Investment Banking vs. Equity Research: What is the Difference?
Considering a career in investment banking or equity research? In the following insider’s guide, we’ll compare the differences in compensation, work flow, and lifestyle between the two careers.
The role of an equity research analyst is mainly analyzing publicly-traded equities to publish reports containing company and industry-specific insights to support a formal recommendation.
On the other hand, a career in investment banking is based around providing advisory services to clients on mergers and acquisitions (M&A), and initial public offerings (IPOs).
Table of Contents
- What Does an Equity Research Analyst Do?
- Equity Research Report Example (PDF)
- How to Become an Equity Research Analyst
- What is the Salary in Equity Research?
- How is the Lifestyle in Equity Research?
- How is the Quality of Work in Equity Research?
- What are the Exit Opportunities from Equity Research?
- Scorecard: Investment Banking vs. Equity Research
What Does an Equity Research Analyst Do?
Equity research analysts closely analyze small groups of stocks in order to provide insightful investment ideas and recommendations to the firm’s salesforce and traders, directly to institutional investors and (increasingly) to the general investing public.
Over the course a year, research analysts communicate formally via research reports that place “Buy,” “Sell,” or “Hold” ratings on the companies they cover.
The timing of the publication of reports tend to be concentrated around earnings season (i.e. quarterly reports), as well as on an ad hoc basis.
Since equity research analysts generally focus on a small group of stocks (5-15) within particular industries or geographic regions, they become experts in the specific companies and industry or “coverage universe” that they analyze.
Analysts need to know everything about their coverage universe in order to make investment recommendations. As such, analysts constantly communicate with the management teams of their companies under coverage and maintain comprehensive financial models about these companies.
They quickly digest and respond to new information that hits the tape.
New developments and ideas are communicated to the investment bank’s sales force, traders, directly to institutional clients, and directly to the general investment public over the phone, and directly to the trading floor via an intercom system or over the phone.
Equity Research Report Example (PDF)
Curious to see what sort of analysis is performed by an equity research analyst?
Fill out the form below to download an equity research report published by JP Morgan covering Hulu.
How to Become an Equity Research Analyst
If you enjoy writing, financial analysis and getting home at a reasonable hour, equity research might be for you.
If you enjoy writing, getting involved with clients and management teams, building financial models and conducting financial analysis all while getting home at a reasonable hour (9pm vs. 2am), equity research might be for you.
Research associates (that would be your title coming in as an undergrad) go through similar training to that of sales and trading analysts.
After 2-3 months of corporate finance, accounting and capital markets training, research associates are assigned to a group led by a senior analyst.
The group is made up of zero to three other junior associates. The group starts off covering a group of stocks (usually 5-15) within a specific industry or region.
Hi there, I had an extremely basic question – isn’t equity research a part of investment banking? As such, when we compare ‘IB’ to ER here, are we just comparing a part of the whole to the whole? What constitutes IB (as in what kind of jobs are we comparing… Read more »
Investment bankers are the professionals working with companies to execute corporate transactions (equity / debt raises, mergers and restructurings).
Equity research analysts write reports and value companies on a periodic basis – they cover specific sectors.
Hi
I am in my 3rd sem of PGDM and want to become an IB but before getting into IB want to do CFA .
Should I wait till the the completion of CFA or should start with any firm.
I would get started on applying to jobs – experience is immensely valuable…
That’s amazing. I am just gaining my education to become an IB. Do you have any pointers?
Duwayne:
Network like crazy, especially if you come from a non-target school.
Best,
Jeff
Hi I was just reading the above article and right now I have hard time deciding which one to go for I am from a finance background with CFA level 2 candidate, a 2 year degree at Bombay stock exchange covering global financial markets, b.com grad and currently working for… Read more »
M&A/banking is more lucrative than equity research, and it’s really more a question of what you find more interesting; doing deals or researching on company performance, industries, and being a liaison for capital markets activity on the sell side. There are benefits/costs to both; as an M&A banker you will… Read more »
Hi Ronak – I believe the article stated that (IB) is the more glamorous role where analysts are directly responsible for financial modeling working with clients, valuation, etc. Equity research you do not work as hard and you do not directly generate revenue. Either work harder as an IB or… Read more »
Duwayne: This is a simplification of the equity research role. Yes, in general you work less hours, but those can still be quite substantial depending on the firm and the newsflow (for instance, quarterly earnings). Equity research also does plenty of modeling and valuation work but does not have the… Read more »
I am an MBA student and confused between selection of Equity Research And IB profile. So I had few questions, Is the working hours in IB will be same throughout the career, or it will come down with the experience as at some point of time excessive working hour will… Read more »
Abhijeet – Banking hours decrease over time (>5 years), but they will continue to be intense from your analyst to associate career. IT companies are looking with primarily investment banking or consulting candidates. If you do tech investment banking you should be in good shape to make the transition, but… Read more »
Haseeb thank you so much for the detailed reply. I have so many questions peeping into my mind, but i will try to structure them and ask you. But one thing I am unable to break, as you mentioned network is very important, how do I start and progress ?… Read more »
Abhijeet – make sure you reach out to friends in Finance who you can get connected to – friends know people 🙂
Haseeb – How is the financial Analyst profile in the IT companies ?
I am not able to understand what could be the role of Financial Analyst in IT company and is it a good profile in the long run.
Abhijeet,
Typically analysts have done some sort of accounting/finance (banking/advisory/audit) or consulting prior to joining as a financial analyst / associate at an IT firm. Equity research is also a great skill set for this.