What Is a Research Analyst?

A research analyst is a professional who prepares investigative reports on securities or assets for in-house or client use. Other names for this function include securities analyst, investment analyst, equity analyst, ratings analyst, or simply "analyst."

The work conducted by the research analyst is in an effort to inquire, examine, find or revise facts, principles, and theories for internal use by a financial institution or an external financial client. The report an analyst prepares entails the examination of public records of securities of companies or industries, and often concludes with a "buy," "sell" or "hold" recommendation.

If the research analyst is involved with an investment bank or a securities firm controlled by a member organization of the Financial Industry Regulatory Authority (FINRA), he or she may be required to register with a self-regulatory organization and/or take certain exams.

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."

The Basics of Being a Research Analyst

Research analysts are usually divided into two groups: "buy-side" and "sell-side." A buy-side (brokerage) research analyst, employed by an asset management company, recommends securities for investment. The research of a sell-side (investment firm) analyst tends to be sold to the buy-side. Sell-side research is also given to clients for free for consideration, such as in an attempt to win business. Such research can be used to promote companies.

Buy-side research analysts are often considered more professional, academic and reputable compared to the sell-side. Sell-side research jobs often likened to marketing, often pay higher salaries.

Research analysts can work at a variety of companies, such as asset managers, investment banks, insurers, hedge funds, pension funds, brokerages or any business that needs to crunch data to spot trends or decide on a valuation, make an investment decision or forecast the outlook of a company or asset. According to the U.S. News Best Jobs report, the median salary for a research analyst in 2015 was $62,150, while the best-paid earned more than $120,000 and the lowest $33,530.

Key Takeaways

  • A research analyst is a professional who prepares investigative reports on securities or assets for in-house or client use.
  • The work conducted by the research analyst is in an effort to inquire, examine, find or revise facts, principles, and theories for internal use by a financial institution or an external financial client.
  • The report an analyst prepares entails the examination of public records of securities of companies or industries, and often concludes with a "buy," "sell" or "hold" recommendation.
  • 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.

Research Analyst Qualifications

Companies that employ research analysts sometimes require a master's degree in finance or a Chartered Financial Analyst (CFA) designation on top of several regulatory hurdles. Research analysts might be required to take the Series 86/87 exam if they are involved with a member organization.

Other securities licenses often required to include the Series 7 general securities representative license and the Series 63 uniform securities agent license. FINRA licenses are typically associated with the selling of specific securities as a firm’s registered representative. Investment analysts may also seek to obtain the chartered financial analyst (CFA) certification.

Financial Analyst Versus Research Analyst

Financial firms in the United States do not really present a unified definition of either job. Some financial analysts are really just researchers who collect and organize market data, while others put together specific proposals for securities investments with large institutional clients. Similarly, some research analysts are glorified marketing specialists, while others apply socioeconomic or political insights and are probably better classified as management consultants.

It's possible to narrow the differences between research analysts and financial analysts. Generally speaking, financial analysts focus on analyzing investments and market performance. They rely on a fundamental understanding of business valuation and economic principles to create reports and make recommendations; they are the behind-the-scenes experts. Research analysts occupy a less prescriptive role than financial analysts. Instead of looking through the lens of broad economic principles, they focus more on mathematical models to produce objective answers about historical data.

Financial analysts collect and analyze data but always within the context of a prior deductive understanding of how markets should function. Their thinking is systemic and, particularly at more senior levels, subjective. Research analysts tend to be operations-focused. Give a research analyst a series of inputs, and he can calculate the most efficient way to maximize output. If the research analyst works in the securities business, it's likely that recommendations may be made based on some predetermined criteria.

Buy Side Versus Sell-Side Analysts

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

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.