Innovation in #InvestmentBanking�There are Pros and Cons

I just caught a BusinessInsider article outlining what we already knew: macro investment banking is having a bit of a rough year in 2016. The United States is having one of the most underwhelming years so far, underwhelmed only by Australia. Unfortunately, the nature of the industry lends itself to boom and bust cycles like this. However, I’m of the personal opinion that things are changing in investment banking in a big way.

These changes most of which are sparked by advances in fintech“are becoming an ever-present reminder that our industry may have growing pains, dislocations and consolidation on the horizon.

Why Boom-and-Bust Cycles Persist

Investment banking revenue is structurally tethered to deal volume, which itself tracks credit availability, CEO confidence, and equity market valuations. When all three align — as they did in 2014–2015 — fee pools swell rapidly. When they diverge, even the largest banks face double-digit revenue declines in their advisory and underwriting divisions. Understanding this linkage is the first step toward building a firm resilient to it. Thoughtful sell-side preparation and buy-side support workflows help deal teams maintain momentum regardless of where the macro cycle stands.

People Bloat

If Amazon is planning on using drones to deliver everything from books to groceries, why can’t the financial services industry see the writing on the wall that things are overly bloated, particularly with people. The heavy swings in boom and bust in investment banking are met with parallel hiring and/or firing (or wage reduction). I too would argue that what we do will always require people at the helm.

Complex transactions with a lot of gray area will always require people, but process improvement using today’s technological resources can (and will) eliminate headcount at some of the most prolific investment banks.The shift is already occurring, but the next five years will bring an even greater influx of new tools that will take many of the jobs away from traders, analysts and associates.

The investment banks of the future will be both asset and people light.

Where Technology Actually Lands First

The jobs most vulnerable to automation are those built around aggregation and formatting: compiling due diligence request lists, populating data rooms, and reformatting offering documents for different audiences. These tasks consume a significant share of junior banker hours and are already being absorbed by purpose-built document intelligence software. Higher-order judgment — structuring a deal, running a negotiation, reading a counterparty — remains distinctly human, at least for now.

The practical implication for deal teams today is that data room workflow automation does not replace bankers; it compresses the calendar. A process that once required two junior analysts working through a weekend can now reach draft-ready state in hours. That efficiency makes smaller, more focused advisory firms viable at deal sizes that previously demanded large associate pools.

The Pros and Cons

There are clear winners and losers in this race to automate systems and processes. First, lack of expensive personnel resources will mean investment banks will run more lean, giving them the ability to weather the storms discussed previously by BusinessInsider. Secondly, operating margins will increase. The lack of headcount will create large boosts in margins for investment banks, particularly in the feasting years like 2015.

Technological advances may reduce internal operating expenses inside investment banks, but the gross profit margins are likely to significantly and simultaneously decline. When machines perform most of the functions, some of the high investment banking fees are likely to decline.There will also be collateral damage, most of which will impact people. The immediate hurt will be the most disruptive.

Over time, the number of folks entering investment banking is likely to continue to shrink. As a result, we are likely to see increases in income inequality for those in the higher echelons of financial services, including investment banking. The result may be a zero-sum game.Unfortunately, the net-net of increased efficiency and cost savings within investment banks are not likely to be evenly distributed in both the financial services sector and the economy at large.

As some have indicated, this could contribute to additional social dislocation. Innovation is needed in investment banking. Do the pros outweigh the cons? Is the gain worth the dislocation? Time will tell, but as the machines we create become smarter and work well for investment bankers, I expect to see less articles with “investment banking” and “miserable” in the same title.

Preparing for the Transition Now

For practitioners and business owners who work alongside investment banks, the practical question is not whether the industry changes but how to take advantage of the shift as it unfolds. Firms that adopt capital markets workflow software early tend to close transactions faster and with fewer errors — both of which matter to counterparties evaluating credibility. If you are preparing a business for a liquidity event, start with a capital raise checklist to identify gaps that technology alone cannot close: governance, financials quality, and management narrative.

The automation wave described here compresses timelines but rarely eliminates the need for preparation. A well-organized seller with clean financials and a coherent story still commands a premium over a disorganized one, regardless of what tools the banker on the other side of the table is using.

Frequently Asked Questions

What is driving the automation of investment banking jobs?

The primary drivers are advances in workflow software, document intelligence, and machine learning applied to financial data. Repetitive tasks — data aggregation, document formatting, and compliance checking — are the first to be absorbed. Advisory judgment, relationship management, and negotiation remain human-intensive.

Will technology reduce investment banking fees for clients?

Over time, yes — particularly for more commoditized services. As the article notes, when machines perform a larger share of the work, competitive pressure pushes fees down. However, bespoke advisory on complex transactions has historically maintained fee levels because the judgment component is difficult to replicate programmatically.

How can a business owner prepare for a transaction in an increasingly automated environment?

Focus on the elements that software cannot substitute: narrative clarity, clean financials, strong management team documentation, and a realistic view of valuation. A solid sell-side preparation workflow and organized data room signal credibility to buyers and lenders alike, regardless of what automation tools are in play on the banker’s side.

Is investment banking a good career choice given these trends?

The advisory and structuring functions remain strong career paths. The roles most at risk are high-volume, process-heavy analyst tasks at large banks. Boutique and middle-market firms — which rely on judgment and relationships more than sheer associate bandwidth — are likely to remain competitive environments for bankers who build real transaction expertise.