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Red Flags to Look for in an Investment Banker

Red Flags to Look for in an Investment Banker

Prioritizing the well-being of your most important asset is crucial. Working with successful investment bankers during the M&A process helps protect your assets and ensure that you are getting the most out of the deal. However, it’s important to work with someone who is competent and who understands how to do business. The last thing you want is to end up with seller’s remorse after completing an M&A transaction.

In summary, some red flags to look for in an investment banker include:

  • Relying only on retainers,
  • Providing discounts to potential buyers that clients find,
  • Agreeing to every deal,
  • Overpromising, and
  • Communicating poorly.

Relies Only on Retainers 

Retainers are the initial fees that clients pay when they begin working with an investment bank. No matter whether the retainer is paid incrementally, all up front, or at milestones, it is merely an indication to the investment bank that a client is committed to going through with a deal. Despite this being a significant source of remuneration for investment bankers, it should not be monthly retainers or their sole source of operational funds. If this is the case, it is a major red flag. 

Providing Discounts to Potential Buyers that Clients Find  

Often, clients have a good idea of who they would like to purchase their business and may have had prior conversations with some potential buyers. Hence, clients think they should get a discounted fee for those potential buyers they bring to the table. While finding buyers is an important part of what investment bankers do, it is only a small part of what it takes to get a successful transaction done. Offering discounts sets the tone for an unequal compensation plan – altering the motivation of the investment banker to get a deal done with a buyer that results in a higher fee for them. To avoid this and ensure clients get the best price and terms, a reliable investment banker will have a consistent pricing structure across all buyers, regardless of who added the buyer to the list. 

Agrees to Every Deal 

Identifying strengths and weaknesses is an integral part of being a successful businessperson. When deciding which deals to take on, good investment bankers should only take on those that they know they can be successful with, where they can add value, and have the bandwidth to be personally committed to. If a banker cannot harness their skills, there’s a good chance that they may have difficulty in other areas of decision-making as well. Even though taking every deal means more exposure and potentially more profit, strategizing and niching down indicates a successful investment banker.


As the saying goes, if it sounds too good to be true, it probably is. Investment bankers need to be realistic about what they communicate to clients. While a good banker should always seek to get the highest valuation and best terms on a favorable timeline for their clients, positioning unrealistic expectations only sets the stage for disappointment and loss of trust. Quality, professional investment bankers will always give it to you straight, and if you sense they aren’t, that investment bank likely is not a right fit for you.

Poor Communication with Clients 

Emotions and objectivity work inversely. When emotions go up, objectivity and rational decision making goes down. Hence, communication is key when working with clients during the M&A process. Because it is easy for clients to become biased toward one plan, an investment banker will sometimes have to step in and be the voice of reason. Compared to someone who is hesitant, someone who isn’t afraid to have difficult conversations with their clients is the type of banker you want to work with. A good investment banker knows how to educate and empower clients to keep an open mind. 

Find a Reliable and Successful Investment Banker  

When you decide to sell your business, you need to find a reliable and successful investment banker to protect the business you have worked so hard to create. Whether you are using M&A as a growth strategy for future endeavors or looking to monetize your sweat equity, having a professional that you can rely on is crucial. Knowing the red flags of a bad investment banker can protect you from the stress of going through a trial-and-error period of finding the right banker and save you money in the long run.   

Now that you know the red flags to look for in an investment banker, are you ready to start your search? As you look for the right professional for you, it’s important to learn all you can about what sets them apart from other firms before making a final selection. 

Persient is a middle market investment bank in San Diego that focuses on helping you sell your profitable business. Your success is our priority. As business owners ourselves, we understand the priorities you must balance and the challenges you face. Contact us today to learn more about how our M&A advisors can help you. 

Investment banking services and securities offered through Independent Investment Bankers Corp., a registered broker-dealer, Member FINRA / SIPC. Persient LLC and Independent Investment Bankers Corp. are not affiliated entities. FINRA Broker Check.

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