Many new graduates opting for investment banking as the career destination often find themselves at crossroads conjecturing – what is better – investment banker career or equity researcher?
The investment banking industry for decades has been attracting top-notch talent from finance and business schools. Among all finance jobs, most are drawn to investment banker career with the allure of high monthly salaries, fine suits, and fat bonuses. However, new finance and BSchool graduates are more open to experiencing different career choices. Some are even jumping careers midway – from asset management to equity research or investment banking, exploring a variety of domains in their professional lives.
If you are thinking of embarking on a career as an investment banker, also consider its less glamorous cousin, equity research.
What’s the difference? – Investment Bankers vs Equity Researchers
Both – investment banking and equity research – are sell-side functions, such that they are involved in raising capital for clients by selling stocks, securities, and the likes.
Investment banking professionals help clients by providing financial advisory services backed by number crunching, analytics, financial modeling; which may also result in mergers or acquisitions.
Investment Bankers are financial brokers, experts at determining the worth of a business, who help clients raise funds through IPO, identifying merger targets, or by other activities.
Equity researchers work on the sell-side of investment banking – but in research, departments producing fundamental research and analysis on industries, companies and even economies.
Equity research is usually the largest in the research department. They may also come out with buy, sell and hold recommendations for a handful of stocks on behalf of the investment bank.
What do they do? – Work Responsibilities
Investment Bankers
- Helping clients in bond financing to raise funds for a project.
- Raise funds via equity financing, i.e. by selling some ownership (of clients) in their business through Initial Public Offering (IPO).
- Dealing with clients – initiating deals, conducting research, financial modeling, and finally closing the deal.
- Assist clients with mergers and acquisition activity.
- Provide advisory to clients – who could be corporations or governments.
- Sometimes investment bankers are also referred to as brokers – especially when acting as the middlemen between stock sellers and buyers.
Investment Banking department is usually divided into industry groups, say Energy, Technology, and Healthcare – the experts of each represent their industries.
Equity Researchers
Equity Researchers have two main clients – internal and external. Internal are those in the investment bank, and external are the institutional investors like hedge funds, pension funds, mutual funds, etc.
- They are engaged in researching and analyzing stocks to help portfolio managers make informed decisions.
- They employ tools to understand and predict the behavior of security – including quantitatively analyzing a stock in relation to market activity.
- Create algorithms to identify profitable stocks by identifying patterns with changes in current market prices.
- They may also take out Buy, Sell or Hold ratings on companies and stocks; usually focusing on a small group of stocks.
- They produce detailed reports with detailed analysis on earning forecasts about companies they cover (tracking cash flow, perform industry analysis, analyzing financial statements).
Skills Required – The difference!
Equity researchers require similar skillsets as investment banking professionals (investment bankers). Both require knowledge and skills in:
- Finance
- Accounting
- Valuation
- Financial Modeling
Although, as both progress in their careers, equity researchers are expected to gain a more in-depth knowledge of the industry and companies; while investment bankers are required to ace client interaction and deal closing skills.
In the later part of their careers, the skillsets required from them diverge. Investment bankers need to be more adept at closing deals, handling transactions and managing relationships; while equity researchers need to be effective at verbal as well as written communication and have an ability to make balanced and informed decisions.
Salary – Low paid cousin? Wait, there are other perks!
Both are well paid, but investment bankers earn slightly higher than equity researchers. However, equity researchers enjoy better work-life balance.
- The average salary for an equity research job, as per Glassdoor, is $94,000, but most positions pay lesser – with the low end being $65,000 and high being $158,000.
- The average salary for a first-year analyst at a bulge bracket is around $85,000, while their bonuses range in $43,000. The salary and bonuses jump to $91,000 and $53,000 respectively for third-year analysts.
Getting started – As Investment Banker & Equity Researcher
Mathematics, Finance, Computer Science, Statistics, Economics, and business-related disciplines candidates with a strong disposition for working in investment banks can apply for either of the careers – as an equity research analyst, or a first year analyst investment banker – after first year of their graduation.
Joining internships in your desired profiles often proves a great way to begin career in the investment banking industry.
Bottom Line – What to choose?
Equity research attracts individuals who like to follow the market, evaluate stocks, enjoy research, and have an industry-disposition.
Investment bankers, along with possessing in-depth financial knowledge, are also good at dealing with people, interacting, and comes with a highly competitive streak.
After a few years’ stints in one domain, you can also choose to move in the other.
Both careers are rewarding – financially as well as intellectually. Choose what suits your strengths, interest, and aspirations!
