A warning to those aiming for Sell Side Equity Research
After spending 2 years in SS ER () I feel like I have a responsibility to let others know the huge pitfalls of starting your career in research. All I'm about to say has been touched on many times on this forum but I thought I'd compile a list to save college kids and folks looking to lateral some time. I get a bunch of networking/chat requests from those two groups and I always try to be very honest about my experience here vs. other associates who embellish a lot of aspects of the role.
Before everyone posts hate comments, I know experiences vary widely. Your time in research will be extremely different to other associates and will ultimately depend on 1 person: your Analyst. However even a great analyst (I am extremely lucky to work for an analyst who doesn't care about facetime or overworking me, gives me full modelling responsibilities and actually considers my opinions on target/recos etc which is very rare) won't make up for all the other issues I lay out below.
1- Your exit opportunities are extremely narrow:
Compared to IB and strategy consulting, you will have access to about 5% of their exit opps. Realistically, ER associates can land in either investor relations, MM or LO buy-side if they're top of the crop and work for a ranked Analyst (a lot of average associates will end up at lesser known LO/retail investment funds with a huge pay cut) or something like corporate banking or arole at the same bank. Your peers in IB will have the same access to these jobs, plus everything else (PE, corp dev, multi-strat HFs, you name it). Some ER associates will get fed up and move to IB in the same bank but most of them will lose a year or two doing so. Also most ER associates are 26-33, not an age where you'd start thinking about getting killed in IB.
I went into ER because I wanted to go into LO and was very close-minded when it came to IB, I always saw it as gauche/unrefined or not as intellectual because of all the b.s ER/value investing propaganda. I have since changed my mind about what I want my long term career path to be but since I chose ER as a first step, I don't have that luxury anymore.
Now there will be a select few associates that do end up in atypical roles for their backgrounds but they are far from being a large %. It isn't impossible, just much, much, much harder. The issue is that outside of public equities, very few people know of, what you do as an associate and how valuable your basic skillset can be. Most of the time you have to educate them (yes, I model - probably more than IB - yes, I build/run M&A models my coverage universe is super acquisitive etc. etc.). Everyone hiring knows about IB, plus you get no transaction exposure in ER.
2- Your compensation will severely lag those of your peers in most other capital markets roles:
Not much to elaborate on here. Base will often be similar or even sometimes nominally higher. Might be different in other shops but most don't get a base bump each year. You only get a base bump when you get promoted to Senior Associate an so on. Your bonus, even top bucket, will pale in comparison to what your IB peers make and the rift gets wider as you progress. This is true even if you work more/less the same hours if you're in a hot sector. You're worth less to your bank and thus get paid much less.
3- There is almost no career development opportunities in research:
As opposed to IB, consulting, PE etc where the career progression is very clear (A1, A2, A3, As 1... VP... MD...), You only get promoted every few years in ER and the promotions don't mean much, you still do the exact same work. The issue here is that your skill set doesn't grow, meaning your exit opps after year 2 are the same as the ones after year 5. You're basically the same candidate at those two stages. You might get more interactions with clients but that's really it. If your goal is to become an Analyst, you might be waiting for years while they replace those retiring by external hires. An Analyst role opens up only when someone retires or goes to another bank/you don't have the sector experience and seniority to fill their shoes then you can wait another 5-10 years. A couple associates at my bank have been waiting their turn for over 10 years. There is not much they could do now other than keep on waiting. Leaving to the buy side would make them lose years worth of time spent in research since they wouldn't get hired as a PM, usually just as a senior analyst, the same role an associate with 2 years of experience would have.
4- It gets very boring very fast:
If you cover a single sector, you will probably get exposed to the whole spectrum of corporate actions in 1.5-2 years. The companies you cover will have all raised debt, issued shares, acquired/divested, changed management, raised/cut dividend, you name it. After you learn how to deal with each different scenario, the next one will be very similar. You aren't learning anymore after and it gets boring, regardless of your sector (some get obviously much more boring, I would not be able to do my work if i had to be in mining or ag chem). On the other hand the job gets very easy to do. An equity raise would take me a day to go through with modeling and writing. It'll take me 25mn now to be done and move on to the next thing. A lot of associates get comfortable with this and stay in the role because of that. I know that sentiment is shared in IB, only there you don't get pigeonholed after a while.
5- It gets very lonely very fast:
The only person you will interact with is your Analyst. Sometimes a sales guy and sometimes a client if you're lucky but most analysts take care of all the relationships. It's hard to make friends or a network and there is almost no camaraderie in the bullpen since you never get staffed with other associates and get to work with them.
If you go into ER because you want to remain in public equities, you have to be 1000% sure you will not change your mind. I thought it was the case for me but after working on so many acquisitions and high growth tech names in my coverage universe I've started to find VC/PE more interesting. My path there will be so much harder than if I didn't cross off IB initially.
Sorry to all those in ER that I've offended and best of luck