Equity Research Associate Job Description
Equity Research involves performing financial and ratio analysis to give recommendations
What Is An Equity Research Associate?
Equity Research (ER) Associates are responsible for researching and providing investment recommendations on stocks of companies in various industries. In addition, their research is generally used to generate buy-sell recommendations for the firm’s clients. Associates are the junior-most role within equity research and are responsible for a lot of the tedious and mundane work done at the junior level.
Their main role is helping the analyst. They typically share an analyst’s work and do more tedious assignments, such as in-depth research, writing reports, and financial modeling. The position requires an analytical mindset with a strong understanding of the stock market.
To pursue a career in equity research, you are expected to have exceptional mathematics skills and, ideally, a Master’s degree in business or finance. In addition, it is helpful to have a Chartered Financial Analyst (CFA) certification to set yourself apart in many cases. You will also need to be an excellent communicator with strong written and verbal skills, as most of the work involves writing and presenting your research findings.
Career progression is a matter of skills, luck, and networking, as promotions occur at a much slower pace than investment banking (IB). Further, the career progression is not strictly defined in roles and tenure like other career paths.
The growth of equity research has slowed in recent years in large part due to regulation in Europe known as MiFID II. However, despite this recent legislation, equity research continues to grow, mainly due to new quant-driven analytics that some firms rely on to generate higher returns, which are not easily available otherwise.
This also means that talented and skilled stock pickers and analysts will thrive in this role in the coming few years. ER is expected to continue to adapt and grow in the future despite the regulation that has recently dampened the industry.
What is Equity Research (ER)?
Equity research is the process of analyzing companies and conducting thorough research on industries and businesses to help clients or the firm make good investment decisions.
Depending on the company, an ER team may work on the buy-side or sell-side of investment. Regardless of which side, it involves in-depth research of companies, the creation of various financial models, and equity research reports that assess an investment. It can include meetings with investors to describe the models, their importance, and why and how the team came to certain conclusions.
An equity research team can expect to be on the sell-side of analysis in investment banking, advising clients on what stocks to invest in. However, in both hedge funds and mutual funds, it is more common for equity research teams to work on the buy-side, as most if not all of the research is used by the fund itself in their investment process.
The deliverables of ER are almost always their reports. These reports are produced for investors looking to invest and trade in the markets and generally recommend buying, holding, or selling. Top analysts who have honed their research skills and give the best calls have a significant following, generating higher revenue. Also, the best reports are ones that go against the market belief and turn out to be correct.
For example, Meredith Whitney’s report suggesting that Citibank might soon go bankrupt, as their dividends payout were higher than their profits, propelled her to fame. This was in the 2007 boom when banks were priced very high. Her report, though highly pessimistic, turned out to be right when Citibank went on to lose 97% of its stock value by 2009. She was listed among the “50 Most Powerful Women In NYC” by the New York Post, and CNBC named her as the “Power Player of the Year,” beating the likes of Jamie Dimon and Ben Bernanke.
ER professionals are expected to specialize in a specific sector and generally work in teams that cover a few companies in that sector. Therefore, a lot of traveling and meeting with the management of covered companies are the norm in this profession, as well as having the technical skills (such as financial modeling) and understanding of market economics and how it affects stock prices.
Understanding Equity Research Associate
Equity research associates conduct great amounts of in-depth research on different companies and stocks. They may be involved in a team that helps make ‘buy’ or ‘sell’ recommendations and helps gather information to create investment portfolios. Associates typically do a lot of grunt work, meaning that they are involved in some of the most tedious aspects of equity research, diving into financial reports and minute details.
Unlike in banking, associates are generally the junior-most rank in equity research. Analysts come next and are usually the ones who are responsible for the reports. After this, the hierarchy differs from firm to firm. Many follow the banking progression of Vice President to Managing Director to Partner, and others report directly to portfolio managers or other leadership positions.
ER professionals generally use publicly available data (such as 10-Ks, 10-Qs, regulatory filings) on the company they cover and information from meetings with various investor relations personnel at those companies to produce a detailed report and recommendation for the benefit of the users.
The users of these reports benefit from the exclusive information that these analysts have to supplement their own beliefs. Senior positions within the equity research team help direct an associate and give suggestions; however, associates are largely independent and do most of their work with very little supervision.
Associates are largely responsible for assisting the analyst they report to in whatever function the analyst may need them to perform. This varies between teams, but usually, they focus on preparing research and financial models for analysts. They also do a lot of the writing of equity research reports. As a result, they are judged both by the quality of their research and by how much research they can accomplish.
Analysts are usually more involved in meeting with clients and investors to explain the team’s reasoning, present models, research, and give recommendations. However, it is not uncommon for associates to be involved in these, as some analysts may help associates with research and creating reports.
As a junior position, it is also possible to move up the ladder; however, unlike some other jobs, the timeframe for promotions is less defined and can make it difficult to move up. The best way to move up is for candidates to prove their capabilities and take on a larger share of the analyst’s work, participating in things that may earn them the analyst title.
ER associates also have access to a significant number of exit opportunities. For example, it is not uncommon for associates to lateral into positions at hedge funds, in asset management, or corporate finance.
An equity research associate role can also pay very well. While compensation varies, a common salary can range from $90,000 into the low six figures, but that can increase as one moves onto an analyst or a more senior position.
How to Become an Equity Research Associate?
Being an ER associate requires a wealth of knowledge on various financial topics. This job is the most junior in equity research. The position requires an analytical mindset with strong knowledge about equity markets, broad economics, and the effect of various factors on stock prices. Candidates should have a bachelor’s degree in economics, finance, or related fields, and in many cases, are expected to have a Masters in Business Administration (MBA). They should also have immaculate written and verbal communication skills.
Aside from traditional higher education, it may be in a candidate’s best interest to have several research-related certifications.
One of the most commonly sought-after qualifications is the Chartered Financial Analyst (CFA) certification, which focuses on portfolio management and deep knowledge about financial markets and investment.
While this is by far the most commonly advised accreditation when applying to this role, there is no shortage of professional certifications that can help a candidate stand out from the crowd.
A candidate should possess some amount of prior experience in finance. Hiring a new graduate is very rare but not unheard of. A candidate should be ready to present a few stock recommendations backed by really thorough research and financial models to nail an interview.
It is important that a candidate has knowledge of different financial models and how to create them. In addition, it should possess some knowledge of more complex models like LBO models or merger models.
To move up from this role, a candidate may want to start taking on more and more responsibility from an analyst to show they can do similar work. In addition, they must display good interpersonal skills, as a large difference between associate and analyst is meeting with clients and management.
The Role of an Equity Research Associate
ER Associate is the junior-most rank in the ER profession. Their main role is supporting the analyst they work with to conduct research and provide recommendations on the covered companies. The work in this role usually consists of a combination of writing and modeling. On average, it is 70% writing and 30% modeling.
An important point to keep in mind is that the type and level of work you do will be dependent on the analyst you work for.
For example, some analysts like to write their reports (considering it something like their own signature). The associates would primarily be doing modeling with little to no writing.
On the other hand, some analysts may like to crunch the numbers on their own, and hence the associate would be involved in a lot of writing.
Regardless of that, it is crucial that someone looking for a career in ER is well versed in writing and enjoys it. At the end of the day, it is important to not just have insights but also to present them, and for ER professionals, the primary tool for presenting is written reports.
Essential job functions of ER associates include:
- Executing fundamental equity research on companies
- Generating investment recommendations for your clients
- Attending conferences and networking events to gain more knowledge about the market
- Actively contributing to discussions on company performance
- Providing analysis for new products or services offered by your company
- Assisting with marketing efforts
The work environment for an equity research associate is constantly changing. They are required to be constantly in the office but are also constantly on the phone or emailing colleagues about company updates. The work is fast-paced but rewarding. You’ll get to see your hard work pay off with real-time updates on the stock market and will often get to travel for conferences and meetings.
Equity research associates typically work around 60 hours per week, but that number can be closer to 80 hours during earnings seasons and during industry conferences. In most cases, weekends remain untouched. This job is fast-paced and can be extremely demanding, especially during its busiest weeks, but in general, it provides for a fairly good work-life balance.
Equity Research (ER) vs. Investment Banking (IB)
IB and ER are among the most highly sought-after jobs in finance. Detailed below are some of the similarities and differences between the two fields.
IB is the more popular of the two. It is generally what most people think of when they hear “finance.” It is a highly competitive area of finance that is extremely difficult to break into. Investment bankers are involved in many areas of finance. For example, they may find themselves making a lot of comparable company analyses, creating financial models, and creating pitch books and presentations. The largest role in investment banking is assisting in large transactions, and as a person moves up the ranks, they are likely to be a lot closer to the action, assisting in large deals such as mergers and acquisitions.
Experience required for IB and ER can be similar; however, MBAs are more associated with investment banking, and CFA charters are more associated with equity research, but both can be very helpful for setting one apart in either field.
Investment banking is among the highest paying fields in finance, with even entry-level positions earning six figures. However, this high pay comes with extremely fast-paced and demanding work, with schedules that demand 100-hour weeks and little consideration for one’s weekends, although this improves as one achieves more senior positions. Many in investment banking complain of burnout and too much work, and some equate it to selling your soul for the high paycheck it can earn.
Exit opportunities are nearly limitless for investment bankers; having worked 100-hour weeks doing hard work, they have proven themselves to be hard workers and knowledgeable individuals. The high-octane work environment also forces investment bankers to acquire a lot of experience really quickly, allowing them to lateral into many other areas of finance, commonly hedge funds and private equity.
While equity research is considered much less glamorous than an investment banking position, it is still highly sought after and has its own benefits. Work in equity research is considered to be more mundane than investment banking, with work changing very little between associate and analyst positions and focusing largely on a small group of companies or a single sector. This can be tedious work, especially to begin with, with a great amount of research and financial modeling.
Equity research, however, has a much better work-life balance. Typically a person in equity research works 60-hour weeks, as opposed to the 100-hour weeks in IB, and are allowed to keep their weekends. However, they also typically get paid less and make smaller bonuses.
While investment bankers are able to be somewhat more competitive in exit opportunities, equity researchers follow not far behind, with many being able to lateral into many different areas of finance such as hedge funds and asset management.
In conclusion, these two roles do have a lot in common but also many distinct differences. The key difference between these two fields is that equity research has a better work-life balance with lower pay than investment banking, while investment banking is more glamorous and higher-paying but is much more stressful and demanding. Both these jobs are excellent positions and are highly sought after within finance.
Additional Resources
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