Difference between Equity research and investment Banking
The choice between a career in investment banking versus a career in equity research boils down to the kind of work environment an individual wants, his communication style and how much importance is placed on balancing work and outside life.
Both positions are highly analytical and well-respected, particularly in the finance industry. To many, investment banking is the cream of the crop as far as corporate glamour and work prestige; equity research analysts are comparatively in the dark. There is no question an investment banking career is very alluring to younger financial professionals.
Investment bankers are some of the most prominent decision-makers in the market. They spend their time researching, coordinating and executing major financial deals such as initial stock offerings (IPOs), which is a critical role in the economy. In an abstract sense, the job is about connecting investors with businesses that need financing. In a more direct way, they work with stock releases, mergers and acquisitions (M&As), and structuring of other major financial deals.
The role of an equity research analyst is to provide the substance that allows other professionals to make informed decisions. These are the true financial experts on the economy, stock markets, currency, accounting and predictive financial modeling. Most equity research analysts focus on small groups of stocks, perhaps a dozen or so, within a particular market subset. Analysts constantly communicate with other professionals, especially their own management staff, to make recommendations and provide critical data.
Many equity research analysts attempt to switch over to the "buy side" of the industry. Institutional buy-side analysis is incredibly competitive but often offers much higher compensation and, like investment banking, a more glamorous lifestyle.
Education and Skills
A bachelor's degree is a must for any aspiring equity research analyst or investment banking associate. Common areas of study include economics, accounting, finance, mathematics or even physics and biology, which are other analytical fields. However, it is very unlikely a bachelor's degree alone will be enough to get a job in these fields.
Many aspiring investment bankers enter into some other financial field, perhaps working as analysts or advisers, and work toward their Masters of Business Administration, or MBAs. An MBA could also boost the resume for a person seeking an equity analyst role, as could a Chartered Financial Analyst (CFA) designation. As with any business, it helps to have a connection with the right people.
Both jobs require a great deal of analytical and mathematical/technical skills, but this especially applies to equity research analysts. These analysts need to be able to perform complex calculations, run predictive models and prepare financial statements with quick turnarounds. Investment bankers should have an impressive knowledge of financial markets, investments and company organization. Many pursue their Series 7 or Series 63 FINRA licenses to demonstrate this knowledge.
The most common career path for investment bankers involves graduating from a prestigious university before working for a major global bank, such as Goldman Sachs or Morgan Stanley. After a few years, the aspiring investment banker returns to complete an MBA or receives professional certifications and licenses. When all is said and done, it may take five to six years after receiving an undergraduate degree before being considered for an investment banking role.
According to Glassdoor research in 2014, the average equity research analyst earned $95, 690 in annual compensation. The Wall Street Journal puts the spread at $72, 200 to $148, 800, based on experience and location; New York and Connecticut are the highest-paying markets.
Investment bankers are famous for their high pay and large signing bonuses. Summer interns can earn as much as $70, 000 plus a $10, 000 signing bonus. For first-year analysts, these figures jump up to an $85, 000 salary and $25, 000 bonus. The real money makers, however, are investment banking associates.
First-year associates often earn as much as $115, 000 to $130, 000, with an additional $30, 000 to $40, 000 in bonuses. Third-year associates normally bring in close to $175, 000 to $200, 000. It is not unusual for total compensation for a vice president or managing director to exceed $400, 000 annually.
Work / Life Balance
Major financial jobs tend to be concentrated in major financial hubs such as New York, Chicago, London and Hong Kong. This is no different for equity research analysts and especially investment bankers, many of whom are paid to relocate to their firm's home city.
For investment bankers, the travel does not necessarily stop; it is just added to the industry's infamously long work hours. Most entry-level investment banking analysts and associates work more than 75 hours per week; there have been reports of more than 100-hour weeks. To break that down, a 75-hour work week is equal to six consecutive 12.5-hour days. This is more than 50% longer than the average American worked between 2010 and 2014.
By comparison, equity research is much more balanced. Equity research analysts spend a great deal of time, sometimes up to three months, covering just eight to 16 companies. This can be a little monotonous, but it does not require 12-hour days.