Equity Research vs Investment Banking

Which career is a better fit?

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Equity Research vs Investment Banking

When looking at a career in the capital markets, it’s important to understand if you’re a better fit for investment banking or equity research.  Both offer excellent work experience and great pay. Choosing one over the other really comes down to personality more than anything else. This guide will break down the key differences between equity research vs investment banking.

Equity Research vs Investment Banking Diagram

What do Equity Research Associates/Analysts do?

Research analysts cover a group of stocks, typically within one industry, and publish reports with their recommendations on whether investors should buy, sell, or hold (overweight, underweight, market weight) the stock.

Typically, the work in equity research requires:

  • Building financial models
  • Writing equity research reports (Initiating coverage, quarterly results, news updates, recommendation changes, etc.)
  • Performing industry research
  • Updating Excel spreadsheets and Word documents
  • Talking with the management of the companies they cover
  • Communicating investment updates to investors and the public

What do Investment Bankers do?

Investment bankers advise their clients on underwriting (capital raising, IPOs, etc.), mergers and acquisitions, corporate finance, and general advisory mandates.

The work of an investment banking Analyst/Associate mostly requires the following activities:

equity research vs investment banking financial models

What type of personality is suited to equity research?

The type of person who’s suited to equity research is someone who enjoys writing, routine, financial analysis, and is introverted.

  • Writing: Research analysts have to write a lot of stuff. They publish lengthy reports (initiating coverage), periodic updates (quarterly results), and special notes (changes in management, acquisitions, new issues, etc.).
  • Routine: A lot of what research analysts do is routine based.  They have an earnings calendar of when all the companies they cover report their results and they issue reports around those dates. They can also plan a schedule of when they will initiate coverage of new stocks.
  • Financial analysis: There is a great deal of financial modeling, industry analysis, and number crunching in equity research.
  • Introvert: It’s not to say that research analysts are actually introverts, but there is much less of a sales component or client relationships involved in equity research vs investment banking or sales & trading.  You should enjoy working quietly and independently if you want to be a research analyst or associate.

What type of personality is suited to investment banking?

The type of person who’s suited to investment banking is someone who enjoys writing, routine, financial analysis, and is extroverted.

  • Excel modeling: Junior bankers spend a lot of time in Excel, building bull blown models or just doing ad hoc analysis.
  • Project work: Bankers work around deals, so the workflow is lumpy (but the hours are always long).
  • Type A: They are typically outgoing, ambitious, organized, and status-conscious.
  • Smooth: To rise through the ranks, investment bankers have to be good salespeople.

What is the lifestyle in equity research vs investment banking?

Research analysts work long hours, but not nearly as long as investment bankers.  They typically start earlier, around 7 or 8 am and work until about 8 pm.  In research, you should plan on 12 hour days as being fairly routine, whereas investment bankers should plan on 15+ hours.

While there is lots of work in equity research, it is less volatile and erratic than investment banking, where there is no predictability about deal flow.

What is the compensation in equity research vs investment banking?

Starting base salaries are comparable for research and investment banking, but there is a large difference in the bonus structure.  While junior investment banking positions can earn 50-100% of their base in the form of a bonus, in research it could be closer to 0-25%.  Check out our compensation guides for more details.

The reason for the lower bonuses is because equity research is often viewed as a cost center as opposed to a profit center for the banks.  This may be true, but equity research plays a critical role in helping other divisions make money.  Having a reputation for high-quality coverage increases your chances of leading an IPO or follow-on offering and is often rewarded by investment managers making their trades through that bank.

Equity research vs Investment banking – Which has more interesting work?

That’s entirely subjective.

In equity research, you work with publicly available information, speak frequently with management, and prepare recommendations.

In investment banking, you are often dealing with non-public information, work in deals and transactions, and have more of a sales angle.

Both are interesting – it’s about which is a better personality fit for you.  Both require a lot of financial modeling and both can be very rewarding.

Additional resources

This has been the CFI guide to equity research vs investment banking.  For more relevant resources, please check out these additional career guides below:

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