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Comments (52)

Jun 9, 2020 - 9:23pm

There will always be a need for solid, differentiated research in my view, even if it's just for the buyside to gauge expectations or ramp up on a name. Corporate access and capital markets activities are also important internally.

That said, I think there'll be more consolidation because a lot of sell-side analysts don't provide unique viewpoints/analysis, and buyside firms have also started their own analyst development programs, which somewhat reduces the need to interact with the sell side as much as before.

  • Prospect in IB-M&A
Jun 10, 2020 - 1:36pm

These buyside development programs you speak of -- is this for students straight out of UG?
And is there any sort of "formal" recruiting season for this, or do you think each firm just randomly hires analysts off-cycle?

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Jun 11, 2020 - 8:45pm

Good point, but I think research analysts have a better understanding of what an equity analyst would be interested in, like what valuation metrics the stocks trade on or general investor sentiment. Also, when you follow the same companies for years (and some research analysts stay with the same coverage even for decades), you pick up on intangible things like management's trustworthiness and reputation, which investors tend to put a lot of emphasis on. I don't think you can say the same for consultants necessarily - they are still important in my view, but more so to understand the "bigger picture", like industry structure and strategic positioning within the industry.

Aug 12, 2020 - 1:47pm

I still do, but you have to pick your analyst carefully. Incentives have changed for the worse because of II voting change to commission-weighted (versus prev AUM-weighted, which skews toward trading-oriented clients going fotward), so the bifurcation is stronger than ever between truly insightful analysts and "I called 'my guy' and this quarter is going to be good" previewing quarter kind of analysts. The latter is garbage and is pretty much in run-off IMO when they don't get votes and no one reads their product.

You obviously don't want to work for the latter if you need to have a brain for your exit (ie. going to buy-side, going to VC / corp dev, etc.)

SS ER is still a good mid-way job to the buy-side because you at least get exposed to think about businesses (of course sell side does not think about things in the right way because of short termism and extreme precision-thinking) and develop a sense what drives stock prices.

Most of fresh college grads will still choose IB over ER because connections are stronger to the buy-side, but I don't think you develop as many skills about studying businesses in IB.

Instagram: @dickthesellsider | Substack:

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  • Intern in IB-M&A
Aug 12, 2020 - 3:18pm

Thanks for your insights, it's much appreciated! Seems like much of your support for SS ER is only on the basis of it serving as a stepping stone to BS ER and not in the job itself. So what do you say to someone who's not interested in transitioning to BS and would probably stay in SS if they were to go down the ER route, would you say it's a bad career choice?

My concerns for SS ER are more about choosing it vs other career paths, so looking at the overall view on the future of ER in terms of the quality of work deteriorating and the secular headwinds to the industry commonly mentioned that'll put pressure on comp and job security in coming years.

Aug 14, 2020 - 9:42pm

I spent a few years in sell-side research before transitioning to buy-side. In agreement with others above, a key problem in SS ER is the wide variation in potential experiences.

The problem is: 1) if you're coming in with an undergrad 'class,' you may have limited influence as to where you get placed, and 2) even if you do have say in the matter, I personally did not have the knowledge or resources in university to really know who was a 'good' analyst to go to. If you are off-cycle, you will be able to better 'pick and choose' what specific role you apply to obviously.

As far as long term career trajectory goes, on the sell-side, you will be working harder for less money (than in prior years). While not all banks have this issue, I felt that the bank I was at was approaching that point where the pay did not make up for the long hours/personal sacrifice. As others have said, senior analyst roles are not easy to obtain and luck is certainly involved.

All this said, there is no doubt that the role still builds a broad skill set in modeling, writing, communication, and general business analysis, as well as still offers strong exit opps if you apply yourself. Also, just because something requires luck does not mean it's impossible, you just need to position yourself to capitalize on opportunities as they come.

  • Intern in IB-M&A
Aug 17, 2020 - 2:33pm

All this said, there is no doubt that the role still builds a broad skill set in modeling, writing, communication, and general business analysis, as well as still offers strong exit opps if you apply yourself. Also, just because something requires luck does not mean it's impossible, you just need to position yourself to capitalize on opportunities as they come.

Really appreciate the fact that you've taken the time out to provide a nuanced view on the industry in a somewhat dead subforum, the perspective gained for individuals such as I who are considering the industry is priceless and hopefully we can get more people to weigh in.

However to be blunt, none of us doubt the useful skill set gained from the industry, and the fact that it's probably be better than most finance jobs out there. I think the real question we have is, for someone who has the capability to enter other competitive career paths (for example IB/consulting), would ER ever be a first-choice recommendation for someone starting out in the industry in 2020, would you recommend your younger sibling to do so or to pursue those other fields?

Aug 17, 2020 - 8:46pm

Totally fair question. The problem is that it's hard to generalize this, and the decision would have to be based on the individual situation. Most people will say (correctly) that IB will give the widest range of exit ops, while ER will focus you more on public markets investing. If you know you want to be a public equity investor and have no interest in deals/M&A, I think ER makes more sense because you can obtain a similar exit doing work you enjoy (or is at least relevant to your interests) instead of suffering through an IB stint. Additionally, IB hours would make it very difficult to simultaneously do CFA, if you're interested in long-only (not necessary but helps recruiting).

If you are really undecided on what to do within FO finance, IB is likely the right choice, unless you are deciding between a no-name IB shop and a top BB ER job. I was never in IB so I don't have a perfect view of this, but it seems that the IB route is a bit more risk-averse in that it gives you more options and is a more well-known path, whereas ER can be pretty niche outside of the public equity sphere.

Hope that helps...would be happy to answer anything more specific, but it would be hard without knowing interests/goals/offers at hand...

May 3, 2021 - 2:01pm

this is how I feel. I'm currently logging close to IBD hours (70-80) every week with the knowledge that my year-end bonus might only be $15-25K. Not really what I expected when getting into the industry

Aug 14, 2020 - 11:49pm

I thought I read somewhere that they're undoing the rule about separating the research fees and brokerage fees as a result of COVID-19. Someone correct me if I'm wrong. This is definitely a good +

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Aug 20, 2020 - 10:52am

Good thoughts from many of the responses in here. I'd like to echo a couple items. For reference, I was a ER associate for 3.5 years, CFA lvl 3 Candidate, and recently laid off due to our bank scaling back cash equities exposure. 

Positives for ER: Learn essential finance skills (how to model financials in excel, interpret covered company's management skills and how they plan to attack future economic challenges, how to asses competitive advantages of a company (geographically, product competitors, etc) and you will drastically improve your writing and interpersonal skills (writing multiple research reports each day while talking with investors/internal sales). IMO, the best skill you will learn in ER is how to pick long term compounders for your personal portfolio (you won't always get them right but you will be closer than 95% of "investors"). ER gives you the ability to dig in into the fundamentals and see if a company will outlast its competitors over time, can management continuously innovate and grow sales, and how does management positions themselves for long term success. For reference in a balanced portfolio, I'd only invest in 3 of our 25ish company's under coverage for my PA (~15 companies under coverage were zombie companies and the other ~7 were average)  

Cons for ER: It's a dying industry. Meaning commissions to the SS continue to decline every year and will likely continue for the foreseeable future. Only the hot sectors (IMO it's tech, healthcare, consumer, etc) will continue to grow each year. Dying sectors (energy, industrials, utilities, etc) will likely see major consolidation in the coming years. In addition, more and more buy-side shops are doing their own research and trading, which has a negative impact on the SS. Buy side jobs will be around for a long time but I'd question the amount of these jobs that are stable for the long term. It's no doubt that ER has been disrupted and is going through a consolidation phase right now. 

TLDR: ER is one of the best areas to learn about holistic finance early in your career. The outlook for ER is bad but I would use your experience as a stepping stone. Buy side jobs are dwindling as well and the LT outlook for these roles are hazy. If you want to make a career out of ER (best of luck first of all, it's going to be an uphill battle), you have to be in a high sales growth and banking friendly sectors. 

Aug 25, 2020 - 6:06pm

I'd love to get back into fundamental research. It sounds weird to say but I loved doing it everyday.... including the long days of multiple earnings calls, useless client projects, and late night edits to our quarterly updates. 

I can honestly say I enjoyed getting lost in research projects, had fun anticipating company earnings, and debating investment thesis among investors/inside sales. 

But, the job market is awful right now. I'm starting to think my fundamental research career could be over and it might be time to switch towards IR/Strategy/FPA.  

Aug 20, 2020 - 12:13pm

Everyone covered it above really well. Definitely want to reiterate that on the median revenues are way down, recently stabilized a bit (still at lower levels) due to volatility.

I do want to mention and this may go without saying, but: you need to be at a place that has solid IB, ECM, and corporate access. The corporate access would basically be an automatic should the other 2 be in place.

I think it's just really hit or miss with where you work and the group, probably more so than banking in my opinion. You don't want to go somewhere that doesn't really care about their ER and will continue laying off. Banks with solid franchises beyond their ER are way better positioned. 

Aug 26, 2020 - 4:44pm

I may have phrased that poorly since I'm sure that all banks 'care' about their equity research. I guess it is just the tolerance they have for the division's financial performance or in some cases lack thereof. I think Nomura recently got rid of the division and made some kind of deal with Wolfe Research. To answer your question I think at the end of the day it is going to be who has the highest quality and most deal flow on their IB side because then analysts have names to pick up that investors are interested in. 

I know that the answer kind of sucked, ER as a business is just very nuanced and it's hard for me to say what is what. Without a good deal flow, ER is shot. 

Aug 28, 2020 - 5:39pm

What Lester Diamond said - particularly, I will add, if the bank has no flow in software, internet, and biotech, fuch'ed. 

Hey, you cover Snowflake? Hey you cover Lemonade? No, not trading with you, thanks.

Disclaimer: both are real companies. 

Instagram: @dickthesellsider | Substack:

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Sep 28, 2020 - 11:18am

I had a 3 year career in SS research before changing careers completely to software engineering. I would advise folks to keep their options open. I would not specifically target only sell-side research as it is a dying industry where each year longer hours will be spent for smaller pay. The skillset and the intangibles that I've learned in research has been a great foundation for my new career thus far, but it is not worth it in retrospect. In 5-10 years I would expect that the industry in the US equity markets will continue to consolidate into JPM, MS, and GS. There will continue to be more news of furloughs and layoffs of other banks looking to shrink their research businesses, with mid size shops eliminating their research division completely with a couple of exceptions of niche boutiques (KBW, etc.)

Sep 28, 2020 - 10:00pm

Weak take. You can find posts saying similar things about how research is going to be dead in 5 years about 10 years ago. Several firms outside of JPM, MS and GS still growing headcount and coverage. I agree that bigger pieces of the pie will consolidate, but it isn't dying.

Sep 28, 2020 - 11:01pm

"Dead" is too harsh, but those posts years ago were right about shrinking salaries and lower fees. As well as a general shrinking of the industry as fewer analysts cover more names.

Maybe the future looks like a mix of data and ER, which is what M Science and Yipitdata are doing but who knows, even those positions are trending to be brought in-house. 

Sep 28, 2020 - 11:55pm

"Longer hour for smaller pay" is a precise consequence of consolidation

Instagram: @dickthesellsider | Substack:

Sep 29, 2020 - 10:23am

Consolidation is a result of lower amount of commissions going around for the entire industry. The platforms without scale will go out of the business, the ones that remain (think the GS/MS/JP/BAML) are scrapping for that shrinking commission pool.

The junior associates come into the industry today work for an analyst who has to cover more stocks (or even more sectors) for no incremental pay, so hour is longer and the bonus will keep on sucking because the overall industry is shrinking.

So, longer hours (because of more stocks to cover) and smaller pay (because industry is shrinking). 

Instagram: @dickthesellsider | Substack:

  • 1
Apr 30, 2021 - 8:14am

The Pandemic took all of us by surprise. Most investment managers had to rethink their years' old research processes first to sustain operations, and later to bring more efficiency and cost effectiveness. I would say it was a revelation for several firms which have not used outsourcing that research work can be done by a team sitting in different parts of the country and even the world. These firms are now thinking and inquiring about outsourcing research options.

Even before the pandemic, the research teams have been going global with increasing focus on Asian (Chinese particularly) companies listed in the developed world. And with EMs likely to do well, fund managers have focused on ramping up coverage and having market-timed team support, auguring well for the research outsourcing industry primarily set up in Asia and LatAm.

Traditionally, investment managers have been outsourcing regular and basic tasks, such as database updates, model updates, data collection etc., but the landscape has rapidly changed with players like Acuity Knowledge Partners offering much more than cost effectiveness. Listed below are some of the benefits outsourcing can provide to investment managers:

  • High-end, judgmental research: A Hedge Fund has successfully set up its entire research team by on-boarding Acuity's senior associates, with only PMs and Head of Research sitting on-shore in Hedge Fund's team
  • Flexibility: Acuity's 900+ research staff allows it to provide flexibility to investment managers by quickly on-boarding and off-boarding research associates as per requirements
  • Scalability: Acuity support investment managers to quickly ramp-up coverage and provide support even on per model/report basis 
  • Industry expertise: Over the years, Acuity has developed industry expertise across several sectors. This helped a large Asset Manager to develop sensitivity models for 50+ industries
  • On-the-ground research support: Acuity has been providing on-the-ground research support, such as channel checks, management meetings, and getting inputs from government agencies, in the majorly invested emerging markets of China, India, Sri Lanka and Latin America through its offices in these regions. 
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