Financial Analyst vs. Equity Analyst: An Overview
Young professionals who are quantitatively inclined, skilled problem solvers, logical thinkers, and who keep up to date with the markets should consider a career as a financial analyst. In a broad sense, financial analysts examine financial data to help companies make investing decisions.
Some financial analysts work internally and help their employers make investments, while others work for third-party firms hired by outside clients to lend their expertise. The field of financial analysis is a rather broad category. Some financial analysts look at the big picture, analyzing overall market trends to locate profitable investments in different industries and market segments. Others take a micro approach, breaking investment opportunities down company-by-company to try to pinpoint the investment potential of each. These professionals are called equity analysts.
Financial analysts look at a company or sector's overall performance using a variety of metrics. They review financial decisions based on current economic and market trends, stated business objectives, and possible investment options. Importantly, a financial analyst is interested in both the equity and debt of a firm, as well as economic data.
A degree in finance is probably most beneficial for aspiring financial analysts, although mathematics or economics could also suffice. A Master of Business Administration (MBA) may help for a financial analyst, but it is not always required.
Financial analysts earned a median annual salary of $83,660 in 2020, the most recent year for which figures are available, according to the Bureau of Labor Statistics (BLS). Top earners brought home nearly $159,560 and the lower rung made approximately $48,760.
Financial analysts tend to earn the most in large financial hubs, such as New York City or San Francisco. Bridgeport, Connecticut and Medford, Oregon are also lucrative destinations for analysts. Increased regulations and market complexity are driving the growth for financial analysts, particularly among larger firms with a lot of assets to manage.
While financial analysts consider a broad scope, equity analysts focus on the stocks of companies—the equity portion of the capital structure. Equity analysts start off by doing financial modeling and analysis and are responsible for coverage of a specific sector or group of companies. They produce research reports, projections, and recommendations concerning companies and stocks. Typically, an equity analyst specializes in a small group of companies in a particular industry or country to develop the high-level expertise necessary to produce accurate projections and recommendations. These analysts monitor market data and news reports and speak to contacts in the companies and industries they study to update their research on a daily basis.
Issuing buy, sell, or hold recommendations is a key job of the equity analyst. Associates and junior analysts often receive recognition for their work by being named on research reports that are distributed to a firm's sales force, clients, and media outlets. Since senior analysts are recognized experts on the companies they cover in a sector, they are sought after by the media outlets for comments on these companies after they report earnings or announce a material development.
Buy-Side and Sell-Side Analysts
Equity analysts come in two types: buy-side analysts and sell-side analysts. Buy-side analysts work for fund managers at mutual fund brokers and financial advisory firms. They research companies in their employers' portfolios, as well as other companies that may represent profitable investment opportunities. Based on this research, they prepare reports that offer buy and sell recommendations to management.
Sell-side equity analysts often work for the big investment banks, such as Goldman Sachs. Their jobs entail researching the financial fundamentals of companies the bank is considering taking public and determining which ones have the strongest potential to become profitable.
For aspiring financial analysts, one of the most important decisions is whether to specialize as an equity analyst or pursue another niche under the broader umbrella of financial analysis. The following comparison explains some of the subtle differences between a career as a financial analyst and an equity analyst.
No licensing board or regulatory authority has set hard-and-fast educational minimums for financial analysts or equity analysts. However, a bachelor's degree has become a de facto minimum for receiving an offer to work in either field. Beyond this, the individual firms doing the hiring set the standards.
Because financial analysis is the broader of the two careers, there are more employment opportunities abound from huge Wall Street investment banks to insurance companies and small, local firms. Educational standards can vary depending on which of these routes an applicant pursues. At the very least, they should have a bachelor's degree, with the most preferable majors being economics, finance, and statistics.
Equity analysts are much more concentrated on Wall Street at the big investment banks. The big banks are known to look for the best of the best when hiring those right out of college. Because of this, they focus their recruiting efforts almost exclusively on top-tier schools, such as the Ivy League schools, Duke University, and the University of Chicago. While applying with a degree from a lesser-rated school is short of a death knell in the field, the plain fact is, statistically, a Princeton University grad has a much stronger shot at landing an equity analyst position compared to a graduate of a typical large state university. For graduates of non-top-tier schools who still want to pursue equity analysis, their best bet is getting into, and graduating from, an elite MBA program.
Financial analysts and equity analysts need strong analytical and quantitative skills, problem-solving ability and, equally importantly, a love for the markets. Just as a financial advisor or stockbroker keeps a finger constantly on the pulse of the market, analysts who study investment data must do the same to draw accurate conclusions from the data.
While both careers require hard work and dedication, equity analysts in particular, due to the nature of their likely employers, should be prepared for a tough grind and a lot of work hours. A job at a big investment bank is not a 9-to-5 gig with weekends off. The average workweek, particularly during the first few years, could very well be upward of 80 or 90 hours. In fact, some banks have bunk rooms so that analysts working into the night can crash for a few hours before being back at their desks before the following day's opening bell.
An equity analyst almost invariably makes more money than a traditional financial analyst, but they put in a lot more hours to earn that money. According to Salary.com, the average base salary for a financial analyst is $60,716 per year. Bonuses, when given, are usually small and tied to company performance, not individual metrics.
Equity analysts, by contrast, earn a median base salary of $89,191. When you add in potential bonuses, the median pay rises to $95,324 annually. Most financial analysts, though they make above-average incomes, have to work many years before getting to the income an equity analyst can make their first year, and some never get there.
According to the BLS, the job outlook for financial analysts is strong through 2030. Projected job growth in the field is 6%, slightly less than other occupations. The BLS lumps equity analysts with financial analysts when making employment projections.
It's worth noting that the job market for equity analysts is, for obvious reasons, tied to the health of the big banks. This health was tenuous for a period beginning in 2008, but thanks to restructuring, along with an injection of taxpayer-funded aid, investment banks are doing much better. Assuming no subsequent turbulence, equity analysts should continue to enjoy a strong job market.
Which One to Choose
These careers require similar skills, education and background. One consideration is what kind of employer you want to work for. If you prefer a smaller or mid-sized company, you have a much better shot as a financial analyst given the aforementioned fact that most equity analyst jobs are at big investment banks.
Another consideration is, of course, money. If your main goal is a big paycheck, become an equity analyst at a big bank. Keep in mind you are probably going to be settling in at the office for an evening of work while your financial analyst friends are at the gym, happy hour, or playing rec league softball. If work-life balance is at the top of your list, lean toward financial analysis, and definitely stay away from the big investment banks.