Equity Research vs. Investment Banking
What is Equity Research and what is Investment Banking?
When looking at a career in the capital markets, it’s essential to understand if you’re a better fit for investment banking or equity research. Both offer excellent work experience and attractive compensation. Making the choice comes down to personality more than anything else. This guide will break down the key differences between equity research and investment banking.
Key Learning Points
- Investment bankers work on M& A deals and issue new securities to the market.
- Effective risk management means attempting to control, as much as possible, future outcomes by acting proactively rather than reactively.
- Each role has different responsibilities and working hours.
What do Equity Research Associates/Analysts do?
Equity research involves the analysis of publicly traded companies in order to make an investment recommendation. Equity analysts write detailed research reports that offer company information, analysis, a valuation, target price, and buy, sell, or hold recommendations. Analysts typically cover stocks within a particular sector.
Equity research responsibilities include:
- Financial modeling
- Writing equity research reports (Initiating coverage, quarterly results, news updates, recommendation changes, etc.)
- Conducting industry research
- Meeting with company management
- Communicating investment ideas and marketing to clients
What do Investment Bankers do?
Investment bankers help their clients raise capital and work on underwriting (capital raising, IPOs, etc.), mergers and acquisitions, corporate finance, and general advisory mandates.
An investment banking analyst/associate is responsible for:
- Creating pitch books (presentations in PowerPoint)
- Building financial models in Excel
- Performing ad hoc financial analysis
- Authoring transaction documents (Prospectus, Confidential Information Memorandum, Teaser, Letter of Intent, etc.)
Equity Research and Investment Banking Differences
Equity research analysts prepare the research reports and valuation models that serve as a basis for client decision-making. An equity research analyst studies the behavioral patterns of the financial market and the business environment, as well as individual companies, and authors reports that help their clients make informed investment decisions.
An investment banker acts as an intermediary between investors and companies looking for financing. The job of an investment banking analyst is to conduct thorough research to support banking deals as well as provide transactional support. An investment banker assists companies in raising financing (debt/ equity) through the issue/ sale of securities in the primary market.
|Investment Banking Analyst
|Equity Research Analyst
|Provides financial services to companies seeking to raise capital
|Analyzes public companies in order to make investment recommendations for clients.
|Prepares pitch books and information memorandums
|Creates valuation models and authors equity research reports
|Heavily interacts with clients
|Interacts with clients only in more senior roles
|Financial and mathematical abilities as well as oral and written communication skills
|Analytic mindset, strong research skills, and robust verbal and written communication skills.
|Hours and Expectations
|Can be more than 60 hours per week
|Up to 60 hours per week, with extended hours during earnings
|Publicly available information
- Investment banking offers financial services to companies seeking to raise capital, while equity research professionals analyze publicly traded companies and make investment recommendations.
- An investment banking analyst prepares pitch books as well as information memorandums. An equity research analyst creates valuation models and authors equity research reports.
- An investment banking analyst is heavily involved with clients, while only senior equity research analysts market to clients.
- An investment banking analyst is typically more highly compensated than an equity analyst, although equity research offers attractive compensation.
- Investment bankers and research analysts alike must have strong financial skills as well as communicate well orally and in writing. However, research is more writing-intensive while banking requires sophisticated client-facing abilities.
- Bankers typically work longer hours than equity research analysts, regularly exceeding 60 hours per week and working weekends. In equity research hours are more manageable, averaging around 60 hours per week, although earnings season can entail very late nights.
- In equity research, an analyst bases recommendations on publicly traded information. Investment bankers work with non-public information.
A bachelor’s degree is necessary for analyst positions in either track. Typical areas of study include economics, accounting, finance, mathematics, physics, and other analytical fields. An MBA is required for positions at the associate level.
Another way to demonstrate a higher level of competence is by obtaining certifications. Our online courses help participants develop a comprehensive understanding of the key skills, whether you’re looking to advance your career or excel in interviews. Master the key skills and receive the same training as new hires at the top 4 investment banks with our online investment banking course. If you are interested in a career in equity research, our online research analyst course covers all the key skills needed as either a sell side analyst in an investment bank or a buy side analyst working in an investment management firm.
The difference between an investment banker and an equity analyst is the Chartered Financial Analyst (CFA) designation or the Master of Business Administration (MBA) degree. The CFA, widely regarded as the gold standard for security analysis, has become almost mandatory for anyone wishing to pursue a career in equity research. On the other hand, the MBA curriculum is more business-oriented and less investment-oriented than the CFA, making it more suitable for investment banking. Investment banking analysts often interrupt their employment for bank-sponsored MBA programs and return to their institutions as associates.
Investment bankers should have strong knowledge of financial markets, investments, and corporate structure. Many pursue their Series 7 or Series 63 FINRA licenses to demonstrate this knowledge.
Investment Bank Associate Skills
In addition to educational requirements, candidates should possess the following skills:
- Analytical skills: strong analytical, numerical, and Excel skills are essential.
- Team player: individuals must possess excellent team leadership and teamwork skills.
- Interpersonal skills: candidates must communicate well orally and in writing
- Time and project management: investment bankers must be able to manage time and projects efficiently.
- Work ethic: this role requires commitment, dedication, and high energy.
- Confidence: self-confidence and an ability to make difficult decisions are critical.
Equity Research Analyst Skills
There are specific skills that can make an equity analyst more successful, which include:
- Analytical skills: the ability to think analytically allows analysts to provide their clients with insights they can use to make investment decisions.
- Communication skills: communicating clearly with clients and colleagues is vital to ensure transparency and accuracy.
- Financial knowledge: market knowledge plays an essential role in making investment recommendations.
- Attention to detail: this is essential for analysts who must keep track of even the most minor changes in a company’s business, market trends, and forecasts
Lifestyle & Compensation
Both equity research analysts and investment bankers work long hours. However, investment bankers have longer working days, with 15+ hours days being the norm. Equity analysts work closer to 12 hours per day. Both start early and work well into the evening. Research is less volatile and erratic than investment banking, where deal flow can be difficult to predict.
As a new hire in investment banking, you can expect to earn over $100,000 straight out of college. However, due to the long hours, the investment banker’s hourly salary can begin to look low. On the other hand, equity research analysts start at $90,000 on average coming out of college. There is a significant difference in the bonus structure. While junior investment banking positions can earn 50-100% of their base as a bonus, it could be closer to 25% in research. Bonuses and salaries are lower because equity research is often viewed as a cost center rather than a profit center. This may be true, but equity research is critical in helping other divisions, such as sales and trading, make money.
Private Equity – is best if you enjoy working on deals, but you want to think about them more critically and work with companies over the long term. Besides the fact that it’s so difficult to get into private equity, a significant drawback is that advancement can be challenging. Partners at PE firms are very reluctant to leave what are extremely lucrative and attractive positions.
Hedge Funds & Asset Management involve following and investing in publicly traded stocks or other securities rather than buying and selling entire companies. The main downside to these roles is that you develop a very specialized skill set, making it difficult to move to different funds or industries.
Venture Capital – is similar to private equity but you invest in early-stage companies, there’s less financial analysis, and you spend most of your time analyzing the market, finding exciting companies, and networking. You also earn less in private equity, but the hours and lifestyle are better.
Corporate Finance – is quite different from these other exit opportunities because it’s arguably not a front-office role. This is primarily internal and related to a company’s budgeting, internal processes, and financing needs. You’ll earn less than in the PE/HF/AM exit opportunities, but you’ll also have better hours and a more relaxed lifestyle. Corporate finance roles are best if you want a better work-life balance, you don’t care about slower progression up the ladder, and you want to use your skills in support of a company that provides goods or services.
Corporate Development – this is all about working on acquisitions and joint ventures at a company – deals – rather than the budgeting and financing processes at that company.
Equity Research Analyst
The good news is that those who have recently entered equity research always have the opportunity to gain experience and progress to higher professional levels. What about potential exit opportunities? Numerous options may be available if you wish to change financial careers. For instance, the technical nature of this position may provide the opportunity to migrate into investment banking. Some other interesting alternatives include:
- Portfolio management
- Hedge funds
- Corporate finance/development
- Private equity
- Wealth management
The exact career path will ultimately depend upon your experience, interest, and career goals. Alternatively, it is possible to remain in equity research and advance to managing director or a research management role.