money through market making – which just means they buy and sell securities to ensure that those securities have an active market for other people to buy and sell. For some very liquid securities like Apple stocks which trade massive volumes every day, that can be quite easily automated; but non-liquid products are difficult to automate. For example, if you wanted to trade some convertible bonds, or maybe gigantic blocks of Apple shares – you need Sales people to take and market orders, and you need Traders who are willing to take significant risks on those orders.
Latest Answers