What Is the Difference Between an Investment Banker & a Financial Manager?
Original post by Geri Terzo of Demand Media
Although an investment banker and a financial manager may both participate in the financial industry, the role that each professional plays is unique. An investment banker is involved with underwriting equity and debt securities in the capital markets and extending credit to clients. There are different types of financial managers. According to the U.S. Department of Labor, a common type of financial manager is a top executive at an organization who makes financial decisions for a business or government agency.
Investment bankers are hired to perform activities in the capital markets on behalf of corporations or government entities. Deals might involve the issuance of equity, or stocks, in the markets. Bankers can also issue debt, or bonds, for clients. Financial managers are often internal executives who work for a corporation or government entity. These professionals may work with bankers on deals in the capital markets to design and structure transaction terms. Financial managers also prepare and file documents with regulators.
Bankers and financial managers can focus on different tasks in their respective industries. For instance, an investment banker could advise a client on a merger or acquisition, or prepare a private corporation for an initial public offering, which is when stocks are issued into the public markets for the first time. A financial manager not only prepares financial statements at a company, such as a balance sheet, but also makes profit and sales projections based on expected performance.
Financial management could also involve the oversight of investment assets on behalf of clients. In this role, financial managers make decisions that affect the profits of large institutions and small investors. Typically, managers invest assets in a portfolio based on a specified strategy. The primary types of investment banking services are advisory and underwriting. Bankers could provide advice throughout a market transaction or participate in the risk by underwriting deals and taking responsibility for selling financial securities.
Investment banker compensation is tied to the amount of business generated. The most attractive component to a banker's compensation package is often the year-end bonus reflecting the size of transactions completed. Bonuses can be threatened. According to a 2011 article in Bloomberg Business Week, investment firm Morgan Stanley slashed the available funds for investment banker pay by 2 percent in 2010. Financial managers can earn a salary or fees based on the value of assets managed. According to the U.S. Department of Labor, financial managers may qualify for annual bonuses.
- U.S. Department of Labor: Financial Managers
- Bloomberg; Morgan Stanley Cuts Investment Bank Pay Pool; Michael J. Moore, et al; January 2011
About the Author
Geri Terzo is a business writer with over 15 years experience reporting on Wall Street. Her coverage ranges from institutional investing, including hedge funds and investment banking, to family topics and her career experience includes work for Fox Business, CNBC and "IDD Magazine." Terzo is a graduate of Campbell University, where she earned a B.A. in mass communication.