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So you want to be an equity or credit research analyst, do you want to work on the buy side or the side?

Part 1 — The Sell Side described sell side research analysts, Part 2 — The Buy Side  described buy side research analysts, and Part 3 will help you determine which path is right for you.

Part 3 – Buy Side or Sell Side?

If you are just starting your career, the entry-level responsibilities are virtually identical: financial modeling and assisting with stock recommendations. Besides, picking a side at the start of your career is probably irrelevant since you can jump to either side down the road.

However, I will note that you typically see sell side analysts jump to the buy side, but you rarely see buy side analysts jump to the sell side. Why? I’ve heard many different reasons from the people I know who’ve made the jump, but I generally think it’s because most analysts want to see their hard work implemented instead of simply selling it off to someone else to use.

There are some other issues to consider if you are looking at the sell side. For example, if you are a sell side analyst at a firm that has an investment bank (think any bulge bracket firm), you will be expected to add input to the bankers on pending IPOs and other capital raising activities. Sarbanes-Oxley strengthened Chinese walls to help avoid potential conflicts, but the potential is still there. Regardless, these activities and the associated compliance issues can be a drain on your time when all you want to do is research and analyze securities.

One benefit of Sarbanes-Oxley was that it lowered the importance of the sell side analyst recommendation at investment banks. This lowered importance has sometimes led to lower pay at many of these firms.

Wait a minute! Lower pay – how is that a benefit??

Well, this forced a number of top-notch sell side analysts to leave the big banks and set up shop on their own. We’ve seen a lot of newly formed, boutique sell side firms start with a sole focus on providing research. This freedom from investment banks has allowed these analysts to improve their research and that has led to some very high quality product.

So, if you decide to include the sell side in your career search. be sure to include these niche focused, boutique firms and not just the bulge bracket names. You might be surprised at how much better life is at a small firm compared to a large firm.

So which path will you choose: buy side or sell side ?