"Sell side" refers to the section of the financial services industry that sells securities and provides investment services to investors, both retail and institutional. Sell-side services include a wide range of activities – stock brokerage, investment banking, investment advisory, sales and trading, and investment research; in addition, some firms offer prime brokerage and clearing services.
Sell side firms vary greatly in size, from small boutique firms that specialize in a specific market sector or niche, to giant brokerage houses of the largest international banks. Except for the investment boutiques, most sell-side firms offer the complete range of services to their clientele.
While the configuration of a typical sell-side firm may differ to some extent from one to the next, there is a great deal of commonality in the structure of most sell-side firms. The core departments in a sell-side firm can be broadly classified into those that are largely focused on the institutional side of the business – Investment Banking, Sales and Trading, and Research – and those with a retail (investor) focus, such as Wealth Management and Investment Advisory.
(Of course, these departments are not exclusively focused either on the institutional or retail side, since there is considerable synergy and overlap in their activities).
While a typical sell-side firm also has ancillary departments that provide essential support functions such as compliance, risk management, operations and human resources, this article focuses on desirable designations for the core sell-side functions noted earlier.
Master of Business Administration (MBA)
This is perhaps the most ubiquitous designation in most sell side firms. MBAs can use the skills obtained through their mastery of subjects such as finance, marketing and management in practically any sell side function – investment banking, sales and trading, research or wealth management.
The biggest strength of the MBA program is also its major weakness in terms of application to the sell side; while it is a generalized program that has widespread application in business and finance, it is not specifically tailored to the investment industry.
MBA programs are generally offered at the post-graduate (Masters) level by numerous institutions in countries around the world. The ranks of the top MBA institutions are dominated by the U.S. business schools, with a smattering of schools from Europe and Asia. Employment is virtually assured for graduates of these schools, usually through campus recruitment; the other major benefit is the network of contacts that most MBA candidates develop.
The biggest drawback of the MBA program is its cost, both in terms of the direct expenses that can approach six figures at some schools, and the opportunity cost incurred in taking a couple of years off to study for it. As well, the strict admission criteria used by top business schools make getting accepted into them a herculean feat in itself.
Chartered Financial Analyst (CFA)
The CFA designation is widely acknowledged to be the gold standard of investment educational credentials. While CFA charter-holders can use the knowledge acquired in their rigorous program in any sell side function, they are most likely to be employed either as analysts in the research or investment banking departments (note that a strict "Chinese Wall" prevents interaction between the two functions in all sell side firms), or as portfolio managers in the wealth management / investment advisory segment.
The biggest advantages of the CFA program are its tremendous return on investment – the total cost amounts to a few thousand dollars, while career earnings prospects for charter-holders are boosted significantly – and its self-study nature, which allows candidates to study for the program while working.
But that's easier said than done, since less than one in two candidates passes the first two levels of the program. The sheer difficulty of mastering the enormous "candidate body of knowledge" is perhaps the biggest drawback of the CFA program.
CFA candidates have to master a cutting-edge curriculum whose subjects include ethics, economics, financial analysis, quantitative methods, investment analysis, derivatives and portfolio management. CFA candidates have to pass three levels of exams that take at least a combined 1,000 hours of study, and must have four years of qualified work experience to obtain the CFA charter. The basic entrance requirement for a CFA candidate is to possess a bachelor's or equivalent degree or be in the final year of a degree program, or fulfill the experience requirement of four years.
Certified Public Accountant (CPA) or Chartered Accountant (CA)/Certified General Accountant (CGA)/Certified Management Accountant (CMA)
Accountants find employment in sell-side firms either as internal accountants in operations or risk management, or as analysts in research or investment banking, where their expertise in accounting and financial analysis forms a critical part of the analysts' skill-set.
While accounting degrees provide their practitioners with significant expertise in investment-related fields such as financial analysis, financial projections, tax planning and valuation, accountants are still perceived as accounting, rather than investment, professionals. As a result, many sell-side employees with accounting degrees also pursue the CFA designation to gain in-depth investment knowledge and credentials.
To obtain an accounting degree in North America, students require a combination of education and relevant experience, and have to pass difficult qualifying examinations. In the United States, the Certified Public Accountant is the most established accounting credential. In Canada, there are three major accounting designations – CA, CGA and CMA; however, there are plans to unify the three designations under the Chartered Professional Accountant banner. The CPA designation has already been adopted in Quebec, as of May 16, 2012, and use of the designation becomes mandatory in Ontario as of July 1, 2013.
Certified Financial Planner (CFP)
As financial planning professionals, CFPs are most likely to be employed as investment advisors or brokers in the wealth management or retail brokerage divisions of sell side firms.
The certification requirements for the CFP are based on the four "Es:" Education, Examination, Experience and Ethics. In the United States, the education requirements include having a bachelor's degree and completion of a college-level course in personal financial planning. Candidates must also successfully pass the CFP Certification Examination and have three years of professional experience in the financial planning process.
Chartered Market Technician® (CMT)
The CMT® Designation is granted by the New York-based CMT Association. The CMT is the highest level of training within the discipline of technical analysis and is the preeminent designation for practitioners worldwide. Technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined, systematic approach to market behavior and the law of supply and demand. Earning the CMT demonstrates mastery of a core body of knowledge of investment risk in portfolio management; including quantitative approaches to market research and rules based trading system design and testing. CMTs are likely to be employed in the Sales and Trading department of a sell-side firm, employed as analysts in the research departments of firms that provide technical analysis to their clients, or are portfolio managers and investment advisors.
In order to be granted the CMT designation, candidates must pass all three levels of the CMT exam, obtain member status in the CMT Association, and have at least three years of experience in a professional analytical or investment management capacity.
Chartered Investment Manager (CIM)
In Canada, the CIM designation is conferred by the CSI (previously known as the Canadian Securities Institute) on investment professionals who wish to provide discretionary portfolio management services to their clients. Candidates must successfully complete courses in wealth management, investment management and portfolio management, and also have two years of relevant work experience. CIM charter-holders are typically employed in the wealth management / investment advisory divisions of Canadian sell-side firms.
Chartered Business Valuator (CBV)
The CBV is another Canadian-only designation, awarded by the Canadian Institute of Chartered Business Valuators. CBVs have specific expertise in business and securities valuation, and have sell-side job prospects similar to that of accountants. In order to obtain the CBV, candidates must possess a bachelor's degree or a Canadian accounting or CFA designation, pass the Membership Qualifying Examination, and have at least 1,500 hours of relevant business valuation experience.
The Bottom Line
While certain designations like the MBA and CFA impart skills that can be used in most areas of a sell-side firm, others like the CFP and CMT are more specialized and are aimed at a specific area of practice. These seven designations all have one thing in common – they demand a substantial amount of commitment in terms of time, money and effort. But the end result is almost always worth it because of the knowledge and skills acquired, increase in credibility among clients and boost to career prospects and earnings potential.