9 Tips for Starting an Investment Banking Firm

For the right entity, the idea of starting an investment banking firm can be the beginning of a very lucrative journey. But not everyone is suited for this type of commitment. Although lots of money is part of the package associated with investment banking firms, working as an investment banker requires long hours and a never-ending enthusiasm for the industry. This passion must come from within because it is much more than a job–it is a lifestyle.

Investment banking firms offer a wide range of services including providing financial advisory; managing assets; and underwriting, selling, and trading stocks and bonds. Investment banks work with various types of companies, governments, and agencies, as well as with individuals.

Investment banking firms are the banks that companies, governments, and agencies turn to when they need help raising money. The difference in investment banks and other banks is that many do not actually have funds on hand. This means they do not have the ability to simply “write a check.” Instead, investment banks are backed by a network of investors. This network can include both private and institutional angel investors, all of whom trust the investment banking firm to bring them worthwhile deals.

Obviously, starting an investment banking firm does not happen overnight. In fact, it can take years of planning and preparation. Below are some tips for starting an investment banking firm.

Tip 1: Develop the Necessary Skills

In order to be successful, an investment banking firm must offer quality services in a wide range of fields. This includes such things as analysis and sales. Take the time to learn as much as possible about every aspect of the business. With so many things to do, a team of employees will need to be hired. The firm’s employees must have excellent communication skills, they must be creative, and they must be driven to achieve success.

Tip 2: Have a Detailed Business Plan

Before starting such a business, it is necessary to have a comprehensive business plan that will serve as a guide in the management of the business. This plan details the firm’s strategies and goals. In essence, in order to succeed, a comprehensive business plan is a requirement for every investment banking firm.

The business plan will contain information needed by loan officials and potential investors; therefore, the plan can be helpful in securing funding needed to create the investment banking firm. A detailed plan helps investors determine the investment risk. In general, firms with comprehensive plans are more likely to achieve high levels of success.

Such plans serve as guides for the firms, keeping the business and its employees on track to achieving the goals laid out in the plan. Ideally the business plan will be revisited and revised as needed. This ensures that goals and strategies are kept current.

Tip 3: Find an Ideal Location

Research any areas of interest before making a decision. Study and analyze existing investment banks that are nearby. Focus on ways to compete – ways to offer improved or better services. Ideally, investment banking firms should be centrally located.

Promotions should always highlight the fact that the bank is an investment banking firm – but never advertise until the firm is licensed.

Tip 4: Standard Screening Process

Follow best practices for a standard screening process. Investment banking firms deal with companies, corporations, and agencies in need of funding – which means large sums of money. It goes without saying that the investment banking firms have to find effective ways of screening applicants.

After all, their goal is to only lend to companies and agencies that can eventually repay the money. A standard screening process creates a system that makes the entire process seamless. These processes should be included in the comprehensive business plan.

Tip 5: Get Licensed

Every investment firm needs to be licensed according to the type of investments that will be bought and sold. The Series 6 securities license is appropriate for firms that sell small investment products. This includes annuities and mutual funds. For investment firms that buy and sell larger investments, such as stocks and bonds, a Series 7 license is needed. Licensing exams (administered by the Financial Industry Regulatory Authority) are required for each type of license.

Tip 6: Register the Firm

After an investment banking firm is licensed, it should be registered with the Securities Exchange Commission (SEC) and the state. Once approved, the firm should also be registered with FINRA (Financial Industry Regulatory Authority). Follow all rules, guidelines, and regulations handed down by these authorities.

Tip 7: Choose Products

Registered investment banking firms—even small ones—can sell annuities, mutual funds, bonds, stocks, as well as insurance products from wholesalers. When first starting out, it is advisable to start small; for instance, rather than immediately buying and selling stocks, it may be better to begin with life insurance and mutual funds.

Tip 8: Become an Independent Contractor

This method of starting an investment banking firm is a low risk option. The independent contractor operates an office that uses the name of a large firm and that firm’s registration status. The drawback is that commissions are shared with the corporate office.

Tip 9: Network

Much of the business investment banking firms receive comes from referrals. With that in mind, it is important to network and get to know as many people as possible. Join professional groups. Local Chamber of Commerce meetings and other events are great places to meet and greet potential clients. Investment bankers should always be on the lookout for opportunities to network.

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Debbie Allen is a freelance writer that enjoys sharing tips and ideas from quality sites like Reputation.com.