When it comes to investment research analysts, most people only think the differences lie solely in the financial institutions the analysts work for.
Did you know that there are a buy side and sell side analysts that do similar things, yet have different roles?
Let us walk you through the differences between buy side and sell side with our infographic below:
What is Sell Side and Buy Side?
Sell side normally associated with institutions that are involved in the creation, promotion and sale of different financial instruments such as bonds, stocks, foreign exchange and et cetera.
Buy side is a term often used in investment firms that refers to providing advises regarding to buying investment services to institutions.
What are the institutions involved in Sell Side and Buy Side?
Sell side involves firms like investment banking, stock brokers, commercial banking, market makers and et cetera.
Analysts from sell side often issue recommendations of “neutral”, “sell”, “outperform” or “strong buy”. These recommendations allow clients to make decision on trading certain stocks. The brokerage will receive commission on every transaction is made.
While buy side, on the other hand, includes hedge funds, institutional investors, asset managers, retail investors, and pension funds. Individuals that are hired by the aforementioned firms are required to do research and make recommendations to the fund managers that they work with.
What are the skills required?
Everyone knows that both buy side and sell side require analytic skills and financial knowledge. However, buy side requires a higher level of those skills compared to sell side. This is because buy side analysts are responsible for taking the investment decisions themselves.
Here is a list of important skillsets required for sell-side and buy-side analysts:
Generate Research Report
Selling and Closing Deals
Generate Research Report
Achieving Targeted Rates of Risk-adjusted Return
What are the roles?
The job roles in both sell-side and buy-side differs as it depends on the functions of each side performs for their client.
These are the roles you can find on sell-side:
Help clients get in and out of positions.
Perform financial modeling and valuation.
Provide research on listed companies.
Market and sell securities.
Create liquidity for listed securities.
Advise on M&A.
Facilitate raising capital, including debt and equity.
Build relationships with corporates.
Advise corporate clients on major transaction.
These are the roles you can find on the buy-side:
Find investors and recruit capital to manage.
Works on financial modelling and valuation.
Grow assets under management (AUM).
Earn the best risk-adjusted return on capital.
Make investment decisions such as buy, hold, or sell.
Manage clients’ money.
Perform in-house research on investment opportunities.
What’s the work-life balance like?
Sell-side tend to have more working hours compared to buy-side. This is because most investment banks may have to report to their clients at all times. Buy-side, on the other hand, tend to have a less hectic lifestyle as they are the ones with the funds to invest. However, they are also required to work for long hours in the event of a sharp deadline or if there is another buyer for the same asset.
Buy-side has a leaner structure that includes portfolio manager, researcher, and marketing person. Whereas for sell-side, it has a hierarchical structure which includes analyst, associate, vice president, and managing director, as mentioned on WallStreetMojo.
Buy-side gets a more attractive paycheck compared to sell-side as buy-side analysts are often said to require a larger skillset than the sell-side analysts, hence, the higher paycheck.
The salary and bonus also depend on other factors such as the position, company, city and et cetera. Also, for buy-side, they will receive a performance bonus in the form of equity interest.
Sell side analysts will come up with recommendations and do their own research reports to come up with investment decisions for their clients. These reports are usually available to the public.
However, research reports created by buy side analysts are not available publicly. Buy side analysts usually modify and carry out their own analysis further using the reports from sell side analysts to come up with their own investment decision. The investment decision made by buy sell analysts adheres to one's company strategy, not just giving a buy or sell call alone.
We hope that this article has given you a better understanding of the role differences between buy-side and sell-side analysts. Despite having similar job responsibilities, there are differences in their roles.
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