Financial People, can you explain this to me like I'm 5?

[Deleted]

What exactly is an investment banker? My cousin recently graduated from college and his mom told me he was working in "investment banking." A friend's husband who is in finance asked me what company he was working for and told me that it wasn't an investment bank at all, but a "financial services consulting firm" and seemed amused that my aunt called it "investment banking." What is the difference? 

[Deleted]

FIL worked as an investment banker for several firms from the late 70s-early 90s. He specifically dealt with hospital financing.

Financial services firms, like Goldman Sachs, Merrill Lynch, etc. will have financial service providers, like brokers, but also investment bankers, like those who deal in municipal and corporate financing.

[tacom]

I'm not a finance person, but I like to respond to polls, lol.

FI did investment banking (IB) for two years (and interned for 2 summers). Basically, the smartest kids from the best schools (and some good state schools) apply for jobs to work 80-90+ hour weeks but make like $140,000 straight out of undergrad; you get $25/night to buy yourself dinner and sometimes you get to go to fancy events (box seats at sporting events, super fancy restaurants). But then sometimes you sleep in your office because you don't have enough time to make it home and shower before you'd have to be back at work the next day.

[Deleted]

Aug 2, 2013 8:41:50 GMT -5 tacom said:

I'm not a finance person, but I like to respond to polls, lol.

FI did investment banking (IB) for two years (and interned for 2 summers). Basically, the smartest kids from the best schools (and some good state schools) apply for jobs to work 80-90+ hour weeks but make like $140,000 straight out of undergrad; you get $25/night to buy yourself dinner and sometimes you get to go to fancy events (box seats at sporting events, super fancy restaurants). But then sometimes you sleep in your office because you don't have enough time to make it home and shower before you'd have to be back at work the next day.

I like that this says nothing about what they actually do at work

But this I think covers the important points.

[Deleted]

This is a pretty good definition:

Let's start with the basics. What is an investment banker? The best overall definition I found was at Wikipedia.com: "Investment banks help companies and governments and their agencies to raise money by issuing and selling securities in the primary market. They assist public and private corporations in raising funds in the capital markets (both equity and debt), as well as in providing strategic advisory services for mergers, acquisitions and other types of financial transactions."

Read more: www.entrepreneur.com/article/179958#ixzz2aoratD66

[tacom]

Aug 2, 2013 8:44:16 GMT -5 v said:

Aug 2, 2013 8:41:50 GMT -5 tacom said:

I'm not a finance person, but I like to respond to polls, lol.

FI did investment banking (IB) for two years (and interned for 2 summers). Basically, the smartest kids from the best schools (and some good state schools) apply for jobs to work 80-90+ hour weeks but make like $140,000 straight out of undergrad; you get $25/night to buy yourself dinner and sometimes you get to go to fancy events (box seats at sporting events, super fancy restaurants). But then sometimes you sleep in your office because you don't have enough time to make it home and shower before you'd have to be back at work the next day.

I like that this says nothing about what they actually do at work

But this I think covers the important points.

excel? lol
hovering over a printer at 3am? 
changing font on pitch books?


FI liked this:

[littlemermaid]

Our bank has an Investment Department and they handle all investment needs....stocks, bonds, mutual funds..etc. Their titles are Investment Bankers. I don't think you need to be part of the large investment groups to carry that title. It is more widely used than your friend thinks, at least where I live it is.

[Deleted]

Aug 2, 2013 8:49:21 GMT -5 RockNVoll said:

Short answer: people who sell their souls to Wall Street in exchange for $$$$$.

Long answer: Investment bankers provide guidance to companies on corporate financings (private placements, IPOs, debt raises, etc.) and mergers & acquisitions transactions (M&A). So basically they help companies raise money, buy other companies, or sell themselves to other companies. They use their market knowledge and industry experience to help clients position themselves for the best financial outcome. Companies like Goldman Sachs, Morgan Stanley, etc. are investment banks but most investment banks have a number of other departments besides the pure IB business--research, trading, capital markets, etc.

I'm not sure what a "financial services consulting firm" is, but might be able to give you more specifics on the difference if I knew specifically what firm it is.

Hmm. A friend of mine recently told me that going into IB (for the money) is pretty old school and the real money is in trading or doing private equity now. She said the difference in bonuses is like 500k vs. 1m +. If you're good, I'm assuming. Is this correct? I'm just curious, I know practically nothing about it except the basics. 

[LoveTrains]

All I can say is that my cousin's husband works at a hedge fund in Greenwich and they just bought a $100K car.

[Deleted]

She works at a hedge fund. Is that the same thing as being a trader? I have to say, my eyes might have popped a bit after she added that thing about the money involved, lol.

[Deleted]

Aug 2, 2013 8:58:21 GMT -5 @lcap said:

She works at a hedge fund. Is that the same thing as being a trader? I have to say, my eyes might have popped a bit after she added that thing about the money involved, lol.

en.wikipedia.org/wiki/Hedge_fund

There is very, very serious money in hedge funds.  A lot of the people I know who started out as investment bankers have moved on to hedge funds because there's so much more money to be had.

[Deleted]

Aug 2, 2013 9:01:24 GMT -5 v said:

Aug 2, 2013 8:58:21 GMT -5 @lcap said:

She works at a hedge fund. Is that the same thing as being a trader? I have to say, my eyes might have popped a bit after she added that thing about the money involved, lol.

en.wikipedia.org/wiki/Hedge_fund

There is very, very serious money in hedge funds.  A lot of the people I know who started out as investment bankers have moved on to hedge funds because there's so much more money to be had.

Apparently! lol. I knew she was living well but not that well

[tacom]

Aug 2, 2013 8:52:24 GMT -5 @lcap said:

Hmm. A friend of mine recently told me that going into IB (for the money) is pretty old school and the real money is in trading or doing private equity now. She said the difference in bonuses is like 500k vs. 1m +. If you're good, I'm assuming. Is this correct? I'm just curious, I know practically nothing about it except the basics. 

you typically can't get into private equity (PE) unless you've done IB first. FI made the switch to PE last summer. He makes $50,000 more, but his title is higher (associate v. analyst).

My brother is doing a summer internship in trading with a major bank right now and his roommate is doing IB with the same bank. My brother works fewer hours and gets fewer perks (no free dinners). I think if he were a FT employee, his bonus might be smaller. not sure. either way, kids out of college won't have $500k bonuses anyways.

[Deleted]

Aug 2, 2013 9:02:26 GMT -5 tacom said:

Aug 2, 2013 8:52:24 GMT -5 @lcap said:

Hmm. A friend of mine recently told me that going into IB (for the money) is pretty old school and the real money is in trading or doing private equity now. She said the difference in bonuses is like 500k vs. 1m +. If you're good, I'm assuming. Is this correct? I'm just curious, I know practically nothing about it except the basics. 

you typically can't get into private equity (PE) unless you've done IB first. FI made the switch to PE last summer. He makes $50,000 more, but his title is higher (associate v. analyst).

My brother is doing a summer internship in trading with a major bank right now and his roommate is doing IB with the same bank. My brother works fewer hours and gets fewer perks (no free dinners). I think if he were a FT employee, his bonus might be smaller. not sure. either way, kids out of college won't have $500k bonuses anyways.

She's in her thirties. I don't know what she did exactly before grad school, maybe it was IB, but I know she has an MBA now. So the figure you mentioned before, the kids making 140k, is that before their bonus? That's pretty impressive.

[Deleted]

Aug 2, 2013 8:57:03 GMT -5 RockNVoll said:

No one really gets into private equity straight out of college.  My old firm experimented with it a little but didn't really like the results.  Most people either do a two-year IB analyst or consulting program first, or they go in after business school. 

There's lots of money in trading, sure, but it's a high stress world and you need to be able to handle the culture.  @choco can probably speak more to this.

Sorry, had trouble locating my soul for a second ;-)

Yes, institutional trading can certainly be lucrative but only a select few are gifted enough to be able to make to make the money that people are talking about.  Private equity and hedge funds are where that type of money is more guaranteed to the average Joe.  These firms are largely unmonitored/unhindered by regulatory bodies and money is literally oozing out of every seat in the firm.  The hours are supposedly better at PE firms, but I never went into that world so I can't confirm.

There is also some unwritten hierarchy among people on Wall Street, and a lot of i-bankers tend to look down on the sales guys and traders and vice versa.  I-bankers tend to move on to PE and HF firms if they are still willing to work the long hours.  Those who want to see daylight more tend to "retire" to institutional asset management, which is basically financial advisory work for corporations, pension funds, etc.  Whomever gets the biggest bonus check wins though, lol. 

"Financial consulting services firm" seems like such a random phrase to me, but I'm assuming it's probably an advisory arm of an Ernst & Young type.  I actually am not familiar with their work though.

[chikastuff]

I think of investment bankers to be like hedge fund managers or other investment managers. Someone working for a financial services consulting firm could provide guidance to companies on where to invest their money,etc. Or they could work for a sales-oriented firm selling finanical products. Given that your cousin is fresh out of school I imagine he's doing entry level account management or sales at a banking institution.

[SJ]

I love this thread. I have nothing to add; you guys got this.

[Deleted]

Aug 2, 2013 8:49:21 GMT -5 RockNVoll said:

Short answer: people who sell their souls to Wall Street in exchange for $$$$$.

Long answer: Investment bankers provide guidance to companies on corporate financings (private placements, IPOs, debt raises, etc.) and mergers & acquisitions transactions (M&A). So basically they help companies raise money, buy other companies, or sell themselves to other companies. They use their market knowledge and industry experience to help clients position themselves for the best financial outcome. Companies like Goldman Sachs, Morgan Stanley, etc. are investment banks but most investment banks have a number of other departments besides the pure IB business--research, trading, capital markets, etc.

I'm not sure what a "financial services consulting firm" is, but might be able to give you more specifics on the difference if I knew specifically what firm it is.

Stern Stewart and Co. ?   He is a "financial analyst."

[Deleted]

@arya maybe he is an equity analyst? That's what my husband does. He does research on various companies to see if they are good buys for his firm's clients. Does that sound like what your friend was talking about?

[Deleted]

Aug 2, 2013 9:27:53 GMT -5 RockNVoll said:

Aug 2, 2013 8:52:24 GMT -5 @lcap said:

She said the difference in bonuses is like 500k vs. 1m +. If you're good, I'm assuming. Is this correct? I'm just curious, I know practically nothing about it except the basics. 

I think you added this after you originally posted.  I don't know where banker bonuses stand these days, but in the salad days of the Internet boom the tech bankers certainly were making $1mm+ bonuses.  But the numbers you're talking about are for more senior people.  The junior folks get some sweet checks too, but not ones that high.

Yeah I don't know. It's not like we really talk about $ together that often. She made some disparaging comment about someone else we know (who is apparently insufferable to her because he has a big head about his .5 mil bonuses which I guess is practically nothing in that world?? Lol). I think I might have made a choking sound in response and then the conversation moved on. She is prone to exaggeration though so I was just curious about the accuracy of the #s.

[tacom]

Aug 2, 2013 9:06:09 GMT -5 @lcap said:

Aug 2, 2013 9:02:26 GMT -5 tacom said:

you typically can't get into private equity (PE) unless you've done IB first. FI made the switch to PE last summer. He makes $50,000 more, but his title is higher (associate v. analyst).

My brother is doing a summer internship in trading with a major bank right now and his roommate is doing IB with the same bank. My brother works fewer hours and gets fewer perks (no free dinners). I think if he were a FT employee, his bonus might be smaller. not sure. either way, kids out of college won't have $500k bonuses anyways.

She's in her thirties. I don't know what she did exactly before grad school, maybe it was IB, but I know she has an MBA now. So the figure you mentioned before, the kids making 140k, is that before their bonus? That's pretty impressive.

No, the $140k includes the bonus. (Basically 50% salary and 50% bonus.)

At this level, the bonus is kind of guaranteed if you complete the grunt work you are given. Some people got a little extra for exceeding expectations, but it's roughly what was offered when they signed on for the position (just talking about FI and his former colleagues at one bank, so it could be different other places). However, if you don't complete the work (like one of his coworkers just up and quit before his first year was up) then you don't get the bonus.

So the friend was compensated based on $70k base pay, which is a very good salary coming out of undergrad, but isn't so great when you consider how many hours you're working (basically <$15/hr for a job everyone hates). The bonus is what makes the job worth it IMO, especially considering these kids typically have other options.

[sent]

Sometimes I wonder that if I had known about this world in high school, if I would've taken a different path in college.

[wanderlustfoodie]

Oh man, so many layers of awesomeness in these answers, I love them!

Rock and voll's answer is pretty spot on about IB. In practical terms, it is a common straight-out-of-UG job for people who interested in finance. Most of those people ultimately want to transition to the "buy-side" at a HF or PE fund for significantly better hours/more meteoric pay scales. That said, my friends who are directors at PE funds say that it is getting increasingly harder for the new youngin's to hit it big in PE. The models are designed to have just a few people at the top and after PE exploded in the last 10 or so years, there's definitely not much room at the top anymore most places. Of course, to keep this MM, everyone has a different definition of "hit it big" since most world citizens would love to earn what the young PE guys do. But if this is coming from someone who's already a director, obviously his perspective is going to be that the 2nd year PE associate isn't making a lot.

HFs can be much more fluid in terms of money you make because you get paid on how well your positions do, not based on what your "title" is. I mean, VPs and MPs still call themselves "analysts" because they analyze different names. Titles are usually meaningless at HFs whereas at PE funds, if you're the director that means if you lose money at year-end, you have to pay the difference out of your own pocket. If you go below the high water mark at a HF, it just means you might not get paid as much as you did last year, not that you have to give back some money. Then of course there are the class of HFs that operate more as activist funds, meaning they operate like PE funds do in terms of having more active control of the companies they invest in. My husband's first HF was like this so whenever he would invest in a company, he'd sometimes get a board seat so that he could be involved with the management-level decisions. Now he's at a more passive fund.

If this guy is really going into IB and wants to transition to the buy side one day, he should start coming up with an answer for why one over the other. My husband just interviewed a guy from GS who had no logical answer for why a HF instead of a PE fund. Ding.

[Deleted]

Ah, makes sense. It's truly crazy how much money some of these people make. Mind blogging in context of the larger population.

[wanderlustfoodie]

Aug 2, 2013 9:41:44 GMT -5 @lcap said:

Aug 2, 2013 9:37:10 GMT -5 scm1011 said:

This is what I do

ETA: I do not make the big dog bucks like those in IB and PE do.

Neither does he A really good year for him is like a 300-400k bonus. Which I think is fantastic, don't get me wrong, but I can see it is little dog #s compared with these hedge fund people.

It depends on so many factors. This can be a good bonus if it's a bad year or if the fund is small in terms of AUM or if the person is junior. This would not be a good bonus this year for someone who has been doing this a while at a decent-sized fund. But, I totally agree, I live in this world and it is still mind-blogging to me!

[Deleted]

Aug 2, 2013 9:18:16 GMT -5 RockNVoll said:

Aug 2, 2013 8:58:21 GMT -5 @lcap said:

She works at a hedge fund. Is that the same thing as being a trader? I have to say, my eyes might have popped a bit after she added that thing about the money involved, lol.

Not really.  They are both responsible for buying and selling securities, but that's kind of where the similarities end.  Traders will buy and sell a variety of financial instruments in an effort to make a buck anywhere they can.  They don't really manage an investment portfolio, per se.  Instead they move in and out of securities all the time.  They can work for an investment bank, a hedge fund, or for themselves.

Hedge fund managers use concerted investment (and hedging) strategies to make money for their clients.  They are managerial above a trader and would, for example, tell a trader what orders to place.  They manage a portfolio of investments and are responsible for that portfolio's performance.

I feel like I'm not really explaining this well.  It took me forever to type this up, LOL.  Plus, I was in IB and PE, but never a trader or at a hedge fund.

I think you have it right.  FWIW, institutional asset managers/portfolio managers also work the same way as hedge fund managers.

[wanderlustfoodie]

Aug 2, 2013 9:49:21 GMT -5 @choco said:

Aug 2, 2013 9:18:16 GMT -5 RockNVoll said:

Not really.  They are both responsible for buying and selling securities, but that's kind of where the similarities end.  Traders will buy and sell a variety of financial instruments in an effort to make a buck anywhere they can.  They don't really manage an investment portfolio, per se.  Instead they move in and out of securities all the time.  They can work for an investment bank, a hedge fund, or for themselves.

Hedge fund managers use concerted investment (and hedging) strategies to make money for their clients.  They are managerial above a trader and would, for example, tell a trader what orders to place.  They manage a portfolio of investments and are responsible for that portfolio's performance.

I feel like I'm not really explaining this well.  It took me forever to type this up, LOL.  Plus, I was in IB and PE, but never a trader or at a hedge fund.

I think you have it right.  FWIW, institutional asset managers/portfolio managers also work the same way as hedge fund managers.

On the contrary, r-n-v, I think your explanation was spot-on.

[SJ]

Oh man. I need to keep repeating to myself "I love being done at 4pm, I love being done at 4pm" when I see these numbers.

[Deleted]

Aug 2, 2013 9:53:30 GMT -5 SJ said:

Oh man. I need to keep repeating to myself "I love being done at 4pm, I love being done at 4pm" when I see these numbers.

This is huge. I wouldn't want to give that up either.

[Deleted]

Aug 2, 2013 9:39:30 GMT -5 RockNVoll said:

Aug 2, 2013 9:25:22 GMT -5 @arya said:

Stern Stewart and Co. ?   He is a "financial analyst."

Oh, I see.  From a quick look at the site I'd say your friend's H is spot on in describing it as a financial services consulting firm.  It looks like they are essentially consultants who provide companies with corporate financial advice and financial analysis services.  Like all consultants, they provide advice and an opinion to the client, who can then decide whether they want to act on it.  They do not run fund raising processes, deal with investors, or actually handle the mechanics of buying/selling a company.  If I had to boil it down, I'd say they crunch a lot of data, run models, and walk clients through the results.

Investment bankers can run a lot of the same analyses as described above, but they also manage actual transactions coming out of those analyses.  That's probably the best way I can describe it.  Does that help?

Interesting. So, would this position be less impressive/competitive/pay less than a traditional "investment banker?"