Posted By: Kaplan Financial Education
Updated: August 14, 2017
As a college student studying business or finance, you may be interested in pursuing a career as a financial analyst. But do you know what a financial analyst really does? In a nutshell, financial analysts provide guidance and advice about future financial moves, based on data they gather and analyze. But the day-to-day operations of a financial analyst are heavily dictated by whether the analyst works on the buy side or the sell side.
Sell side analysts work for brokerage firms that recommend buying or selling stock based on their research. Essentially, the sell side analyst’s primary responsibility is to convince companies to conduct their trading through the firm that the analyst represents. They do that by providing and demonstrating value that differentiates them from other analysts and firms.
Sell side analysts are typically very specialized. They follow a specific group of companies within a specific industry and are responsible for reporting their findings to their firm’s clients on a regular basis. To do that effectively, they become the eyes and ears of the industry they’re focused on. They talk with customers, competitors, vendors, and anyone they can find with an insider’s knowledge of the industry. They use all of this information to compile models and reports that predict the future performance of a particular stock.
Providing and demonstrating value is paramount to the sell side analyst. A sell side analyst is like a good journalist—looking for the inside source that nobody else has that can expose something nobody else sees coming. When sell side analysts come across new information, they aim to be the first one to inform the client, to demonstrate their value as “first to know.”
Buy side financial analysts represent the side looking to invest. They typically work for a mutual fund company or pension fund company, and typically cover a much broader range of industry than a sell side analyst. Buy side analysts are the conduit that connects sell side analysts with the institutional investors they want to work with. Buy side analysts are counted on by their employers to make the right decisions. In addition to the news and information that sell side analysts sift through, buy side analysts also examine reports from the sell side to find valuable insights that will help them make the right decisions.
Buy side analysts are very cognizant of risk and conduct a fair share of their own research. But because they typically represent a broader industry sector than the sell side investor, they rely on data and information from the sell side to make their decisions. They work closely with sell side analysts and are constantly working to identify and source the best of the best on the sell side.
Buy side and sell side analysts lead similar day-to-day lives. They consume news, dig for insights, build financial models, and generally try to get the inside track on information that will help them provide the most solid stock recommendations. They have similar backgrounds, interests, and formal training. Analysts on both sides possess similar skill sets, and both sides might be equally likely to have earned the CFA® charter.
The largest essential difference in who they are stems from who they represent. Because a buy side analyst represents the investor, they view everything through the lens of making the right decisions for their employer. They take the role of a consumer, getting all of the information they need to make the best decision possible. A sell side analyst often wears the hat of a salesperson or marketer. They aim to differentiate themselves from other analysts and firms by providing reliable and consistent recommendations and developing a reputation of trust with their clients. Both sides play a critical role in the movement of money in the marketplace and our global economy.
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