Equity Research vs. Investment Banking: Careers, Compensation, Exits, and AI/Automation Risk

We sometimes get questions about why we don’t offer an “equity research course.”

People are convinced that financial modeling in equity research is vastly different from investment banking and that research requires different or more specialized skills.

This view is mostly wrong: The Excel-based work has a ton of overlap, with a few differences here and there.

The more significant “equity research vs. investment banking” differences relate to recruiting and careers, including points such as the compensation and exit opportunities.

Everyone is also concerned about being automated away by the next version of ChatGPT or Claude, so I will also address AI and automation risks in both fields.

But, as always, I’ll start with a quick summary:

Equity Research vs. Investment Banking at a High Level

Equity Research vs. Investment Banking Definition: Investment bankers advise companies on mergers, acquisitions, and debt and equity deals and earn fees for closed deals; equity research professionals follow public companies, issue buy/sell/hold recommendations, interface between management teams and investors, and earn money from selling their research.

IB is all about deals, while ER is all about coverage.

Traditionally, banks gave away equity research reports for free to incentivize large clients to trade with the bank.

Therefore, equity research generated revenue indirectly via trading commissions, but it was still considered a front-office role due to the compensation, interaction with managers and investors, and exit opportunities.

But after MiFID II and related regulatory/industry changes, the industry has changed, and clients now largely pay for research directly.

That said, investors do not pay specifically for the research reports: They pay for access to management teams and the insights that Research Analysts have gathered from them.

Equity Research vs. Investment Banking: Work and Required Skill Sets

At the top levels, both jobs are relationship-oriented, with significant time spent in meetings, on the phone, and traveling to conferences and companies.

The difference is that IB is more of an explicit sales job, as deals must close for the bank to earn fees.

In equity research, the goal is to get clients to pay for the team’s research consistently, but revenue does not depend on deals or other specific events.

Equity research at the senior levels does require sales skills, but it’s more about being a “conduit” than a “closer.”

At the junior levels, entry-level professionals in both fields spend a lot of time in Excel working on models, valuations, and documents such as equity research reports and investment banking pitch books.

The difference is that in IB, this work product is designed to pitch, win, and close deals, while in ER, it’s more for the standalone analysis of public companies.

Investment banking requires more process and project management skills, while equity research requires stronger creativity and communication skills.

In terms of the Excel-based modeling work, one difference is that ER professionals tend to go deeper into specific companies in their coverage list, while bankers often end up working on broader assignments but in less detail.

So, for example, quarterly financial models are more common in equity research, as are detailed bottoms-up models used in “initiating coverage” reports.

But you would not build models for M&A deals, leveraged buyouts, or debt/equity issuances in research – or at least, they would be far simpler than the IB versions.

Another difference is that there’s far more maintenance work in research because you must update your model for each company based on earnings and announcements and periodically issue new notes about it.

Some people don’t mind this, while others find it repetitive and prefer the more “one-off” nature of many tasks in IB.

Equity Research vs. Investment Banking: Recruiting

We’ve covered IB recruiting extensively on this site, including how to get an IB internship, how to break in at the MBA level, and how to get in as a lateral hire; there’s also an article about equity research recruiting.

To summarize: For investment banking at the undergraduate level, you need to start years in advance, have a high GPA, win at least 1-2 other finance internships first, and prepare intensively for networking and interview questions.

Equity research recruiting tends to be less structured, though the bulge bracket banks and elite boutiques still run traditional processes that start over a year before summer internships.

The difference is that openings pop up more randomly in ER, and recruitment of new Associates (the title for the entry-level role) depends very heavily on what the Analyst (the senior leader in the team ) wants to do.

So, getting into the industry through the side or back door is more feasible, even if it’s very late in the process.

That said, it’s also a much smaller industry than IB, so fewer internship and full-time spots are available.

If you do not win an IB internship in undergrad, other options exist, such as lateral hiring from closely related fields, a Master’s in Finance degree, or a top MBA.

If you do not get into equity research as an undergrad, these options also exist.

However, one difference is that there are a few additional paths, such as deep industry experience or an advanced degree in tech or healthcare-related fields.

For example, if you have an M.D. or a Ph.D. in a field like biology or biomechanical engineering, you could be a strong candidate for biotech equity research groups.

By contrast, these degrees would barely help in investment banking because deal execution skills matter more than advanced scientific knowledge.

Interviews

Investment banking interviews test broader topics, but equity research interviews tend to go more in-depth into narrower subjects.

For example, in IB interviews, you’ll have to know about accounting, valuation/DCF analysis, merger models, and LBO models – plus the usual fit/behavioral questions, your resume walkthrough, and a few recent deals.

Some of these topics still come up in equity research, but they do not care nearly as much about M&A and LBO modeling, and instead of deal discussions, you’ll have to present stock pitches (ideally, 1 “Buy” recommendation and 1 “Hold” or “Sell” recommendation).

Also, interviewers could go into more depth on accounting and valuation and ask about nuances that many bankers skip or don’t fully understand (e.g., consolidation accounting, lease accounting, etc.).

Equity Research vs. Investment Banking: Careers & Hierarchy

In both industries, you’ll start out doing a lot of grunt work in Excel, Word, and PowerPoint, and as you advance, your role will become more relationship and sales-driven.

The difference is that investment banking has a more rigid hierarchy and progression system, with discrete changes at each level.

For example, Analysts do the work, Associates check their work, VPs act as project managers, and Directors and Managing Directors pitch for deals and win clients.

In equity research, only the “Associate” and “Analyst” job titles are externally visible.

You can progress from a “VP-Level Analyst” to an “MD-Level Analyst,” but your day-to-day job doesn’t necessarily change that much.

You’ll still meet with management teams, communicate with investors that buy your research, and oversee the Associates (typically 2 – 4 per group).

If you perform well, your base salary and bonus will keep increasing, but the tasks will remain similar.

Promotions

You might think the less rigid hierarchy in research makes it easier to get promoted, but it’s more difficult in many cases.

Also, turnover is lower, and few Research Analysts willingly leave their roles or get “forced out” (whereas MDs in banking frequently quit or get pushed out).

If a Research Analyst pushes for you to get a promotion, he’s effectively replacing himself (unless the group expands or splits up).

But in nearly all banking teams, there are multiple bankers at each level, so your promotion to the next level does not “replace” someone else.

In practice, this means that many research professionals must switch groups or banks to advance.

Hours and Lifestyle

Everyone agrees that the initial hours and lifestyle are far worse in investment banking: Expect 80+ hours per week as an Analyst, falling to ~60 as you become more senior.

Banks have tried various schemes to improve this, such as protected weekends, mandatory time off, etc., but it’s still a stressful job with long, unpredictable hours.

By contrast, equity research is much more consistent: Expect 60-hour weeks (~12 hours per day) with spikes to higher levels during earnings season.

You need to be “on” more consistently because there is little downtime, time zones can be a big issue due to the need to follow the market, and your hours don’t necessarily improve much at the senior levels – some even argue they get worse!

On the other hand, weekend work is far less common, so it’s easier to “shut off” outside of business hours.

Equity Research vs. Investment Banking: Salaries and Bonuses

I won’t go level-by-level here because we have an investment banker salary report that is updated periodically, but in short, compensation at all levels tends to be lower in equity research due to reduced bonus percentages.

Base salaries are not very different: Expect to start just above $100K and then advance up to ~$200K and then ~$400K – $500K at or near the top.

But unlike in investment banking, where bonuses worth 50 – 100% of base salaries are common, equity research bonuses are much lower (perhaps ~25% of base).

So, for example, a “Director”-level Analyst in ER might be paid more like a VP-level banker.

At the top levels, the bonus patterns could become more favorable if you perform well: Some MD-level Analysts in ER earn $1 million or even $2+ million, but it’s less common than in IB.

So, both the compensation ceiling and the averages are lower.

Equity Research vs. Investment Banking: Exit Opportunities

Investment banking exit opportunities are much broader than the ones offered by equity research, but equity research beats it in a few areas.

If you do IB, you can get into deal-based roles (private equity, corporate development, venture capital, etc.), public markets roles (hedge funds, asset management, etc.), and areas like corporate finance or strategy at normal companies.

It’s much harder to move from equity research into any deal-based role because you won’t have the proper skill set.

I have seen a few people move from ER into PE roles, but they typically go far down-market to do it (e.g., bulge bracket research team to startup PE firm).

However, equity research is probably better for asset management (mutual funds) and certain hedge fund roles, such as long/short equity.

On the other hand, IB beats it for deal-based hedge fund strategies, such as merger arbitrage and activist investing.

Equity Research vs. Investment Banking: Outlook, AI, and Automation

And now to everyone’s top concern: Which field is more likely to get disrupted due to AI and automation?

I don’t think either one will disappear, but if I had to guess, equity research is probably at more risk due to the nature of the job and the downward trends in team sizes and compensation over the past few decades.

By “nature of the job,” I mean that current AI solutions are much better at writing reports and updating existing files than doing math, building new analyses, or dealing with last-minute client emergencies.

Since much of the junior-level equity research job consists of writing reports and updating models, banks will probably be able to get more done with fewer Research Associates.

The other issue is that institutional investors don’t necessarily “need” the current volume of research.

Sure, some Analysts add value and understand companies at a deep level, but do we need 30 teams covering a single large-cap stock?

No, probably not.

You could argue that bankers are also unnecessary, but it is very rare for a large deal to close without bankers being involved at all – due to simple legal and compliance reasons (e.g., Fairness Opinion requirements in the U.S.).

Therefore, I would argue that equity research is a riskier long-term career due to macro/regulatory factors, AI/automation, and the nature of the work.

Equity Research vs. Investment Banking: Which One’s Right for You?

People have been predicting “the death of equity research” for a long time, but it’s still here.

That said, I would not recommend it as a long-term career in most cases unless you are deeply passionate about picking apart companies and following a specific industry over many years.

It is still a good entry point into the industry, but I would not recommend staying on as an Associate for more than a few years.

Of course, this framing is a bit unfair because most people do not plan to stay in investment banking long-term, either; the usual plan is to work for a few years and then exit.

So, which field is the better starting point?

You must answer two main questions to decide:

1) Which roles are you competitive for?

If you’re starting late, have an advanced degree, or have been in one industry for a long time, you should probably focus on equity research.

But if you’re an early university student with the required internships, grades, etc., IB might be a realistic option (the top MBA route also exists if you’re willing to pay for it).

2) What are your long-term career goals and preferred work style?

If you want to follow the same companies over a long time, think creatively, and focus on communications, equity research is better.

Also, if you’re more interested in investing in the public markets, equity research wins.

If you’re more interested in closing deals that directly affect companies or want a broader range of exit opportunities, investment banking is better.

One final point to remember is that equity research is a much smaller industry than investment banking.

Returning to the top of this article, this is why we’ve never created a course for it:

But who knows – maybe there will be enough demand to justify it one day, whether it’s a course for humans or AI super-agents.