What is the future of sell side equity research?

thefork

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In the post Spitzer era does sell-side equity research have much of a future? I know ER isn't getting the bonuses that they formerly did, but where will they be in 5 years, any future at all??? I heard that Lehman is turning some of their top analysts into traders because ER makes the firm ZERO money. Thoughts??????????????
 
I think it will ever be there either in house or 3rd hand. The point is that its value it adds is so relative that it has to be in tatters but anyway it a main source of business.

"Luck does not exist, but merely likelihoods"
 
Why are BB banks paying analysts $250-$400 when they are only cost centers now?
 
actually, what lehman has done (and UBS is kind of doing the same) is changing the name of the research analysts to 'desk analysts', which means that the disclaimer on the reports says that they are not 'impartial' to the IB's business and the reader should be aware of this. trust me, IBs will find ways around this.

also, for IBs based outside of the US, they are more or less ignoring these rules from the US. business as usual.
 
I know "star analysts" make bank, but how much do average senior analysts make? My brother, without a CFA, without an MBA and only having a BA from an average school, after 3 years a BB promoted him to Associate and just recently senior analyst(after 5 years total with the bank). How much does he pull in, in ER, in a sector that isn't HOT??????????



Edited 1 time(s). Last edit at Wednesday, June 14, 2006 at 07:51PM by thefork.
 
Check the post from a couple of days ago regarding what they make. A decent sell-side analyst earns anywhere from $250K to double that depending on the comp structure.
What will become of the sell side a great question. I tend to think it will always exist as there is clearly value added for money managers. How they're compensated is a different story. When I started 2 years ago, trading revenue of 4 cents or 5 cents a share was the norm. Now, it's more like 2 or 3 if the account pays you at all vs. just buying it on an ETN.
 
I don't believe that all BB senior analysts make $250+bonus. I can see $150-175 + bonus tops for a senior analyst starting out, but where does the $250 number come from?
 
there've been a lot of changes in sell-side research, specifically in that most firms are moving to different business models in order to generate more revenue. unbundling is one example of that; some firms are moving to independent P&L's for each franchise/research team, others might be focused on building out the relationship between research and retail trading (as opposed to just institutional), etc.

i have worked at one bulge bracket shop and recently accepted a position at another. there's definitely been quite a bit of transformation at both firms as they try to figure out how to make research more profitable, but it's not like all firms are cutting research -- some are actually ramping up because their research IS considered to be value-added. it can be unsettling to some people, but i've been in research long enough to endure the "changes," i suppose. while it might not be the most stable environment, i do feel like i'm part of a firm that's committed to research right now, but more importantly, the skills one learns in research (modeling, writing, client interaction and marketing) are still highly coveted and can be levered in many other fields, including buy-side work. why else do you think so many people want to get into it?

furthermore, the fact remains that while it is uncertain what the future of sell-side research will be, i think the main reason so many people still want to get into it is because the sell-side research skill set will always be of use. people will always need investment advice so even if sell-side research doesn't exist in the same form a few years from now as it does today, the skill set will still be very versatile.

thefork, with your respect to your question about "starting out," once you're a senior analyst, you're not exactly "starting out" per se. in a manner of speaking, if you're at a bulge bracket shop and you're covering stocks, you've paid your dues already and shown that you can handle those responsibilities. in addition, the problem with your line of thinking is that research, like many jobs on wall street, is not tied to their base pay -- it's the bonuses that make all the difference. senior analysts may make $150-175K base, but they can still make several multiples of that in bonuses.

i hope my post provides you with some useful insights regarding this matter. you propose a good question, and the short of it is that i do recognize the volatility in research as a whole, but i think the financial skill set you can acquire at a young age still make it appealing to many.



Edited 1 time(s). Last edit at Thursday, June 15, 2006 at 12:02AM by numi.
 
You said that a sell-side senior analyst could make 150K + bonus. Do you think that they could easily make 300K total in a good year?
 
absolutely. in sydney sector head analysts at BBs are in high 200s for salary and will make over 400 this year.
 
It's all about ratings - when I was at BB back in 2000/2001 a fellow analyst in an OK sector who was rated No1 by more than one external survey e.g. Reuters (and highly by client FMs) earnt over half a million sterling in bonearse. His basic at the time was probably about 140 sterling. Bonus is often related to house comm. from the sector.

As for the Q. at the start ... "da dawg numi got it goin on"
 
numi Wrote:
-------------------------------------------------------
> there've been a lot of changes in sell-side
> research, specifically in that most firms are
> moving to different business models in order to
> generate more revenue. unbundling is one example
> of that; some firms are moving to independent
> P&L's for each franchise/research team, others
> might be focused on building out the relationship
> between research and retail trading (as opposed to
> just institutional), etc.
>
> i have worked at one bulge bracket shop and
> recently accepted a position at another. there's
> definitely been quite a bit of transformation at
> both firms as they try to figure out how to make
> research more profitable, but it's not like all
> firms are cutting research -- some are actually
> ramping up because their research IS considered to
> be value-added. it can be unsettling to some
> people, but i've been in research long enough to
> endure the "changes," i suppose. while it might
> not be the most stable environment, i do feel like
> i'm part of a firm that's committed to research
> right now, but more importantly, the skills one
> learns in research (modeling, writing, client
> interaction and marketing) are still highly
> coveted and can be levered in many other fields,
> including buy-side work. why else do you think so
> many people want to get into it?
>
> furthermore, the fact remains that while it is
> uncertain what the future of sell-side research
> will be, i think the main reason so many people
> still want to get into it is because the sell-side
> research skill set will always be of use. people
> will always need investment advice so even if
> sell-side research doesn't exist in the same form
> a few years from now as it does today, the skill
> set will still be very versatile.
>
> thefork, with your respect to your question about
> "starting out," once you're a senior analyst,
> you're not exactly "starting out" per se. in a
> manner of speaking, if you're at a bulge bracket
> shop and you're covering stocks, you've paid your
> dues already and shown that you can handle those
> responsibilities. in addition, the problem with
> your line of thinking is that research, like many
> jobs on wall street, is not tied to their base pay
> -- it's the bonuses that make all the difference.
> senior analysts may make $150-175K base, but they
> can still make several multiples of that in
> bonuses.
>
> i hope my post provides you with some useful
> insights regarding this matter. you propose a good
> question, and the short of it is that i do
> recognize the volatility in research as a whole,
> but i think the financial skill set you can
> acquire at a young age still make it appealing to
> many.


Thank you for the post, it was very informative. I have a question for you, are you probably too old at say 33 to break into equity research??
 
fork, my 250+ comes from the firm at which i am an associate (not a BB). we're paid based on the trading commission generated in the names we cover. i have a hard time believing that someone is working for goldman, paying nyc standard of living for 150 a year.
 
Agreed - for example, I know a couple of Biotech analysts who were medical doctors and who then went onto do research before switching to ER in their late 30's.
 
I wouldnt so much call ER strictly a cost center. The research they provide is "sold" more or less by the equity desk. ER is what generates sales trading profits. Without it, the only source of trade revenue for a bank would be on the prop desk, no?
 
Yep. Same thing in my old shop. Biotech guy was a doctor, left the practice, got an MBA, and now is a Senior Analyst for a good boutique firm.
 
i know guys who have been engineers and become analysts, dentists to analyst, vet to analyst, etc...
 
Well, I am not a doctor, engineer or vet. I have an MBA from a top 20 and have been working in supply chain in a fortune 200 for 10 years and had a short stint at consulting. I just cannot see paying the $500K for a one bedroom/studio in Manhattan. I have a family member who is a senior analyst at a BB, but I wouldn't want to ask him for help to get a job in ER, I would want to do it on my own. I don't think that I could go to a job under a senior analyst that is 26-28 and work with kids just out of school. How do some of you older guys deal with that????
 
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