Sell Side Analyst

Forecasting, analyzing, and marketing stocks in the financial industry.

Do you want to make your mark in the field of finance at an investment bank or brokerage firm? Then consider entering the world of sell-side analysts. 

Sell side analyst

They are responsible for forecasting, analyzing, and marketing stocks in the financial industry. Their job is to find out what companies will be worth in a few months or years and provide that information to their clients so they can buy shares and gain returns. 

If this sounds like something you're interested in, then read on to learn more about how the sell-side analyst role works.

These analysts are referred to as "sell-side" because their role involves selling companies to others to gain commission, as opposed to buy-side analysts who are focused on buying companies.

As equity research analysts, the majority of their time will be spent researching companies so that they can make informed decisions on what actions to take for stock and make suggestions to clients.

 analyst

Clients can be small investors, such as those of a brokerage firm, or powerful ones with a large amount of funds deposited in an investment company. The suggestions for this analyst role would typically fall into the following ratings:

  • Buy
  • Sell
  • Hold
  • Strong buy
  • Strong sell

This information can be crucial for investors who want to know if the stocks in which they're investing have a good chance at success before putting all of their hard-earned money into it. 

Analysts need to take a breadth of information into account when developing an analysis for stocks so that people have a better idea of whether or not the investment is a wise choice for them.

the responsibilities of a sell-side analyst

While forecasting and analyzing stocks are their main responsibilities, they are also required to perform other tasks. 

They perform forecasting and analysis by speaking with company executives, competitors, customers, suppliers, and other sources of knowledge of the company's industry.

responsibilities

They can also read news articles or conduct other forms of online research. After all this has been done, they will create financial models of the company's financial results to project their future performance.

It's their job to find out what companies will be worth in a few years or months. This information is then provided to the sell-side clients. These are mostly firms (hedge funds, pension funds, etc.)  that are looking to buy shares of companies that are already listed on the stock markets. 

In addition to this information, analysts could also build models that forecast the firm's future performance to convince clients that the firm the analyst works for is the best one for them.

Analysts have some marketing responsibilities when it comes to advising clients on how to position their holdings for maximum profits. 

In fact, some may view marketing as the main role of a sell-side analyst, as they need to convince investors with large accounts, like institutions, to trade through the analyst's firm. This is usually achieved by presenting new information to clients rather than an analysis that has already been covered by others.

Responsibilities explained

The responsibilities of one of these analysts are pretty wide-ranging and take a lot of planning and research, but it can be very lucrative if you're good at what you do!

In order to be successful at selling your analyses, you must enjoy working with numbers and have excellent communication skills. 

You'll also need an understanding of both the financial industry and how decisions are made in it. You'll probably want to study economics before applying for this position.

General information

This role is challenging. It requires a strong knowledge of the industry, a thorough understanding of financials, and an ability to perform research in light of the many risks at hand. 

information

In addition, they need to be able to negotiate with their clients on behalf of the company they represent while staying objective. 

This is because an incorrect recommendation could lead to losses in investors' portfolios. This could then lead to the analyst's firm losing clients.

Despite all this, being a sell-side analyst is very rewarding. 

They are able to make a large difference in the companies they work for. This means that there's high demand for people wanting to enter this field-but also high competition among them as well.

As a general overview of the role, the job involves:

  1. Monitoring a list of companies (any new developments or events that would change the performance of the company)
  2. Researching these companies and creating reports on their findings
  3. Presenting these reports and findings to clients, including recommendations for the prices at which clients should buy or sell a stock

Since firms typically have many sell-side analysts, the reports of a few analysts can be collated, and the results averaged to form a consensus on a single number and course of action. 

This simplifies the process for clients so that they are presented with information that is as accurate as possible.

An estimate can have an impact on share price, so accuracy is important. 

Information explained

For example, if an analyst's report underestimates the future earnings per share (EPS) of a firm, then the price will tend to rise upon the release of the higher earnings, whereas an overestimation could lead to a decrease in price. 

While this does not always happen, it is not uncommon. This is because some investors can be influenced by their emotions when their expectations are not met.

If you're considering becoming a sell-side analyst, you should start by finding out which companies employ them and what the average salary is for them (as well as what the most popular titles are). After that, it's time for your research!

Salary

They usually work for brokerages and firms that manage clients' money. They hope that their company's clients will purchase what they are pitching, so they will receive a commission.

salary

They get paid based on how many transactions they can drive to the firm based on their analyses. 

If their information is seen as valuable, they could get up to $30,000 per month, whereas, if their forecasts are known to be inaccurate, they may "only" get $17,000 per month. Therefore, it's in their best interest to maintain accuracy with each of their forecasts.

Ultimately, this creates a lot of pressure on them to provide the most thorough analysis possible. This is because they need to be worth their firm's money and have a strong reputation for making sales, which, effectively, creates commissions.

According to Comparably, the average salary of a sell-side analyst in the US is $280,000, with analysts based in New York earning $300,000 annually in total compensation on average.

Thus, the compensation of this job can be very lucrative for some individuals, despite the competitiveness and difficulty of the role.

qualifications 

First, you should have a degree in finance, business administration, or a similar field. This will be important for the position, but it's not the only thing that is required.

Study

In fact, some analysts don't have degrees in finance at all. 

There are also certifications that you could pursue, such as the Chartered Financial Analyst (CFA) designation or a Master of Business Administration (MBA). Keep in mind a CFA is favored over an MBA for an analyst since the skills and knowledge learned in the MBA program are less applicable.

However, it's up to you if you want to go this route or not. A lot of people get into these positions without going through post-secondary education because they have an interest in the field and want to start working right away. This is, however, much more difficult as opposed to obtaining a degree since these certifications give you more credibility to employers.

Additionally, it always depends on your situation, such as how much experience you have with the finance industry and other industries that are popular for investment.

Many of the most successful sell-side analysts begin their careers as sales assistants. They are responsible for cold-calling, meeting with potential clients, and building relationships. There is more of a focus on their ability to introduce executives to new clients. 

Another way to get started is to intern at a financial firm and work your way up through the ranks.

There are many ways to break into this field, with some being easier than others. Regardless, you just need to be determined and willing to work hard.

Qualifications

Now, what qualities make for a good sell-side analyst? They are tasked with making models and forecasts for possible investments. They are given a set amount of time to make these projections and then have to justify the accuracy of their predictions.

The key qualities of a good analyst are:

  1. The ability to analyze financial data
  2. Excellent verbal and written communication skills
  3. Strong research skills
  4. Ability to work independently
  5. A desire for long-term work
  6. The ability to keep an open mind
  7. Thorough understanding of finance
  8. A plan for achieving goals

How do sell-side analysts benefit firms?

They work for firms, such as banks and brokers, that profit from predicting the future value of assets. 

Benefits

They provide information about stocks to their client base, so their clients conduct transactions with their firm, earning the analyst a commission. While they may not always be accurate predictions of price, investors feel a sense of security when they follow the advice of experts as opposed to deciding on their own.

However, sell-side analysts don't just provide this information; they also help with company research, hence why they can also be referred to as equity research analysts. 

They look at historical data on companies and use that information to make projections about how the stock market will perform in the future. 

They also analyze different aspects of a company's business, including its financials and management team, to determine whether or not it is a good investment.

They can also have a large impact on the price of a stock, especially if they are well-renowned analysts. 

Depending on the reputation of the analyst, they may have the ability to influence the market, sending the price of a company's shares skyrocketing as investors pour their money into an asset or crashing as everyone sells.

As one can see, these analysts can hold a lot of power. This is sometimes used to the advantage of investment firms who are market makers of the stocks that are being rated by influencing the price of shares. 

Teaching

Therefore, having these analysts is beneficial for firms because they can drastically increase profits.

Investment firms essentially use the status of these professionals to help maintain relationships with clients, as giving a stock a buy or hold rating will have a positive impact on its price, which works out for the client company. 

Indeed, this article highlights how many analysts are more concerned with setting up meetings to introduce their executives to new clients. It is not unusual for the creation of timely and accurate ratings of companies to be at the bottom of their list of priorities.

On the flip side, this means that investors should take caution when listening to the recommendations of these analysts since they are working for firms that may benefit.

Access to sell-side analyst investment research

One of the most difficult aspects of being a sell-side analyst is that it's very competitive.

investment research

The field has many entry-level positions and all of them are very hard to break into. That, coupled with fierce competition for jobs, means that finding a job as an investment analyst can be hard.

However, there are some perks on top of the lucrative salary, including access to sell-side analyst research. 

They have exclusive access to company information that isn't released publicly. Through their estimations and the research they conduct, they have the ability to not only see the future but shape it.

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Reviewed and edited by James Fazeli-SinakiLinkedIn

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