Research analysts play a critical role in the financial services industry by providing in-depth analysis and recommendations on securities, industries, and the overall economy. Their insights help inform investment decisions and guide strategic moves. But is this profession actually in high demand in today’s market?
What do research analysts do?
Research analysts typically focus on a specific industry, sector or geographic region. Their primary responsibilities include:
- Researching and analyzing financial information on companies, industries, trends, and the overall economy
- Creating financial models and forecasts to predict future performance
- Writing research reports summarizing analysis and recommendations
- Meeting with corporate executives to gather information and provide analysis
- Making buy, sell and hold recommendations on securities
Strong research requires financial modeling skills, valuation expertise, and an ability to synthesize data into actionable insights. Research analysts are essentially financial detectives, digging deep to unearth relevant information for making investment decisions.
Where do research analysts work?
Research analysts are employed across the financial industry:
- Investment banks – Analysts support investment banking activities like mergers and acquisitions, IPOs, debt offerings, etc. They produce industry-specific research to help drive deal flow.
- Asset management firms – Analysts at mutual funds, hedge funds, pensions, endowments, etc. provide research to inform portfolio management and investment strategies.
- Sell-side firms – Analysts at brokerage firms produce research reports and recommendations primarily for client use.
- Buy-side firms – Larger institutions like mutual funds employ analysts solely for internal use in managing investments.
- Independent research firms – Boutique research shops provide subscription services to institutional investors.
While their core duties are similar across employers, research analysts tailor their focus area, style and deliverables to their firm’s needs.
What skills do research analysts need?
To be an effective research analyst requires a diverse mix of hard and soft skills:
- Financial modeling – Building models to analyze data and forecast future performance.
- Valuation techniques – Using DCF, comps and other methods to value securities.
- Accounting expertise – Understanding financial statements and accounting rules.
- Industry knowledge – Developing in-depth understanding of covered sectors.
- Data analysis – Extracting insights from company and market data.
- Communication skills – Writing reports and presenting analysis to clients.
- Creativity – Developing original perspectives on industries and companies.
- Attention to detail – Identifying minor but meaningful data points.
- Time management – Meeting tight deadlines for deliverables.
The most successful analysts combine financial acumen with strong communication abilities.
What is the career path for research analysts?
The typical career progression for a research analyst is:
- Complete undergraduate degree – Common majors are finance, accounting, economics. Technical skills in fields like engineering are valued in certain sectors.
- Get hired as a junior research associate – Support senior analysts by compiling data, building models, preparing charts.
- Advance to research analyst after 2-3 years – Take on responsibilities for covering specific industries and companies.
- Progress to senior research analyst – Lead research teams, have direct client interactions, build reputation as an expert.
- Potential career paths from there:
- Manage entire research division at firm
- Transition to portfolio management role
- Move to buyside from sellside
- Join an independent research firm
Ambitious analysts can rise up the ranks to lead research teams. Their expertise also positions them well for portfolio management roles where they directly invest capital based on their insights.
What is the salary range for research analysts?
Compensation for research analysts can vary significantly based on role, experience and employer:
Position | Salary Range |
---|---|
Junior Research Associate | $50,000 – $80,000 |
Research Analyst | $80,000 – $120,000 |
Senior Research Analyst | $120,000 – $200,000 |
Research Director | $200,000+ |
Bonuses are a major component too, especially at investment banks where bonuses can exceed base salaries.
Sellside analysts generally earn higher compensation than their buyside peers. But the career trajectory and pay on the buyside can ultimately surpass sellside over time.
What is the job outlook for research analysts?
The US Bureau of Labor Statistics groups research analysts within the broader “financial analysts” category, which is projected to grow 6% from 2020 to 2030 – faster than the average across all occupations.
Demand is driven by:
- Growth in financial services – More firms investing in markets requires more research.
- Importance of expertise – Complex markets increase the need for specialized knowledge.
- Investment portfolio complexity – Analysts required to research diverse assets like derivatives, foreign securities, etc.
- Emergence of new industries – New sectors require dedicated analysts to provide coverage.
Passive investing’s rise does present a challenge to sellside analysts in particular. Lower trading activity reduces commissions and the ability to justify large research budgets. Tech-driven disruption is also automating certain analytical tasks.
But human insight remains indispensable – skilled analysts who can put raw data in proper context continue to thrive.
Conclusion
Quality research provides a vital edge for investors in ever-evolving markets. While sellside commission pressures and automation present challenges, skilled analysts remain highly valued for their ability to dig deeper and derive unique insights.
Strong analytical capabilities combined with communication skills provide a strong foundation for a promising career. The path offers intellectual stimulation from evaluating a diverse mix of industries, companies and assets. Those able to master both finance and interpersonal abilities are poised to advance into leadership and investing roles.
So for individuals considering the field, research analyst remains a highly attractive profession with strong prospects thanks to rising demand for specialized expertise. It’s a career path enabling one to directly contribute to investment decisions worth billions. The critical role research plays in driving markets suggests these opportunities will only expand moving forward.