Equity Research vs Investment Banking

With so many positions and terminology in the finance industry, it is not uncommon that you may be confused about the differences between different sectors.

One of the most commonly asked questions is the difference between equity research and investment banking.

Most people think investment banking is superior - since everyone who wants to break into the finance world says they want to be an investment banker. However, lengthy hours and a demanding workplace for investment banking have diminished apparel to people.

Nevertheless, the industry still draws in a lot of workers. Top graduates are now choosing professions in management consulting, technology, or founding their firms rather than flooding into investment banking.

One position in particular that is gaining more popularity is equity research. People didn't usually consider equity research before because they didn't think it was as glamorous and prestigious as investment banking.

Nowadays, with more access to information, people realize that equity research isn't what most people expect it to be. Hence, this article will help you better understand equity research.

In addition, knowing whether investment banking or equity research is a better fit for you when considering a career in the capital markets is crucial. 

Both equity research and investment banking provide a great working environment and lucrative pay. However, personality dominates all other factors while making a decision. The main distinctions between equities research and investment banking will be outlined in this article.

What is equity research?

Equity research analyzes financial data and openly available information to assess the performance and potential of particular stocks or the overall stock market.

Equity research analysts will look at a company's financial statements, industry trends, market data, and other factors and statistics to determine the value of different stocks.

Equity research analysts then use this data to offer their firm's clients (institutional investors, hedge funds, individual investors, and more) general market or industry perspectives and buy, hold, or sell recommendations on particular stocks. 

An equities research analyst's daily tasks can change based on the company's size, depending on their level of expertise, their level in the company, and the particular sector or industry they focus on. Though the general activities include:

1. Collecting and analyzing financial data

To stay current on the firm's equity research analysts' financial performance, you must constantly study corporate financial statements, market data, and other pertinent information.

2. Meeting with the company management

Equity research analysts frequently meet with the management teams to better understand the business operations, financial performance, and long-term goals of the companies they cover.

3. Talking to industry experts

On top of meeting with company management, equity research analysts also speak with other industry specialists, including rivals, suppliers, and customers, to develop a more thorough grasp of the businesses and industries they cover.

4. Writing research reports

Equity research analysts prepare reports based on their research to communicate their findings and investment suggestions with clients. Hence, you need to be good at communicating via writing, in person, etc.

5. Presenting research to clients

To clarify their investment thesis and respond to inquiries, equity research analysts deliver their findings to clients in person, over the phone, or in other ways.

6. Staying informed of market and industry trends

Equity research analysts must stay up to date on general market and industry trends to ensure that their analysis and suggestions are still relevant.

These activities show that equity research analysts must be highly analytical, detail-oriented, and effective communicators. You need to be able to analyze intricate financial data, think critically, and provide appropriate investment advice.

The typical annual salary for equity research analysts is between $70,000 to $150,000. While senior analysts with more years of experience can earn salaries toward the higher end, junior analysts may start at the lower end of this spectrum.

What is investment banking?

Investment banking is a financial business that involves advising corporations, governments, and other entities and generating funds.

Investment bankers assist clients in navigating the capital markets and finding ways to raise funds by issuing securities such as stocks and bonds.

Investment bankers work on underwriting (capital raising, IPOs, etc.), mergers and acquisitions, corporate finance, and general advising mandates to assist their customers in generating funds.

An investment banker's day-to-day activities can vary depending on the exact function and stage of a deal or project. However, here is a rough outline of a normal day for an investment banking analyst:

1. Reviewing financial data and market trends.
   Investment bankers begin each day by examining financial data and market trends to stay current on changes that may affect their clients and deals.
2. Meeting with clients
   Meetings with clients to negotiate possible transactions, offer updates on current projects, or answer queries.
3. Conducting financial analysis
   Investment bankers devote much effort to financial analysis, including developing financial models, generating presentations, and compiling client reports.
4. Participating in team meetings
   Investment bankers frequently participate in team meetings to coordinate their work, communicate information, and talk about the status of the projects.
5. Attending client presentations
   To deliver their conclusions and suggestions, investment bankers also attend client presentations.
6. Collaborating with other departments
   Investment bankers may work with other departments, such as legal or risk management, to ensure that deals are planned and carried out appropriately.
7. Staying up to date on regulatory changes
   Investment bankers must be aware of and updated about regulatory developments and how they might affect their customers and business deals.

From the above, you find that investment bankers must be able to analyze complex financial information, effectively communicate their findings and recommendations to clients and colleagues, work long hours, and collaborate effectively with colleagues and clients.

Depending on the location and the investment bank, recent graduates starting as investment banking analysts can anticipate salaries ranging from $70,000 to $100,000 annually.

Equity Research vs Investment Banking

Now that you know what equity research and investment banking are, let's examine the differences.

Here are some of the key differences between equity research and investment banking:

1. Job Function

In equity research, you analyze and research companies, industries, and markets to provide investment recommendations to clients.

Specifically, you will also focus your research on generating insights and gathering information about buying and selling stocks for your clients.

In investment banking, you provide advisory and other services to clients regarding financial transactions.

Specifically, you will focus on structuring, negotiating, and executing the said financial transitions for your clients.

Hence, the differences are that equity research is more research and advice, while investment banking is more hands-on in helping clients.

2. Skill Sets

Because equity research analysts and investment bankers have different job functions, unique skill sets will be required for the job.

Since you're mostly dealing with research (hence the name of equity research), you need to be good at financial analysis and modeling, accounting skills, valuations, and writing skills for writing reports.

In investment banking, you're dealing with the information given to you. You must also know financial modeling and deal with structuring, negotiation, and relationship building.

Suppose equity research is gathering and analyzing information. In that case, investment banking is taking information and restructuring it so that you can apply it to the services the firm offers.

An easier way to think about it is that equity research analysts work on the firm's internal functions. In contrast, investment bankers work on the external functions of a firm.

3. Work-life balance

Although equity research and investment banking require brutal hours from analysts, equity research gets lax every now and then. Equity research analysts work 12-hour days, but there are intervals of relative tranquility.

Equity research analysts are the busiest while initiating coverage on a sector or stock during earnings season when corporate earnings reports and analysis must be delivered promptly.

Investment bankers are always brutal. They will find themselves working 80 to 100-hour workweeks. However, there may be weeks when you find yourself more at ease.

4. Works for different departments and with different people.

If you work in equity research, you will work for a research department within a brokerage firm or an investment bank. You will mostly interact with your company's management team and industry experts to gather information and insights.

A research department is important because it gives investors access to market analysis and general coverage of what's happening on Wall Street.

If you work in investment banking, you will work at an investment bank or advisory firm, filling in whatever needs to be filled. You work closely with clients, senior executives, management teams, lawyers, accountants, etc.

Investment bankers are also divided into specific industry groups, such as technology, media & telecommunications (TMT), healthcare, real estate, and more.

Researched and authored by Alisa Zhu | LinkedIn

Reviewed and edited by Parul Gupta | LinkedIn

Free Resources

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