6 Differences Between the Buy Side and Sell Side
Buy-side and sell-side analysts have important roles to play. They are the reference analysts who provide an unbiased opinion about company securities according to their research. Buy-side firms buy securities, and sell-side firms sell or trade securities. Though both buy-side and sell-side analysts spend their day researching comprehensively about the companies, there are considerable differences between the two.
The functions of both buy-side v/s sell-side analysts are valuable. Here, we will learn more about them and their differences.
Who are Buy-Side Analysts?
Buy-side firms have the capital to buy securities like common and preferred shares, bonds, derivatives, etc. Buy-side analysts determine potential investments according to the reports. They focus on finding the negative and researching what can go wrong with an investment approach. These professionals read the news, track updates and new happenings in the industry, build models, and make the best recommendations based on their knowledge and expertise.
Buy-side analysts are more concerned with broadly researching useful information about the whole industry and maintain the best information sources. These professionals ensure a large network for constant information and a deeper market understanding.
Who are Sell-Side Analysts?
Sell-side professionals or firms raise money by selling the securities. The sell-side analysts follow various companies, usually from the same industry. They prepare and provide regular research reports for the clients. They also build project models and present the company’s financial results. These analysts also deal with the firm’s customers, competitors, suppliers, etc.
The most important job of the sell-side analyst is to prepare a research report including all financials, pricing, and their recommendation of the securities’ performance. They use many models to make calculations, average the same, and finally create a consensus estimate.
Buy Side vs Sell Side: Key Differences
Although both analysts are responsible for following and evaluating stocks, key differences exist between the two job roles. If you want to go for the investment banking career path, you must understand the main differences between the two.
✔Role
The two main differences lie in their role for their client. The role of the buy side includes managing or making the clients’ investments, earning good returns on capital, performing research on lucrative investment opportunities, etc. They conduct financial modeling and valuation. These professionals find investors and manage and grow assets under management.
The role of the sell side includes advising the clients on major transactions, raising capital, advising on mergers and acquisitions, building relationships with corporates, etc. They also ensure liquidity for securities and get the clients in and out of positions. Performing financial modeling and valuation is also their KRA.
Also, the sell-side analysts are chiefly responsible for the information flow and management. They must maintain high-quality information sources. The buy-side analysts focus on providing the best recommendations and augmenting the fund’s success.
✔Hiring/Career
It might be interesting to know who hires buy-side and sell-side analysts. The hedge fund firms, venture capital firms, private equity groups, wealth management portfolio management firms, etc., who manage money hire buy-side analysts. The institutions that sell financial products, like investment banking industry, equity research firms, brokerage companies, sales and trading companies, etc., hire sell-side analysts. Some financial analysts switch between the buy side and the sell side.
✔Skills
The buy-side analysts must have skills like research, financial modeling, valuation, MS Office, raising capital, etc. The skills the sell-side analysts require are research, financial modeling, valuation, MS Office, report generation, pitchbook presentations, etc. They must also be adept in building client relationships and bringing new business.
✔Difference of Research
Sell-side analysts deeply research specific industries or sectors, while buy-side analysts conduct broader research. Sell-side analysts speak to individuals or companies directly, and buy-side analysts utilize the contacts developed by sell-side analysts for their research.
✔Accuracy
Buy-side analysts must ensure to provide more precise information than the sell-side. This is so because their fund’s performance is directly linked to the quality of research. Any misleading or incorrect information can lower the performance of the funds and investor withdrawals.
✔Working Conditions and Salary
The compensation depends on the position, experience, firm, and location. So, it isn’t easy to generalize their compensation difference. The firms are believed to pay more money to the buy-side analysts as a performance bonus. Buy-side gets compensation and a bonus for the quality of their suggestions and returns on the investment. Sell-side analysts also receive bonuses or commissions for the quality of information they provide.
Working conditions are better for the buy-side analysts as sell-side analysts are said to work longer hours.
Wrapping Up
Buy-side analysts research much more broadly, while sell-side analysts make investment recommendations by researching only specific industries. A buy-side analyst is your job if you want to work for hedge funds or private equity companies. If you want to work for investment banks, sell-side analysts are your option.
