The Equity Research Associate: Remnant of a Dying Industry, or the Hero That Gotham Deserves?

• Many people do not understand what equity research (ER) means, or they conflate it with other industries that happen to have “equity” in their names.
• Many sources mix up the Associate and Analyst roles, or they mistakenly assume that “Associate” means the same thing that it does in investment banking or private equity.
• And then other sources have not updated their coverage to reflect the post-MiFID II world and how the entire industry is changing.

We’re previously covered equity research careers and equity research recruiting, so this article will build on those and cover the Associate role in detail:

The Equity Research Associate Job Description

In sell-side equity research at an investment bank, you analyze public companies, speak with management teams and investors, and make Buy, Sell, and Hold recommendations on stocks.

Although the division is best known for its equity research reports, the reports are not the key “value add.”

Instead, institutional investors value equity research professionals mostly for additional “color” or “nuggets” they can extract from management teams and then relay.

Particularly if someone at a hedge fund or asset management firm covers dozens of names, that person will not have time to dig into every last nuance of each company.

Research professionals can add value by relaying information and even setting up meetings between management and current or prospective investors.

This setup remains the same even though institutional investors now pay directly for the reports (because of MiFID II) – it’s just that these services are now limited to paying clients.

In research, the senior staff are called “Analysts,” and the junior team members are “Associates” or “Research Associates” – the opposite of the investment banking hierarchy.

But those are just the external titles; within the “Analyst” title, you can still advance from the VP level up to the MD level internally.

And “Analysts” at different internal levels get paid differently and have slightly different responsibilities.

As an Associate, you’ll be responsible for supporting the Analyst in your group.

Research groups vary widely because each Analyst runs his/her group differently, but “support” includes tasks such as:

1. Speaking with market participants (management teams and investors).
2. Doing industry research (e.g., collecting data on market share, pricing, etc.).
3. Writing the reports (both short, update reports and longer thought pieces).
4. Building models and valuations.
5. Determining market sentiment.

The Equity Research Analyst does more relationship building (#1 and #5 in the list above) and sets the overall direction and culture of the group, while the Associate faithfully executes orders (#2 to #4 in this list).

But if you want to advance to the Analyst level, you’ll need to start interacting with management teams, setting up meetings, and developing your reputation with institutional investors.

Therefore, you need to strike a delicate balance between “doing/checking the work” and becoming a relationship broker.

It’s the same challenge bankers go through when they’re trying to move beyond the VP level.

Equity Research Associate Hours

Equity research operates based on two main “periods”:

1. Normal Days – These take up most of the quarter. You do normal work updating models and reports and answering questions, and you can expect to work ~12 hours per weekday, on average.
2. Days During Earnings Season and Industry Conferences – These might take place over 2-3 weeks per quarter, and you will work more like ~16 hours per day as you listen to companies report their earnings, ask questions, update your models, and send out new reports to clients.

Your hours will also be affected by how the Analyst runs the group and what he/she focuses on (e.g., on-the-ground research vs. modeling vs. vs. industry analysis vs. relationship-building).

Even something like the number of names you cover, such as 10 vs. 20 companies, makes a difference.

On average, you’ll have a better and more predictable lifestyle than the one offered by investment banking.

You might work an average of 55-60 hours per week, with spikes to 70-80 hours per week in earnings season.

Weekend work is rare, but it may come up when there’s a massive industry change or company announcement that forces you to reevaluate all your views and ratings.

Ironically, your hours might get worse as you advance because Analysts have to travel and do more work outside the office while still overseeing published reports.

Why Would You Want to Be an ER Associate?

In a previous article on equity research recruiting, we mentioned that equity research is in decline.

Headcount reductions and MiFID II – which requires banks to charge directly for research rather than “bundling it” with other products – will continue to hurt the industry.

Plus, the clients that research teams serve, such as asset managers and hedge funds, have been doing poorly because of declining fees, the rise of passive investing, and massive manipulation of the financial markets by central banks.

So, why would you want to pursue an entry-level Associate role in this industry?

Here are some of the top reasons:

1. Interesting Work and Solid Pay – The pay is a discount to investment banking salaries, but you’ll still make well into the six figures. And the work is arguably more interesting, with more creativity, less grunt work (e.g., pitch books, briefing books, buyer status logs, etc.), and reduced hours.
2. It’s Possible to Break in as a Non-Traditional Candidate – The ER recruiting process is more random and unstructured than the one in IB, and it’s sometimes more feasible to break in as a career changer or “industry expert.”
3. Exit Opportunities – You’ll build a solid network of institutional investors and company executives, and you can leverage these connections to move into other roles, such as hedge funds, asset management, and corporate finance at companies.
4. Long-Term Career Potential – While equity research careers have become less appealing, top ER Analysts can still earn into the high six figures and beyond.

You can also use the role to switch to other divisions within a bank, such as investment banking industry groups, equity capital markets, or potentially even sales & trading (if you switch early enough).

Equity Research Associate Salary (and Bonus)

Total compensation for Associates in major financial centers is in the “low six figures” – we’ll say between $125K and $200K, with the majority from the base salary.

Yes, this is lower than investment banking pay, but you also work fewer hours and have a less stressful life.

We cover the full salary + bonus progression in this equity research careers article, but as you move up to the VP, Director, and MD levels within the “Analyst” title, you’ll progress to the mid-six-figures and might eventually earn $1 million in a good year.

A Day in the Life: What Does an Equity Research Associate Do?

During earnings season, days are frantic and not that interesting since they’ll all look something like this:

7 AM: Arrive at the office early and join your first earnings call of the day. Ask a few questions about the company’s EPS and operating margin misses, and start updating your model and preparing a 2-page update note for clients.

8 AM: Your Analyst is busy fielding questions about this company’s earnings miss, so he refers a few clients to you. You answer their questions and sheepishly explain why you had a “Buy” rating on the company, even though its stock price just fell by 10%.

9 AM: The next earnings call begins. You still haven’t finished updating the model and report for the first company, so you’ll have to return to that later in the day.

[Repeat the tasks above until 11 PM or midnight.]

Rinse, wash, and repeat this all day as you join these calls, make updates, and answer questions from panicked investors.

You’ll often stay late because you won’t have time to update all the models and reports during the day.

It’s more interesting to look at a “normal day” where there are no earnings calls or panicked investors calling to ask about earnings misses.

Here’s what that might look like in a biotech equity research group:

8 AM – 9 AM: Arrive at the office and check the news for anything involving your coverage universe.

You also read a few emails from traders and salespeople and send off a quick note to them about a regulatory development that might affect one of your companies.

9 AM – 11 AM: Start working on an Initiating Coverage Report for a new biotech company that your Analyst wants to add to the group’s coverage universe.

This will be a 100-page report with tons of industry data, and it will take months to complete. You get started by reading the company’s filings and setting up the revenue and expense categories in your model.

11 AM – 12 PM: Your Analyst is busy with several clients, so she refers a few hedge fund portfolio managers to you instead.

They’re looking for extra insights into one company’s pricing power based on a meeting the management team just held.

They didn’t say anything concrete, so you give your opinion while also downplaying your certainty.

12 PM – 2 PM: Review some valuation work submitted by the equity research intern in your group and a more junior Associate who joined last year.

Their Excel formatting is terrible, but their projections and data sourcing are fairly good.

2 PM – 3 PM: Your Analyst is now on the road, and she calls to ask if you can set up meetings between a few hedge fund clients and 3-4 biotech firms of interest. You start placing the calls and sending emails.

3 PM – 5 PM: One of the companies in your coverage universe has just announced a divestiture of one of its pipeline drugs, which is currently in Phase 3 clinical trials.

This news comes out of nowhere, so you scramble to update your projection model to reflect the inflow of cash and loss of potential future cash flow from this drug.

You also call the Junior Associate and Intern over to help check the numbers.

5 PM – 7 PM: You finish the update and send it out to clients, immediately receiving questions about the selling price and its impact on the company’s valuation.

One hedge fund manager is very persistent and wants to speak with you ASAP, so you indulge him.

You explain your view that the deal is a good one because the drug was unlikely to pass Phase 3 trials anyway, and even if it did, the selling price exceeds its intrinsic value.

7 PM – 8 PM: You finally get back to that Initiating Coverage Report from this morning and start dividing up tasks for the Junior Associate and Intern.

As you’re heading home, your Analyst calls to thank you for your work in the urgent report update and to ask if you can attend the firm’s Bio/Pharma industry conference in a few weeks.

This is a ~12-hour day with a moderate amount of stress.

An unexpected acquisition or divestiture can create an emergency, but it’s usually less severe than a last-minute pitch book in IB.

And most of the day was spent working on a long-term project, answering questions, and reviewing your team’s work.

Since equity research is less hierarchical than IB, office politics within the group is sometimes less of a factor.

How to Break into Equity Research as an Associate

We cover the full process in the equity research recruiting article, but the good news is that you don’t necessarily need to have a 3.9 GPA at Harvard and three previous finance internships to get in.

Equity research recruiting is unstructured and based on the group’s current needs, which means you can network your way in if you’re persistent enough.

Also, ER teams are open to recruiting candidates from more varied backgrounds, including experts in industries where deep technical knowledge is required (biotech, pharmaceuticals, semiconductors, space/satellites, etc.).

The bad news is that you’ll have to do much of the legwork yourself because many groups lack structured processes.

No matter your background, you’ll need 2-3 very solid stock pitches for your industry to have a good shot at winning interviews and being taken seriously.

And you’ll need to know the usual technical topics about accounting, valuation/DCF analysis, and a bit about merger models and LBO models (transactions still come up – see the “Day in the Life” account above!).

MBA programs are not super-helpful for winning equity research roles because many banks do not recruit “classes” of Associates on-campus as they do for investment banking.

The CFA can be helpful in some cases, but it still matters less than university reputation, grades, work experience, networking, technical preparation, and stock pitches.

The ER Associate Job: Right for You?

To break into equity research, you don’t need to spend a fortune on a top MBA, start recruiting in your first year of university, or do all the other crazy things required for investment banking.

So, the real question is, “Should you put in a solid-but-not-overwhelming effort to aim for this role?”

My answer goes back to the “Why Would You Want to Be an ER Associate?” section above.

If you’re a non-traditional candidate, you started recruiting late, or you had some other problem, and you’re interested in the public markets and the potential exit opportunities from equity research, it could make a lot of sense.

But if you have your heart set on private equity or corporate development or something else that is difficult to break into from ER, it does not make much sense.

I don’t think equity research as a long-term career is a great option anymore because of industry and regulatory changes and declining headcounts and budgets.

But if you’re looking for an alternative to the traditional IB or S&T route that is more accepting of candidates “off the beaten path,” then the Equity Research Associate role might be right for you.

It may not be the career you deserve, but it might be the career you need.

Want more?

You might be interested in Biotech Equity Research: The Best Escape Plan from Medicine or Academia? or What’s in an Equity Research Report?