Investment banks operate at the heart of financial markets, but their business model differs significantly from commercial banks. They don’t rely on taking deposits or issuing retail loans. Instead, they generate revenue by offering high-value financial services—often behind the scenes—and charging for access, execution, expertise, or risk. This article explains the key ways investment banks make money, breaking down how each revenue stream works and who pays for what.
Advisory Fees
Advisory fees are earned when investment banks provide strategic financial advice to clients, particularly in the context of mergers, acquisitions, divestitures, restructurings, and other complex corporate transactions. These fees are charged for the expertise, analysis, and negotiation support that banks offer, rather than for executing trades or raising capital. They reflect the intellectual value investment banks bring to high-stakes decisions that can reshape a company’s future.
In mergers and acquisitions, advisory fees are typically structured as success fees—the bank is paid only when the deal is completed. The fee is usually a percentage of the transaction value, with the rate decreasing for larger deals but still resulting in substantial absolute payments. On the sell side, investment banks assist clients in preparing for sale, identifying buyers, and maximizing valuation. On the buy side, they help with target screening, due diligence, and transaction structuring. In 2024, JPMorgan Chase earned $3.29 billion in financial advisory fees, positioning itself among the leading players in global dealmaking.
Restructuring advisory generates fees from helping distressed companies reorganize their debt, improve liquidity, or avoid bankruptcy. In some cases, the fee includes monthly retainers in addition to success-based payouts. For example, Thames Water's £19 billion debt restructuring in 2025 involved numerous investment banks and consultants, with projected advisory fees running into hundreds of millions of pounds, despite public concern that these payments were diverting funds from critical infrastructure investment.
Banks also charge advisory fees for fairness opinions—independent assessments of whether a proposed transaction is financially fair to shareholders. These opinions are especially common in mergers where potential conflicts of interest exist or shareholder litigation is expected.
Pure advisory firms like Lazard, Evercore, and Rothschild earn most of their revenue from these services. Even full-service investment banks, such as Goldman Sachs, continue to see advisory work as a core profit driver. In 2024, Goldman Sachs reported a 50% increase in investment banking fees, reaching $1.3 billion, largely due to a rebound in dealmaking and advisory activity across markets.
Advisory fees remain one of the most important and prestigious revenue sources for investment banks. They reward insight, judgment, and the ability to navigate complex transactions where outcomes have long-term implications for shareholders and management alike.
Underwriting Fees
Underwriting fees are earned by investment banks when they assist companies or governments in raising capital through the issuance of equity or debt securities. In this role, the investment bank serves as an intermediary between the issuer and investors—structuring the transaction, setting pricing, preparing offering materials, and managing distribution. In many cases, the bank also underwrites the issuance, meaning it guarantees the sale by purchasing the securities from the issuer and reselling them to the market. This involves taking on risk, which is compensated through underwriting fees.
Underwriting services are divided between Equity Capital Markets (ECM) and Debt Capital Markets (DCM). In ECM, banks help companies issue shares through initial public offerings (IPOs), follow-on offerings, or private placements. In DCM, they help raise funds through bonds, notes, or convertible instruments. In both cases, underwriting fees are calculated as a percentage of the total capital raised and are often shared among a syndicate of banks involved in the deal.
The size of these fees can be substantial, especially for large and complex offerings. For example, in the Saudi Aramco IPO in 2019, which raised $29.4 billion—the largest IPO in history—banks collectively earned around $90 million in fees, which was relatively modest by global standards but still one of the most high-profile underwriting deals ever completed. In contrast, the Facebook IPO in 2012, which raised $16 billion, generated approximately $176 million in fees, with Morgan Stanley, JPMorgan, and Goldman Sachs among the lead underwriters. More recently, Goldman Sachs and Bank of America served as lead underwriters for Arm Holdings’ 2023 IPO, which raised $4.87 billion and resulted in estimated fees of over $100 million shared among the underwriters.
Underwriting fees not only reflect the effort of execution but also compensate banks for reputational and financial risk. If investor demand is weak, underwriters may be forced to sell securities at a discount or hold unsold inventory on their balance sheet. For this reason, banks conduct thorough due diligence, assess market conditions, and often test investor appetite through roadshows and pre-marketing activities before committing to terms.
In many capital markets transactions, underwriting fees are broken into components—such as a management fee, a selling concession, and an underwriting discount—each allocated based on the role and contribution of each bank in the syndicate. Lead banks (bookrunners) typically earn the largest share.
Underwriting remains a major revenue generator for universal investment banks like Goldman Sachs, JPMorgan, Citi, and Morgan Stanley. It is especially cyclical—booming during strong equity markets or low interest rate environments and slowing during volatile or recessionary periods. Nevertheless, it remains a core service that supports capital formation across the global economy.
