Buy-Side Analyst vs. Sell-Side Analyst: An Overview

The main differences between these two types of analysts are the type of firm that employs them and the people to whom they make recommendations.

A sell-side analyst works for a brokerage or firm that manages individual accounts and makes recommendations to the clients of the firm. A buy-side analyst usually works for institutional investors such as hedge funds, pension funds, or mutual funds. These individuals perform research and make recommendations to the money managers of the fund that employs them.

Key Takeaways

  • The main differences between buy-side and sell-side analysts are the type of firm that employs them and the people to whom they make recommendations.
  • Investment banks, market makers, and broker-dealers are typical sell-side firms. They provide investment services to the rest of the market.
  • Buy-side firms consist of asset managers, hedge funds, and other firms that buy or sell securities on behalf of their clients.
  • Buy-side analysts will determine how promising an investment seems and how well it coincides with the fund's investment strategy.
  • Sell-side analysts are those who issue the often-heard recommendations of "strong buy," "outperform," "neutral," or "sell."

Buy-Side Analyst

Buy-side analysts will determine how promising an investment seems and how well it coincides with the fund's investment strategy; they'll base their recommendations on this evidence. These recommendations, made exclusively for the benefit of the fund that pays for them, are not available to anyone outside the fund. If a fund employs a good analyst, it does not want competing funds to have access to the same advice. A buy-side analyst's success or talent is gauged by the number of profitable recommendations made with the fund.

A buy-side analyst is much more concerned about being right than a sell-side analyst is. In fact, avoiding the negative is often a key part of the buy-side analyst's job, and many analysts pursue their job from the mindset of figuring out what can go wrong with an idea.

Buy-side analysts, in general, have broader coverage responsibilities. It is not uncommon for funds to have analysts covering the technology sector or industrials sector, whereas most sell-side firms would have several analysts covering particular industries within those sectors (like software, semiconductors, etc.).

Sell-Side Analyst

Sell-side analysts are those who issue the often-heard recommendations of "strong buy," "outperform," "neutral," or "sell." These recommendations help clients make decisions to buy or sell certain stocks. This is beneficial for the brokerage because every time a client makes a decision to trade stock, the brokerage gets a commission on the transactions.

The job of a sell-side analyst is to convince institutional accounts to direct their trading through the trading desk of the analyst's firm—the job is very much about marketing. In order to capture trading revenue, the analyst must be seen by the buy-side as providing valuable services. Information is clearly valuable, and some analysts will constantly hunt for new information or proprietary angles on the industry.

Since nobody cares about the third iteration of the same story, there is a tremendous amount of pressure to be the first to the client with new and different information.

This is not to say that sell-side analysts recommend or change their opinion on a stock just to create transactions. However, it is important to realize that these analysts are paid by and ultimately answer to the brokerage, not the clients. Furthermore, the recommendations of a sell-side analyst are called "blanket recommendations," because they're not directed at any one client, but rather at the general mass of the firm's clients.

These recommendations are inherently broad and, as a result, they may be inappropriate for certain investment strategies. When you are considering a sell-side recommendation, it's important to determine whether the recommendation suits your individual investment style.

Key Differences

While buy-side and sell-side analysts are both responsible for performing investment research, the two positions occupy different roles in the securities market. With respect to investment firms, "buy-side" and "sell-side" do not refer to buying and selling individual investments, but to investment services.

Sell-side firms, such as brokerages and investment bankers, provide market services to other market participants. As registered members of the various stock exchanges, they act as market makers and provide trading services for their clients in exchange for a commission or spread on each trade. In addition, sell-side firms offer underwriting services, helping to launch IPOs and bond issuances for the rest of the market. They also produce research for the consumption of buy-side firms.

On the other side, buy-side firms use sell-side services to make investments. Hedge funds, asset managers, and pension funds are typical examples of funds that buy or sell securities in the hope of earning a profit.

It is also possible for one company to have both buy-side and sell-side wings, especially in large banks. To avoid potential conflicts of interest, these companies must enact Chinese wall policies to separate the two types of departments.

While sell-side analysts create investment research products for sale to other companies, buy-side analysts conduct in-house research intended only for their own firms.

Special Considerations

Although the positions are similar, sell-side analysts have a more public-facing role than those on the buy side. Because their work is consumed by outside companies, sell-side analysts must also form business relationships, attracting and advising new clients.

On the opposite side, buy-side analysts have more inward-facing duties. They make investment decisions and manage their clients' money, and do their best to grow the firm's portfolio.

Buy-Side Analyst vs. Sell-Side Analyst Example

To illustrate the differences between buy-side and sell-side analysts, imagine the interactions between two hypothetical firms. Asset Manager A is a buy-side firm that manages a portfolio of securities on behalf of its clients. On the sell-side, Broker B provides market services, such as access to the stock exchange.

Both firms employ analysts, although these analysts fill different roles. Broker B's analysts will generally produce market research for sale to buy-side firms, such as Manager A. They will evaluate different public companies, conduct technical and fundamental analysis, and deliver research to their clients with a "buy" or "sell" recommendation.

On the buy-side, Asset Manager A's analysts will conduct their own research and compare their findings with paid research, such as that produced by Broker B. However, Manager A's research is intended for internal consumption, rather than sale to other firms. Based on their recommendations, the asset manager will buy, sell, or hold positions in various securities in anticipation of future profits.

Is Goldman Sachs Buy-Side or Sell-Side?

As one of the largest investment banks, Goldman Sachs is largely on the sell-side of the market, providing liquidity and execution for institutional investors. However, Goldman Sachs also has some buy-side arms, such as Goldman Sachs Asset Management. In order to prevent conflicts of interest between the buy-side and sell-side, the two bodies are separated by a Chinese wall policy.

Is Private Equity Buy-Side or Sell-Side?

Because private equity funds make money by buying and selling securities, they are considered to be buy-side. Like hedge funds, pension funds, and other asset managers, they invest on behalf of their clients and make profits when those assets deliver returns.

How Much Do Buy-Side Analysts Make?

According to ZipRecruiter, the average salary for a buy-side analyst is about $108,000 per year, as of August 2021. However, this figure does not account for bonuses or non-salary benefits, which can be considerable. Salary also varies by city, firm, and how many years of experience an analyst may have.

Is BlackRock Buy-Side or Sell-Side?

BlackRock is a buy-side firm. BlackRock is the largest investment manager in the world, with $8.7 trillion under management. Because BlackRock's business model consists largely of investing on behalf of its clients, it is considered a buy-side firm.