Equity Research vs Investment Banking

Equity Research and Investment Banking Differences

Equity research can be defined as a mechanism through which the financial wellbeing i.e. assets and liabilities of an organization is analyzed that further helps in attracting the readers of the financial statements to make decisions concerning investing in an entity whereas Investment banking can be defined as a banking function that offers financial services to individuals and companies and enables them to raise capital as well.

Equity research is conducted by personnel who is entrusted with the preparation of research reports and valuation models that acts as a basis of decision making for the clients. An equity research analyst, in simple words, is a person who studies the behavioral patterns of the financial market and its ongoing business environment and, based on his or her findings, prepare equity research reports that help his or her clients and the readers of the financial statements to make well-informed and appropriate decisions that will help them in attaining desired results. The job of an equity research analyst is not as glamorous as compared to the job of an investment banking analyst. An equity research analyst works at an equity research company, and his ultimate job is to prepare valuation models and equity research reports for his or her clients.

An investment banking function is performed by an investment banker who acts as a middleman between the stakeholders and the companies that are looking for financing. The job of an investment bankingJob Of An Investment BankingThe investment banking job description is a formal narrative that lists out the essential qualification, basic skills and technical skills required in a candidate to fill in the vacant investment banker position. It also explains the roles and responsibilities to be performed in this job position.read more analyst is to conduct thorough research on the financial deals that are available, coordinating with the dealers, and, after that, finalizing the same. It is also why an investment banking analyst is regarded as a critical decision-maker of the financing industry. An investment banker is an individual who assists the companies in raising finance (debt/ equity) through the issue/ sale of securities in the primary marketPrimary MarketThe primary market is where debt-based, equity-based or any other asset-based securities are created, underwritten and sold off to investors. It is a part of the capital market where new securities are created and directly purchased by the issuer.read more.

Equity-Research-vs-Investment-Banking

Conceptual Differences

If you are new into the finance field and wondering what to choose among these two, there is one perception that needs to be busted. Equity research is often viewed as the less paid, unglamorous job. But in a real sense, things have been changing lately. People are tending more toward equity research and the recognition, and the pay is not as bad as it is perceived. We will analyze critically what works and what doesn’t. But before that, let’s see the conceptual differences between these two finance domains.

Roles of an Investment Banker

  • Investment bankers are the major decision-makers of the industry.
  • Their job is to do extensive research on various financial deals, co-ordinate with the deal makers, and execute major financial deals.
  • Their job, in a real sense, is acting as a mediator between the investors and the businesses who need financing.
  • They work on Initial Public Offering (IPO), Merger & Acquisitions (M&A), and restructuring. In a sense, they add tremendous value to the businesses and investors and earn handsomely as a result.

Role of an Equity Researcher

  • Equity research analysts are the real financial heroes who create the valuation models, research reports based on which significant decisions are being made.
  • They are experts in financial modeling, financial statement analysis, valuation of the companies, how the economy and currency works, and they concentrate on a small group of stocks and constantly give information to the team members about any data that seem critical for decision making.
  • Many equity research analysts try to go to the “buy-side” of the industry.
  • As it seems the most lucrative and competitive of all equity analyses and provides lucrative compensation and much-desired limelight.

Pre-requisites

There are some pre-requisites if you want to pursue any of these two most hyped finance domains. Let’s look at those –

Equity Research vs. Investment Banking Infographics

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Key Differences

  1. The Investment banking functionInvestment Banking FunctionInvestment banks perform various functions for their clients, including initial public offerings (IPOs), mergers and acquisitions, risk management, equity research, structuring of derivatives, merchant banking, and investment management.read more is executed by an investment banker, whereas equity research is executed by an equity research analyst.
  2. Investment banking offers financial services to the companies willing to raise capital while equity research analyzes the assets and liabilities of an entity that attracts the users of the financial reports to invest in the same.
  3. An investment banking analyst is levied with the responsibility of the preparation of pitch books as well as information memorandums. An equity research analyst is levied with the responsibility of the preparation of the valuation models as well as the equity research reports.
  4. An investment banking analyst works basically at the front-end. An equity research analyst works mostly at the back end.
  5. An investment banking analyst receives a high amount of salary as compared to the salary received by an equity research analyst.
  6. An investment banker will need to develop required financial skills, mental mathematics skills, both oral and written communication skills, while an equity research analyst must develop an analytic mindset, fantastic research skills, verbal and written communication skills, and must even be able to make appropriate decisions.
  7. The job of an investment banking analyst is more tiring as he or she will be expected and required to give more time as compared to the job of an equity research analyst. Ideally, an equity research analyst will be required to dedicate 60 hours a week while the job of an investment banking analyst would require him or her to dedicate more than 60 hours weekly.
  8. Inequity research, an analyst, will get to work with information that is publicly available, and accordingly, the recommendations are prepared by the same. An investment banker gets to deal with information that is not public in nature.

Equity Research vs. Investment Banking Education & Skills Sets

Equity Research Analyst

In the case of an equity research analyst, the right course to do is CFACFAThe Chartered Financial Analyst (CFA®) Program offers a graduate-level curriculum and examination program designed to expand your working knowledge and practical skills related to investment decision-making. read more.

CFA is a very affordable course compared to MBA (have a look at CFA vs. MBA). But it is very tough to complete. CFA has three levels which you need to complete to get the certification. As equity research analyst has to do all the calculation and create all the research reports, it is of utter importance that they should be good in security analysis. And CFA is a gold standard course for security analysis. So, it’s a given. If you want to pursue a career in equity research, you must do CFA.

For equity research analysts, researching and analysis skills are of vital importance. All big financial deals are done on the basis of their calculation and analysis.

Thus, without these two particular skills, it is difficult for an equity research analyst to thrive in her career.

If you want to learn Equity Research professionally, then you may want to look at 40+ video hours of Equity Research Course.

Investment Banker

As already mentioned, the investment bankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read more career is more about closing big deals than sitting in front of the laptop and analyzing the latest valuation models of a start-up. Mere graduation will not seal the deal for investment banking professionals. You need more to be an investment banker.

CFA is a good option if you consider the knowledge and the acquisition of needed skills, but the MBA seems to be the better option as the MBA offers an incredible opportunity to network, which CFA doesn’t provide. If you see the curriculum, an MBA is more business-oriented and less investment-oriented. As an investment banker has less to do with research and more to do with closing deals, it’s of utter importance that they know how business works along with incredible knowledge in the finance domain.

The three most essential skills an investment banker must possess are the ability to create great client relationships, being able to manage large transactions, and finally, to be able to negotiate a deal with maximum success.

Employment Outlook

There are many people who have predicted that the positions of equity research analysts would get decreased as we move ahead, but that’s not entirely true. But to be able to work well, equity research analysts have to depend on equity capital markets bankers whose business is much more profitable. But as equity research analysts are the vehicles through which all the financial deals are being done, they are going to stay in the market as long as the businesses exist. Equity research analysts concentrate on specific market segments, value companies on a periodic basis, and write reports. All fortune 500 companies hire equity research analysts.

As market leaders say that investment banking and the opportunity have been booming.

According to the Bureau of Labour Statistics (BLS), the growth for the financial industry would be around 11% between 2012 to 2022.

That means there will be a reasonable expanse of the investment banking jobs as well.

Wall Street has been hiring investment banking professionals for years. And all fortune 500 companies select students from top MBA schools for offering lucrative career opportunities in investment bankingCareer Opportunities In Investment BankingAn investment banking personnel is a motivated professional who aims to help their clients reach their financial goals and objectives. The top four investment banking careers are - Analyst, Associate, Vice president, Managing director. read more.

If you want to pursue an equity research analyst profile, don’t think that this is the option left when people don’t get any investment banking profile. Investment banking is not for everyone and should not be pursued by everyone. If you have a natural tendency toward critical thinking, analytical ability, and you love to dig deep, an equity research analyst profile is the right option for you. Whereas, if you have a knack toward closing the deals, interacting with clients, and building a client portfolio and you love to network extensively, then an investment banking profile is the right option for you.

Investment Banking vs. Equity Research Comparative Table

Basis of comparisonInvestment bankingEquity research
Job roles and responsibilities of an analystThe job roles of an investment banking analyst are-

• Preparation of the pitch books
• Preparation of the information memorandums
• Creation of the financial/ valuation models
• Conducting ad hoc financial statements.







The job roles of an equity research analyst are-
• Creating financial/ valuation models
• Discussion with the management of the company
Preparation of equity research reports
• Conducting extensive industry research
• Updating the word documents as well as excel sheets
• Communicating the investment-related updates to the clients and the readers of the financial statements.
SalaryAn investment banker receives a higher salary as compared to an equity researcher.An equity research analyst receives a lower salary as compared to an investment banker.
Type of workFront-end basically.Back-end basically.
Employed atAn investment banker works in an investment banker.An equity researcher works in an equity research company.
LimelightThe job of an investment banker is more glamorous and puts the personnel into the limelight all the time.The job of an equity research analyst is less glamorous.
LifestyleThe job of an investment banking analystInvestment Banking AnalystInvestment Banking Analyst works with investment banking team and expertise in the area of Accounting, Financial Modeling, Project financing, Project Valuation, and Financial statement Analysis. These analyst has deep knowledge in Excel and they are good at VBA to analyze the market data and financial modeling. The analytic work consists of building a financial model for different projects like Infrastructure projects (i.e. Power projects, real estate, etc.).read more is highly tiring owing to the demand of the same, which is erratic in nature. This job requires the person to work for a longer schedule of time. The work lifestyle of an investment banker is totally imbalanced, and therefore, this career must only be pursued by passionate finance professionals that are passionate about this job and are willing to give in to the expectations and requirements of the same.The job of an equity researcher analyst is not that tiring as compared to that of an investment banker. An equity researcher would be required to work for a maximum of 60 hours in a week only.

Salary

It’s being seen that equity research analysts get paid lesser than investment banking professionals. But that doesn’t mean equity research analysts get paid lesser than the market standards.

  • According to the research done by Glassdoor in 2014, it is being seen that equity research analysts earn around the US $95,690 annually.
  • As per the Wall Street Journal, the equity research analysts earn anything between the US $72,200 to $148,800.
  • On the other hand, investment bankers are the real moneymakers. As interns, they earn anything between the US $70,000 to $80,000.
  • Once they join, their salary becomes the US $115,000 to $130,000, with around $30,000 in bonuses.
  • Once they have some experience (maybe around 3 years), they earn anything around the US $175,000 to $200,000.

But the decision of a career should not only be based on compensation. There are other sides, too – personal preference, work-life balance, and professional aspirations.

Career Pros & Cons

Both of these careers have their pros and cons. Let’s look at each of them, one by one –

Equity Research Analyst:

Pros:
  • Equity research analysts are the backbones of any security analysis companies. Without the expertise of equity research analysts, the companies cannot help their clients make big decisions in specific areas of the market.
  • Equity research analysts can work independently with the skill-sets they have. They can work directly for clients as a freelancer or can run their own businesses.
  • Clients pay millions of dollars to get the valuation of their businesses to get financed. Equity research analysts have a direct role to play here.
  • Equity research analysts work 12 hours a day or 60 hours a week, which seems to be a normal scenario in the finance domain. It is an advantage if we compare the work hours with hours put in by investment bankers per week. 
Cons:
  • Equity research analysts often need to depend on equity capital markets bankers to get things moving. Thus, it’s said that ERA can earn their bread, but for jams and butter, they need to depend on others.
  • The compensation for equity research analysts is not as lucrative as for investment bankers.
  • Finally, equity research analysts need to work in the dark and get little or no limelight as compared to investment banking professionals.

Investment Banking Professional

Pros:
  • The demand for investment banking professionals is always booming. Investors and businesses love them as they execute the deals and help both parties connect with each other.
  • They are compensated extra-ordinarily well. They are the highest-paid workers in the market (even if you compare with other fields like computer engineering and chemical engineering).
  • Investment banking professionals enjoy glamour, a great lifestyle, and an incredible reputation.
  • Investment banking professionals are one of the most sought after professions in the world. Many young students look up to this profession as an eye of the fish.
Cons:
  • The primary issue with the investment banking profession is work hours. Most of the investment bankers work 75 to 100 hours a week, which is too much for a human being to bear. Thus, even if they earn a lot, they don’t get the time to enjoy what they earn.
  • Many students choose investment banking as a profession by looking at its glamour and ultimately fail to make their mark. This profession needs authority-level knowledge in finance, which often becomes hard for students to acquire.
  • Investment banking is not about knowing only, but executing bigger, sometimes huge deals. Yes, there is a huge bonus for the execution; but often, the responsibility also lies on the investment bankers as they connect the businesses with the investors.

Work-Life Balance

You can imagine that there should be a work-life balance. Yes, work is essential. But the person who does the work is vital too.

  • If you are an equity research analyst, you will be sane and not give in to work. You will have a better life and a clear head. You will work 60 hours a week, receive an above-average compensation, and maintain a healthy lifestyle.
  • On the other hand, an investment banker doesn’t see his watch. He sees clients. That’s a good thing to do. Even he will earn much more than anyone in the industry. But like everybody, everybody needs to rest. Without rest and a proper balance, working would be just an obligation.
    If you don’t sleep for the last seven days, you will not be able to function properly, let alone the art of thinking for clients. So, even if you choose the investment banking profession, set a limit and don’t work till you fall and lose yourself. Life is precious. Do check out the Investment Banker Lifestyle.

What should you choose?

There is no one-size-fits-all formula. Some are good researchers, but better deal makers. You know what to choose in that case. Some are good negotiators, but excellent with numbers; guess what they should choose. Being great in a specific thing is essential, but more important is the willingness to work in a particular domain.

  • Not everyone will choose the investment banking profession, even if the compensation and standing of the profession seem lucrative. Not everyone will choose an equity research analyst profile even if there are a better work-life balance and room to grow and get better in other things in spare time.
  • Thus, it’s your call between investment banking and equity research. Know the market. Moreover, know yourself. Once you know both of these things, it would be easier to find a sweet spot where you can belong and thrive. Don’t choose any career just because you want more money or glittering glamour or better work-life balance. Choose something because you love it. And it would definitely be the right choice.

Investment Banking vs. Equity Research Video

Recommended Articles

This article has been a guide to Investment Banking vs. Equity Research. Here we discuss the difference between Investment Banking and Equity Research, comparing their educational requirement, salary, work-life balance, etc. You can learn more from the following articles – comparing its concepts, pre-requisites, employment, skills, work-life

Reader Interactions

Comments

  1. Siddharth Pathak says

    Hi Dheeraj, this is a very well put article. Thanks for the info.
    But I have one concern regarding the future of ERA’s and would like to know your opinion.
    As we move closer towards automation of jobs, which provide a near 100% accuracy, I feel the ERA’s would become redundant. Although full automation may take another 30-40 years, but it is bound to happen. Don’t you think?

    • Dheeraj Vaidya says

      Hi Siddharth, I agree your though about automation in Equity Research. However, Automation works on the quality of data and then the results can derived and simulated going forward. For Equity Research Analysts, there is never a complete set of information available from the management. No two companies have a similar model or accounting practices. Given the uniqueness and data quality issues, my take is that Equity Analyst will continue to “survive”.

      Thanks,
      Dheeraj

  2. Jay says

    Hi Dheeraj,

    Thanks a bunch for all the information you’ve provided. These write-ups are very helpful for those who are new to ER. That being said, I had a few quick questions. Does Equity Research recruiting work the same way as Investment Banking recruiting? Is it more/less competitive or about the same? Coming from a “non-target” school, would it be possible to reach out to ER professionals for networking/informational interviews?

    • Dheeraj Vaidya says

      Hi Jay, You have some interesting questions here. My take is that Equity Research is relatively less competitive than Investment Banking. Equity research skills weigh more towards financial modeling, report writing, valuations etc. However, Investment Banking is a mix of intangible skills like presentation, communications as well as tangible skills like valuations. Therefore the recruitment work related to these may differ a bit.

      It is surely possible to get into equity research with networking. Clearing CFA level 1 should help you with this goal.

      Good Luck!
      Dheeraj

  3. Kiran Patil says

    Nice peice of Information Dheeraj.Your blog is awesome platform for the people who want to make their careers in Finance..really helpful..

    • Dheeraj Vaidya says

      thanks Kiran!

  4. Harsh Upadhyay says

    This is the article which I was looking for.
    Thanks and very well written.
    This is going tho help me out with my confusion really well.

    • Dheeraj Vaidya says

      sure Harsh. Do let me know if you have any questions.
      Best,
      Dheeraj

  5. Ashwit says

    Hello, I am MBA finance graduate from Mumbai University, I have good knowledge in capital markets, finance and accounting. I have about 18 months experience in capital markets as an equity advisor. I wish to be an investment banker. Where should I start with?.
    Like for getting an interview first of all.

    • Dheeraj Vaidya says

      Hi Ashwit,

      You need to somehow include keywords in your resume that show your focus towards finance and investment banking.
      Suggested keywords – CFA, Financial Modeling, Investment Banking, Pitch Book, M&A, LBO Modeling, Master in Excel, Powerpoint.
      If you are missing some from the above keyword list, then you need to work towards it. Take the CFA level 1 exam, Learn financial Modeling, Master Excel and Powerpoint etc.

      Hope this helps,
      Dheeraj