How will sell-side equity research deliver value in the future?

I'm a college sophomore considering going into sell-side equity research and the future looks bleaker than before. Language models like ChatGPT can rehash earnings results with minimal edits required and MiFiid, buyside hiring of in-house analysts, and other headwinds continue to put a damper on sell-side research. How will sell-side ER survive in the future? I guess you can't automate away investor access to C-suites or having someone tell you what consensus is thinking but is that all you can do? I know there are some shops like Wolfe who provide investors with super specialized industrial knowledge but there aren't too many seats for that.

Comments (20)

dickthesellsider, what's your opinion? Comment below:

The more relation-type value add is hard to be replaced by a robot: access to C-suites (valuable to investors), access to investors (valuable to C-suites), what other investors are thinking (valuable to investors), etc. 

  • Prospect in ER

That's true, but at what point does sell-side ER become a glorified version of investor relations?

  • Research Associate in ER

Newflash. Any good analyst doesn't even like or want to do earnings quick takes. We'd welcome a way to automate or minimise them and buyside definitely isn't paying us for that; they never have. 

Long term thinking, devils advocate or anti-consensual ideas, corp access, information on where the markets head is at, primer knowledge.

ERAnalyst58392020, what's your opinion? Comment below:

I disagree, every industry has 1-2 long standing analysts who do a great job and pick up on trends before peers.

The buy-side clients, at least on the HF side, know which analysts make a point to conform to consensus.

Most Helpful
Dr. Rahma Dikhinmahas, what's your opinion? Comment below:

I would analogize to sports.  The sell side is like ESPN.  

10-20 years ago, ESPN was really the only place to get sports analysis, as differentiated from mere coverage.  Even a full-time professional sports gambler would rely heavily on ESPN.  It got to this status by building an analysis monopoly on the back of a broadcast oligopoly it shared with the major networks. 

Over time, the broadcast oligopoly got killed by the internet.  If you were a highly capable sports analyst in 2000, starting your own blog or YouTube show wasn't economically viable.  But today it certainly is, and ESPN's dominance has suffered because of that.

However, if ESPN is smart, it can maintain a leading position (albeit not a dominant one) by piggybacking off the head start it got.  It maintains two legacy advantages - access and customer acquisition.  It can leverage those advantages to be a place where a talented analyst would rather go, vs. trying to make it on his own.

Importantly, that's not a great outcome for the company but it's a very good outcome for the talent.  The company has to give most of the economics to the talent in order to maintain this slightly profitable edge in the marketplace.  But the company at least maintains something, and the talent does great.

I think sell-side research can migrate in a similar way.  Like ESPN, it once had an oligopoly on distribution.  Today it doesn't.  But a talented analyst can probably grow his audience a lot faster by joining a bank, if the bank will do the smart thing and lean into the marketplace by pushing an edge of better research.  As opposed to the historical model of offering research as a box-check product handed out to trading clients.

acardboardmonkey, what's your opinion? Comment below:

You raise a really interesting point. I know there are more independent investors selling their picks / info on Fintech platforms, but I haven't seen the same for equity research coverage. You could theoretically go out on your own and do it after some time in the space - path to monetization could get pretty creative in ways aside from subscription fees

dickthesellsider, what's your opinion? Comment below:

The issue is the banks own the client relationships from selling other services. When analysts join a bank, the channel relationship is established for them and that's why the analyst don't get to keep 100% of the economics. 

They can go out their own, but they have to build their brand while competing with analysts at banks with a giant equity sales force spamming clients all day. Which is why usually only the superstar analysts go on their own using their namesake, and that's only after they have been built the brand at banks / boutiques and taking the relationships with them. Think Moffett, Nathanson, Telsey, Zelman, Nephron, Melius, Wolfe. 

Same reason why smaller SaaS companies sell themselves to Salesforce, SAP, or Microsoft because the megacaps know every enterprise customer, versus "crossing the chasm" themselves going upmarket from SMB to Enterprise sales motion. 

NoEquityResearch, what's your opinion? Comment below:

ChatGPT adds nothing to earnings releases.

Any analyst worth his salt has a pre-made template for generic earnings releases where you plug in numbers and add a sentence or two for color. The companies that you care about get a more specialized approach and specific analysis in the write up.

andrewlim1, what's your opinion? Comment below:

Equity research is a terrible career path. It used to be prestigious because having deep knowledge about the equity market and financial modelling was highly exclusive. Nowadays any monkey can do Excel modelling and trade stocks on their phone. There is no more exclusivity except the ability to talk to clients and obtain color from management

GenericUsername119, what's your opinion? Comment below:

There is a small handful of analysts in my sector that I think do good work and that I will talk to in order to learn things or stress test a thesis. I would think there will always be a place for these top quality analysts. The vast majority of however are disposable and I view as mouthpieces. I will only talk to them if I have something to say that I want repeated to other investors, e.g. a fact I think is under the radar, a disingenuous or non-consensus bear or bull argument, etc…

kppw1517, what's your opinion? Comment below:

Impedit unde blanditiis fugiat non rerum qui eligendi animi. Tempore vero voluptatem aliquam est pariatur quam. Atque ex inventore harum quos aperiam.

Start Discussion

Career Advancement Opportunities

March 2023 Investment Banking

  • Lazard Freres (+ +) 99.5%
  • Lincoln International (= =) 99.1%
  • Jefferies & Company (▽02) 98.6%
  • Financial Technology Partners (▽01) 98.2%
  • William Blair (▲10) 97.7%

Overall Employee Satisfaction

March 2023 Investment Banking

  • William Blair (▲04) 99.5%
  • Lincoln International (▲11) 99.1%
  • Canaccord Genuity (▲17) 98.6%
  • Stephens Inc (▲10) 98.1%
  • Financial Technology Partners (▲04) 97.7%

Professional Growth Opportunities

March 2023 Investment Banking

  • Financial Technology Partners (▲05) 99.5%
  • Lincoln International (▲01) 99.1%
  • Lazard Freres (▲14) 98.6%
  • Jefferies & Company (▽03) 98.1%
  • William Blair (▲02) 97.7%

Total Avg Compensation

March 2023 Investment Banking

  • Director/MD (6) $592
  • Vice President (27) $425
  • Associates (141) $260
  • 3rd+ Year Analyst (9) $194
  • 2nd Year Analyst (86) $170
  • 1st Year Analyst (264) $171
  • Intern/Summer Associate (45) $165
  • Intern/Summer Analyst (194) $92