01 May 2022
The investment banking industry remains one of the most competitive sectors to embark on, certainly due to its highly prestigious and remunerative attributes. However, not everyone working at an investment bank is considered an investment banker, there are different divisions involving different roles. If you are considering applying to jobs in the banking industry it is important to understand the different skills related to each division.
Front office
The front office of an investment bank is the division that generates revenue for the bank, they are the ones responsible for trading in the interests of the bank and directly dealing with clients. Classic examples are investment banking, sales & trading and equity research. Not surprisingly, this is by far the most competitive division to get into. According to Financial News, JP Morgan received 50,000 applications for just 400 places in 2021, a ratio of 125:1.
Within the front office there are different subdivisions to choose from. The investment banking division (IBD) is responsible for raising capital for corporations and governments, which can be done through equity and/or debt, as well as providing advisory services in mergers and acquisitions. Asset management is another division, which is responsible for managing and growing the funds of individuals and corporations. Furthermore, in private equity, capital is raised from limited partners, these are individuals who are interested in investing in promising firms. Equity research, on the other hand, is the division responsible for analysing, recommending and reporting investment opportunities that clients may be interested in.
Generally, working in the front office requires the ability to work well under high pressure, strong numerical and analytical skills, commercial awareness and knowledge about the financial markets. However, some roles require more specific and technical skills, e.g. coding skills can be a prerequisite for trading roles. Corporate finance, on the other hand, demands excellent communication and negotiating skills due to its high degree of client interaction.
Salary: First-year analysts start at £50,000 with annual bonuses between £21,000-£50,0003.
Middle office
The middle office is responsible for the activities supporting the front office, consisting of risk management, research and compliance, financial control and IT services. There’s a high degree of responsibility for those involved in the middle office as they ensure the bank doesn’t breach any regulations and remains financially sustainable.
The ability to synthesise and process large amounts of data, critical thinking, strong ethics and attention to detail are some of the most relevant skills for a middle office role. Depending on the division you choose, you may need specific technical skills, for example financial control will require an understanding of financial reporting.
Analysts usually start on £40,000 - £47,000 a year in the middle office4, with a lower bonus than in the front-office. Work-life balance is a key advantage, but moving up the career ladder can also take longer.
Back office
The bank office relates to the operational activities of the bank, which are more administrative roles that are essential for the functioning of the firm. That is not to say that these roles are not challenging or pressured, just to a lesser-degree than front/middle-office would typically be. Human resources, accounting and finance, marketing and technology-related are just some examples. You often get the opportunity to work in a more global environment as large investment banks usually integrate their operations worldwide.
Ability to work well in a team, organisational and time-management skills, personal integrity, dependability are some of the crucial skills required. Typical starting salaries range from £35,000-£40,000 plus benefits and bonuses5.
A key highlight is that discrepancy in salaries according to each division is greater at director level and up,and this is mainly due to the difference in bonuses offered according to your division.
As you will have noticed by now, salaries can vary and the discrepancies tend to increase as you move up in your career. In the front office bonuses average 93% of salaries, whereas bonuses in the back office only tend to reach up to 50%6. This is mainly explained by the fact that middle and back office employees face less pressure and have better working hours, which is a great benefit to many. ,
IBD Career Progression
Though there is no set timeline for career progression in IBD, an example trajectory could look like this:
- 6 months - Intern/Summer Analyst
- 2-3 years - Analyst
- 3-4 Years - Associate
- 3-4 Years - Vice President (VP)
- 2-3 Years - Senior Vice President (SVP)
- 3+ Years - Managing Director (MD)
- Rest of Career - Partner
However due to the high intensity and incredible workload analysts are put under many only choose to stay in IBD for 2-3 years and take an exit opportunity into Private Equity, Hedge fund management or Venture Capital.
Applying to an investment bank role
Before applying to any role in an investment bank it is important for you to learn about the organisational structure and the bank’s culture. This will help you determine which firms and roles are more suited to your skillset, ambitions and career objectives.
A few things to note before you start the application process:
- Target universities are the institutions that investment banks usually prefer to recruit from, such as Oxford, Cambridge, Imperial College London, LSE and UCL. However, nowadays banks are much more likely to select candidates from a broader range of universities.
- You don’t have to study finance at university to apply for an investment bank role. Employers are looking for high achieving students with a 2:1 or above degree along with a well-rounded CV including extracurricular activities and relevant work experience.
- As mentioned previously, the most difficult division to get into is clearly the front-office, particularly IBD. You will be facing even harder competition, but the reward & workload will be greater. You have to balance these factors and be sure of your decision.
- Being commercially-aware is a crucial aspect of your application as this will show employers you have a genuine interest in the industry. Make sure you stay up to date with the latest major developments in banking industry, for example the largest IPO in 2021 was from electric vehicle automaker Rivian at $12 billion, which had three banks as lead underwriters: Morgan Stanley, Goldman Sachs and JP Morgan Chase.
