Equity Research Careers: A Day in the Life, Advancement, Compensation, and Exit Opportunities

So, you won equity research interviews by networking aggressively…

You presented 2-3 well-researched stock pitches and passed your interviews…

…and despite MiFID II and rumors of the industry’s demise, research teams still exist at banks.

What happens when you start your equity research career, how much will you work, and what exit options will you get?

All good questions – so we’ll answer all of those and more here:

What To Expect In An Equity Research Job

Similar to other public-markets roles, you might arrive at work a couple hours before the market opens. In New York, that means “around 8:00 AM.”

Once you arrive at your desk, you’ll spend some time catching up on emails from traders and salespeople, reading the news, and monitoring overnight market developments.

The rest of the day is a mix of keeping things up to date (e.g., financial models), researching companies, and finding new companies to initiate coverage on.

The best and most experienced Associates also interact with clients and set up management meetings between companies and buy-side firms, and these are the real moneymakers for equity research careers in the post-MiFID II environment.

Doing the work required to initiate coverage and building the initial model can take months, so teams need to balance that with other tasks, such as client summits and conferences.

Professionals in equity research careers are best-known for insightful reports, but these reports do not necessarily take up the bulk of staff time.

That said, if the group is working on a detailed “thought piece” that reaches counter-consensus conclusions, that can consume a lot of time and effort. But it can also be worth it if it results in more viewership and client interactions.

Your time allocation during the day depends heavily on the industry you’re covering and how the Research Analyst (read: your boss) likes to run things.

In some teams, Associates spend 75% of their time modeling, but in others, it might be closer to 25% – and that percentage often changes over time.

Often, junior team members get tasked with modeling or grunt work, especially in larger teams, and senior members spend more time talking to investors and companies.

In equity research internships, you’ll assist the full-timers with data gathering, industry research, model updates, and more.

Equity Research Hours

If it’s a normal day, you might leave around 8:00 PM, which means ~12-hour workdays.

However, hours get significantly worse during earnings season, which happens once per quarter, and during industry conferences.

Unforeseen news events and developments, such as regulatory changes, M&A deals, earnings pre-announcements, or Amazon entering your space, can also make the hours worse.

Earnings season is busy because you have to update all your models and issue new reports with new estimates, and industry conferences are busy periods because you run around meeting people during the day and then do your actual work at night.

In both those periods, the 12-hour days can easily turn into 16-hour+ days, so the job will approach investment banking hours.

If you experience consistent mid-intensity stress levels in banking, equity research careers give you low-intensity stress most of the time, with occasional spikes to high stress.

As with any other public-markets roles, your schedule can be tough if your time zone doesn’t match the time zone of the major financial center in your region.

For example, if you’re on the West Coast of the U.S., you can look forward to waking up at 4 AM and arriving at the office by 5 AM each day.

Finally, the hours can get worse as you advance because Analysts have to travel and interact with clients while still assuming responsibility for published research.

Equity Research Careers: Example Reports and Other Deliverables

The published reports represent the “deliverables” that most people associate with equity research.

We linked to a few examples in Part 1 of this series on equity research recruiting:

• Morgan Stanley – Update on Lululemon Athletica
• Morgan Stanley – Initiating Coverage on Citizens Financial Group
• RBC – Initiating Coverage on Waddell & Reed Financial
• Lehman Brothers – REIT Sector Overview
• Lehman Brothers – Initiating Coverage on CBS Corp

You can divide these reports into three broad categories:

• Initial Opinion / Initiation of Coverage (IOC): This one is the first report ever published by the team on a specific company. It tends to be long (dozens of pages or more), and it has a lot of industry/market data, detailed rationale for the projections, information on competitors, the company’s valuation, and more.
• Industry Overview / Primer: This type of report also tends to be long (dozens of pages) because it covers an entire industry, such as U.S.-based pharmaceutical companies or European ground transportation companies (read: trucking). There will be sections on trends and key drivers/metrics, risk factors, legislation, and overall valuation levels, followed by shorter sections on specific companies.
• Company Note: This report is shorter (5-10 pages) and is issued when a company reports earnings, hosts an investor day, presents at a conference, or makes an announcement that impacts its strategy, such as an acquisition or the launch of a key product.

The “Initiation of Coverage” and “Industry Overview” reports consume a lot of resources, so teams must weigh the benefits carefully before deciding to invest the time and effort in creating them.

A typical research team covers around a dozen companies, so if your sector is “Large-Cap European Airlines,” your coverage list might include the Lufthansa Group, Ryanair, IAG (British Airways, Iberia, and others), Air France-KLM, EasyJet, Turkish Airlines, Aeroflot Group, Norwegian Air, Wizz Air, Pegasus, Alitalia, and TAP Air Portugal.

You focus on names that buy-side investors are interested in – in Europe, they’re paying you directly for the research, and in other regions, they’re making trades through your bank and generating commissions, and you encourage those trades with research.

Some boutique and middle-market firms focus on lesser-known names because they can add more value when they’re not team #37 covering the same company.

Your team might decide to initiate coverage on a new company when a firm you cover is acquired or gets de-listed, or because the company’s strategy or business model changes, or because your team gets additional headcount.

When that happens, you can expect to do a deep dive on that single company and its sub-industry for weeks or months until you have a detailed projection model and qualitative research to back up your assumptions.

The Equity Research Hierarchy and Promotions

In research, the most senior team member is the “Analyst,” and below that are the “Research Associates.”

Each team usually has one Analyst and 2-3 Associates, with one Associate for every 7-10 names under coverage.

This system is a bit confusing because “Analyst” and “Associate” are just the titles used on published reports.

Internally, the hierarchy is still similar to the one in the investment banking career path, where you advance from Associate to VP to Senior VP/Director to MD.

The difference is that Analysts can be different levels: VP-level Analysts vs. MD-level Analysts, for example.

The total headcount across equity research at all banks in the U.S. is an order of magnitude smaller than the investment banking headcount: Hundreds of professionals rather than thousands.

That smaller industry size and the historically lower turnover mean that it’s often difficult to advance in equity research careers by staying at the same bank.

Sometimes you may get lucky and find an opportunity if your Analyst suddenly leaves, but you’re more likely to get promoted by joining a different bank.

To advance, you must build a reputation instead of burying yourself in Excel all day. No one cares how fancy your model is – they care how good your insights are.

Many Associates struggle to move up because they don’t take the time to get to know management teams and institutional investors.

If you don’t perform well enough to advance, you won’t necessarily be fired dramatically; research professionals are cheaper than bankers, and there’s no fixed 2-year or 3-year program.

That said, it is not unheard of for entire research verticals to be eliminated during cost-cutting season.

At the junior level, people tend to stick around for 2-4 years before moving to another firm or leaving their equity research careers behind.

Equity Research Salary and Bonus Levels

As of 2018, Associates in major financial centers tend to earn between $125K and $200K USD in total compensation, with about 75% of that from their base salaries.

Post-MBA and graduate-level hires earn in the middle-to-high-end of that range, and possibly slightly above it.

As with investment banking compensation, you’ll probably earn below this range in London for a variety of reasons (GBP/USD, Brexit, MiFID II, pay is almost always lower in Europe, etc.).

VP-level professionals earn between $200K and $300K, again with 75%+ from their base salaries.

However, at smaller banks, VPs could earn below this range – something closer to the Associate compensation range is possible at the lower end.

Directors might earn between $300K and $600K, with 50-75%+ of that in base salary. At this level, the year-end bonus starts to make a huge impact on total compensation.

Finally, MDs could earn between $500K and $1 million, with base salaries in the $250K – $600K range.

Back in the dot-com boom of the late 1990s, some Analysts earned $10 million+, but these days, it’s a great outcome if an MD-level Analyst clears $1 million.

To earn in the low millions (say, $1.0 – $2.5 million), you’d likely have to be one of the top few Institutional Investor-ranked Analysts.

With MiFID II, these numbers will almost certainly fall – especially in Europe.

Equity research careers have always paid less than ones in investment banking, and that difference is likely to widen over time.

Historically, bonuses were based on 1) Analyst rankings such as the Institutional Investor Poll (II) Greenwich Poll; 2) the performance of Buy/Hold/Sell calls; and 3) revenue indirectly generated via trading commissions and investment banking fees (e.g. from companies going public or public companies issuing follow-on offerings through the bank).

With MiFID II, the basis of compensation will presumably shift to the amounts buy-side firms are spending directly on research.

The research reports themselves are not necessarily that expensive, but interactions and management meetings, non-deal roadshows, and conferences add up, and in some cases, buy-side firms end up spending more and consuming less.

Buy-side firms spend this money because many of their professionals cover breadth rather than depth, and sell-side Analysts might know specific companies in more detail.

Research compensation is likely to become more lopsided, with the top-ranked groups garnering the bulk of the fees and lower-ranked firms fighting over the scraps.

Equity Research Exit Opportunities

The bad news is that it is almost impossible to break into private equity directly from equity research.

Yes, a few people have done it over the years, but it’s far easier to transfer into investment banking first if you want to go that route.

You do not work on mergers, acquisitions, or leveraged buyouts in equity research, which makes your skill set not-so-useful for PE roles.

It’s far more common to move to hedge funds or asset management firms since there’s a direct skill set overlap – you analyze public securities and make investment recommendations in each one.

Within that category, long/short equity funds are the most natural fit for equity research professionals, while global macro funds are the worst fit because you work on the “micro” level in most equity research groups.

Other types, such as merger arbitrage and event-driven funds, could be a good fit depending on the sector you covered and the importance of deals, news, and events in that sector.

For more about this topic, please see our articles on hedge fund careers and private equity vs hedge funds.

Another option is to start your own fund eventually, which we cover in our “How to Start a Hedge Fund” article – but the key word there is “eventually” since you won’t be able to do this directly out of an ER role.

You could also move into the corporate finance career path at normal companies, investor relations, or potentially even corporate development – your industry expertise may compensate for less deal knowledge there.

Some professionals also leave their equity research careers and move into corporate strategy because their coverage and analysis of companies is typically higher-level, which fits right in with strategy.

In those roles, you might also be in charge of competitive intelligence, monitoring your firm’s peer group, and publishing internal reports.

Some research professionals also decide to attend business school, and if they do, they’re viewed similarly to other high-performing financial professionals.

One challenge is that it can be harder to get solid recommendations in equity research because team sizes are smaller, and the Analyst calls all the shots.

So, if your Analyst relationship isn’t great, you may have to request recommendations from other groups or people outside the firm.

It’s not uncommon to ask another Associate, a salesperson, or a trader for a recommendation for this reason.

Are Equity Research Careers Still Worthwhile?

Going back to that question we posed in Part 1, our most frequent query about equity research careers goes something like this:

“Everyone says the industry is dying! Should I still go into it? Won’t the new regulations, falling commissions, and passive investing destroy everything?”

And the answer remains the same: The industry won’t go away overnight, but it is less appealing than it once was.

However, that matters a lot more for Senior Analysts with 10+ years of experience whose business models are being pulled out from under them.

If you’re at the undergrad or MBA level, you could still make a solid case for working in equity research for a few years and then using the skill set to move into another industry.

You’ll do more interesting work than in investment banking.

You’ll have more of a life, with saner, more predictable hours and occasional stressful periods.

You’ll build a solid network of buy-side professionals and company managers.

And you might even be able to sneak in through the side door – like an undervalued stock.

• Equity Research Recruiting – Part 1
• Equity Research Careers – Part 2

Want more?

You might be interested in:

• Biotech Equity Research: The Best Escape Plan from Medicine or Academia?
• The Equity Research Analyst Career Path: The Best Escape from a Ph.D. Program, or a Pathway into the Abyss?
• Fixed Income Research: The Overlooked Younger Brother of Equity Research?

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Numi Advisory has provided career coaching, mock interviews, and resume reviews to over 600 clients seeking careers in equity research, private equity, investment management, and hedge funds. With extensive firsthand experience in these fields, Numi offers unparalleled insights on how to ace your interviews and excel on the job.

Numi customizes solutions to each client’s unique background and career aspirations and helps them find the path of least resistance toward securing their dream careers. He has helped place over 150 candidates in leading buy-side and sell-side jobs. For more information on career services and client testimonials, please contact numi.advisory@gmail.com, or visit Numi’s LinkedIn page.