The Equity Research Analyst Career Path: The Best Escape from a Ph.D. Program, or a Pathway into the Abyss?

“Equity Research Analyst” might be one of the most confusing jobs to describe:

• “Analyst” is a vague job title that could refer to anyone from entry-level hires in the back office to senior professionals leading teams and managing relationships.
• “Equity” seemingly has 5,192 different meanings depending on the context.
• There are different levels within the Analyst role, and the job also differs based on the company type (bank vs. dedicated research firm vs. hedge fund vs. asset management firm).
• And “Research” itself is a vague term… since all knowledge workers do some amount of research in their jobs.

Here, we’re referring to the Equity Research Analyst role at investment banks and dedicated research boutiques that produce and sell their own equity research reports.

This division is often labeled “sell-side research,” and we’ve covered it in the articles on equity research recruiting, equity research careers, equity research internships, and the equity research associate role.

We’ll pick up the coverage here and move straight to the top of the ladder:

The Equity Research Analyst Job Description

Unlike in investment banking and private equity, where the Analyst is at the bottom of the hierarchy, the Analyst sits at the top in research.

The Analyst’s job is to manage relationships with the companies they cover and the institutional investors that might be interested in those companies.

The division is known for its equity research reports, but Analysts add value mostly by setting up meetings, making introductions, and giving investors new perspectives or information they hadn’t considered.

For many decades, Analysts did this and gave away research for free to encourage institutional investors to trade with their bank, indirectly generating commissions.

Now, with MiFID II in place in Europe, institutional clients pay directly for research, so the role generates revenue more directly (or fails to do so if the clients don’t pay).

Banks in other regions can still use the old business model and give away research for free to generate trading commissions, but these new rules are likely to spread worldwide.

If you look at the main tasks in the research division:

1. Speaking with market participants (management teams and investors).
2. Doing industry research (e.g., collecting data on market share, pricing, etc.).
3. Writing the reports (both short, update reports and longer thought pieces).
4. Building models and valuations.
5. Determining market sentiment.

Analysts spend most of their time on tasks #1 and #5 – building relationships and generating market insights – and little time on writing reports, building models, or collecting data.

A Day in the Life of an Equity Research Analyst

To illustrate the differences between the Associate and Analyst roles, we’ll walk through a day in the life from the perspective of an Analyst.

Note that this is a “normal day,” i.e., not one during earnings season or an important conference:

7 AM – 8 AM: Arrive at the office, read the news, and look at emails from traders and salespeople asking about a few companies in your coverage universe.

You also start reviewing a few research notes written by your two junior Associates. The numbers look fine, but the commentary is too confusing.

8 AM – 10 AM: You communicate your changes to the Associates when they arrive, and then you ask one of them to research a new digital media company in the healthcare vertical that you might want to add to the coverage universe.

The market opens, but there haven’t been any big corporate announcements or other dramatic happenings, so things are calm as you review your calendar for the day.

10 AM – 12 PM: You take several calls from institutional investor clients: one from a hedge fund Analyst at a mid-sized firm, one from a Portfolio Manager at a large asset management firm, and one from a PM at a start-up hedge fund investing in the TMT sector.

They’re all looking for insights into companies’ earnings announcements in a few weeks; a few also want to meet with the management teams of software and internet companies you cover.

12 PM – 2 PM: You head out to lunch on the other side of town to meet with the CEO and CFO of a newly public Software-as-a-Service (SaaS) company in the consumer retail vertical.

They have solid growth and cash flow numbers and want more institutional attention, so you try to explain investor skepticism toward anything retail-related (well, except for Amazon).

But you agree to make their case to a few institutional clients who have invested in the sector before.

2 PM – 3 PM: On your way over to meet with another company, you take a call in the car from an Associate PM at a growth-oriented hedge fund.

He wants to do a deep dive into one SaaS company’s “true” churn rate because he doubts the official numbers released by management.

You don’t have all the numbers in front of you, so you give vague responses and then refer him to one of your Associates to get more detail.

3 PM – 5 PM: You arrive at the other company: a digital marketing agency and online advertising platform with ~200 employees that is looking to go public in the next few years.

You explain that they’ll need much higher revenue (closer to ~$100 million rather than their current $20 million) to get there and that they’ll need to downplay the “agency” part and focus on the tech platform.

They claim that they have a new technology that will use “AI” to automate client onboarding and campaign setup, but they’re evasive about the details.

You’re quite skeptical, but if this company somehow goes public, it might be worth adding to your coverage. You also make a note to ask around about the feasibility of this technology.

5 PM – 7 PM: Head back to the office and review what the Associates have been working on all day, including a few new notes, updated models, and an Initiating Coverage Report.

You make some edits and then strategize with the one Associate about the super-persistent Associate PM who kept asking for the “real churn numbers” for that one company.

The firm is a good client, but this one guy is so demanding that you’re reconsidering the relationship. You head home after this.

11 PM: As you’re about to go to sleep, an activist hedge fund announces that it has taken a 5% stake in one of the companies in your coverage universe: a security software company.

These types of late-night / last-minute announcements are not common, but they do happen.

You’ll need to have an immediate view in the morning, so you ask your Associate to prepare a few thoughts and come in early so you can send out a short note before the markets open at 9:30 AM.

Why Become an Equity Research Analyst?

The equity research industry as a whole is not in great shape, with falling compensation, headcount reductions, and MiFID II forcing an unbundling of research.

And hardly anyone “interviews for” an Analyst role in equity research – you have to work there for a few years and win promotions up to that level.

So, if you break in as an Equity Research Associate, why would you want to stay in the field long enough to reach the Analyst level?

The short answer is, “there probably isn’t a good reason to do so,” but I like to be fair and balanced, so here’s a quick list of the pros and cons:

Advantages:

1. Interesting Work and Solid Pay… for Now – Senior ER Analysts can earn in the mid-six-figures up to the $1 million range, and the work is arguably more interesting and less stressful than what Managing Directors in investment banking All signs point to falling pay, though, so who knows if this will last.
2. Potential Exit Opportunities – You’re not quite as “trapped” as, say, a mid-level banker who quits and doesn’t have many other options. You could move to buy-side research roles, go into sales, join a normal company, or go into investor relations at companies or fundraising on the buy-side.
3. It’s a Good “Escape Route” from Other Fields – Especially if you have something like an M.D. or Ph.D. in a highly technical field, equity research might allow you to use your expertise to move into plenty of other roles (though you don’t need to reach the Analyst level to do this).

Disadvantages:

1. The Industry is Declining – It’s still possible to make money and advance in a declining industry, but it’s more difficult than it is an industry where headcounts and revenue are growing. Also, no one knows how MiFID II and passive investing will play out long-term; the impact could be anything from “neutral to slightly negative” to “apocalypse now.”
2. It’s a Huge Grind to Reach the Analyst Level – You’ll have to make it through many, many, many earnings seasons and model/research updates to make it to the top. This process can get quite repetitive, especially if you’re covering an industry less prone to surprises (e.g., not tech or healthcare).

Equity Research Analyst Salary & Lifestyle

There are several different levels within the “Analyst” title, ranging from Vice President (VP) to Managing Director (MD).

At the low end, VP-level Analysts might earn around the $200K to $300K USD salary range at large banks in major financial centers.

Directors move up to the $300K to $600K range, and MDs go up to the $500K to $1 million range.

Around 50% of this compensation comes in the form of base salary, and it’s up to 75% at the lower levels.

These figures will almost certainly fall due to MiFID II and declining research budgets at buy-side firms, but you could still earn into the mid-six figures for the foreseeable future.

As you saw in the day-in-the-life account above, Analysts might work the same amount as Associates: 50-70 hours per week, with ~12-hour days on average, and longer hours during earnings season.

The key difference is that Analysts must travel a lot more, including client visits, conferences, and company meetings.

That means it’s arguably a more stressful job since they also have to review work from the Associates and give them direction.

Recruiting: Pathways into the Equity Research Analyst Role

The Analyst role is a senior one, so you don’t interview for it right out of undergrad or an MBA program.

Most often, people start at the Associate level out of undergrad or a Master’s in Finance program, stay for a few years, and then advance up to the Analyst level… if there’s an opening.

Traditionally, it has been quite difficult to move up by staying at the same bank because Senior Analysts rarely left their jobs voluntarily.

So, research professionals often moved around to different banks and advanced with each move.

Advancing to the Analyst level comes down to proving that you can do the same job that they do: speaking with clients and management teams, delivering insights, and setting up meetings – as opposed to burying yourself in models and reports all day.

Besides this path, some people move into equity research from strategy or management consulting, Big 4 firms, or even corporate finance roles.

However, they join at the Associate level unless they’re already quite senior in their previous industry.

Another option is to complete an advanced degree, such as an M.D. or a Ph.D. in a technical field (physics, engineering, biology, etc.), and then work in a group where technical knowledge is required to understand companies (biotech, pharmaceuticals, semiconductors, etc.).

But once again, you’re unlikely to join directly at the Analyst level, so you’ll have to demonstrate your accounting/finance/business knowledge to get there and then perform well on the job to advance.

For more on these points, see the article on equity research recruiting.

The Equity Research Analyst Job: Worth the Grind or the Career Change?

In these articles, I usually conclude with an “It depends”-type answer and present both sides.

But I’ll be more definitive here: a long-term career in equity research is probably not worth it in the 2020s unless you truly love it and can’t imagine doing anything else.

Research is still a great entry point into finance because of the lack of a standard, on-cycle hiring process, and the ability to break in as a non-traditional candidate.

But there’s serious skepticism about its long-term future, and I can’t credibly recommend it as an option on-par with careers in investment banking, private equity, or venture capital.

People are also pessimistic about the future of sales & trading, but there’s a key difference: there are still opportunities there if you’re a programmer or you work with more mathematically complex products.

By contrast, there’s less room for programming or advanced math in the fundamental analysis of companies, and the negative trends in equity research affect the industry as a whole – not just specific desks or groups.

So, the Equity Research Analyst job may not be “a pathway into the abyss,” but it’s also not a career I would recommend – unless you’re so enthusiastic about research that you couldn’t imagine doing anything else.

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