Glassdoor.com, a website that uses social media to enable professionals to discuss professions and top employers, recently came out with a ranking of the best places to work in 2013. Not surprisingly, not many financial services firms were on the list; the only one to break the top 50 was Northwestern Mutual, based in Milwaukee Wisconsin, which came in at number 41.
The financial industry has had a rather tough go at attracting talent since the financial crisis, but this could be turning a corner. Traditionally, careers in the financial industry have been great for capitalists interested in understanding how companies operate and for helping clients make a buck from investing in companies directly or helping companies raise funds to grow and maintain existing operations. A big part of the financial industry revolves around the research and analysis of individual corporations. Below is an overview of the two primary avenues for individuals interested in this field: sell-side and buy-side.
Working on the sell side consists primarily of underwriting securities. From a market perspective, this includes helping companies issue equity, fixed income and hybrid securities on the primary market. Initial public offerings, secondary offerings and raising debt are major undertakings done primarily through the sell-side. Traditionally, an investment banking firm is considered a sell-side company, although many large banks and financial institutions operate other businesses that don’t specialize in bringing securities to market.
Sell-side research professionals analyze companies on behalf of clients of the sell-side firm. An important decision, and one that continues to be a gray area in terms of securities regulations, is to firewall the analyst’s activities and opinions reached on a stock from the sales process. The sell-side analyst is there to help maintain coverage on an industry and underlying companies, which helps support brokers that manage money for individuals and institutions.
For instance, a sell-side “buy” rating is meant to encourage a broker to buy clients in his or her portfolio, and sell-side analyst ratings can have a sizeable impact on a stock’s price and desirability. This broker network also helps serve as a distribution channel for companies that raise capital.
The buy side can be defined as a company or division of a company that consists of asset managers and portfolio managers and mutual funds, pension funds and institutions that manage money on behalf of their clients. Rather than have any link to helping a company raise capital and issue securities, the buy side is primarily interested in buying stocks, bonds or any asset for a portfolio.
Varying objectives exist on the buy side. A key way the buy side manages money is in accordance with investment policy statements that stipulate how assets should be allocated and purchased in client accounts. For instance, a large endowment may prescribe many asset classes to be held in a portfolio and hire buy-side firms to manage individual assets. It may have a manager devoted to small capitalization securities, another specialized in buying international bonds or several that run alternative assets, including commodity-based funds, hedge funds or private equity vehicles.
The Bottom Line
The primary professions on Wall Street are made up of sell side and buy side roles. Both sides can be lucrative, although the sell side has a reputation for very long hours that are meant to be offset by high potential pay rates. A perusal of scuttlebutt at glassdoor.com indicates that a sell-side career can offer a good salary and the opportunity to work with great people in a challenging environment. Buy side hours tend to be more reasonable, but there is a big responsibility for managing assets, with levels that can easily reach into the billions of dollars.