Buy-Side vs. Sell-Side: What’s The Difference?

While the title “research analyst” is commonly used in the investing industry, the work obligations of a research analyst can differ significantly. 

One significant difference is whether the position is on the buy vs. sell-side of the industry. While both professions require time to investigate organizations and sectors, the types of research undertaken and the road to progress is distinct.

Continue reading to learn more about the buy-side vs. sell-side and the career opportunities accessible in each.

Buy-Side

Individuals on the buy side work for institutions that purchase investment services. Private equity, life insurance, trusts, hedge funds, prop trading, venture capital, and pension funds are typical buy-side businesses.

Many of the same tasks are performed by buy-side research analysts as those performed by sell-side research analysts (e.g., reading news, reports, building models, etc.).  

They focus on a broader knowledge area of responsibility to make the best recommendations for stocks and financial products to purchase. 

Buy-side research analysts are compensated more for the quality of their recommendations, whereas sell-side research analysts are paid more for the quality of their information.

Sell-Side

Sell-side employees and firms develop service items available to the financial industry’s buy-side. Individuals on the sell-side typically work as investment bankers, sell-side researchers, or traders.

Sell-side research analysts conduct extensive studies on firms within a specific industry sector. A fundamental distinction between the sell-side and the purchase side is that analysts conduct more in-depth research on a particular industry area. 

They have a focused focus and build significant expertise before providing public reports with recommendations and opinions. To obtain accurate data and information, buy-side research analysts frequently establish a list of go-to sell-side analysts in critical areas.

The Buy Side vs. Sell Side

Buy-side research analysts work for companies that buy securities and other assets to manage money. 

Sell-side analysts are responsible for selling stocks, bonds, foreign exchange, and other financial instruments. That is the fundamental distinction. 

The discrepancies are even more pronounced when it comes to the day-to-day duties and responsibilities of buy-side and sell-side analysts.

Unlike a sell-side analyst, a buy-side analyst’s work is far more about being correct; helping the fund with high-alpha ideas is critical to avoid significant blunders. 

Avoiding the negative is frequently a crucial part of the buy-side analyst’s job, and many analysts approach their work with the mindset of determining what could go wrong with an idea.

Daily, the jobs do not appear to be all that dissimilar. Buy-side analysts will read the news (though more from sell-side analysts than from buy-side analysts), track down information, build models, and otherwise go about the business of attempting to deepen their knowledge on their area of responsibility—all to make the best stock recommendations.

Though the more prominent institutions will assign their analysts the same way as sell-side analysts, buy-side analysts generally have broader coverage obligations. 

It is usual for funds to have analysts covering the technology or industrial sectors. In contrast, most sell-side firms have numerous analysts covering specific industries within such sectors (like software, semiconductors, etc.).

Whereas many sell-side analysts try to spend most of their time locating the most sources of information about their industry, many buy-side analysts spend most of their time attempting the most effective sell-side analysts. 

That is not to say that many buy-side analysts do not conduct their proprietary research (the good ones always do); it simply means that building a list of the go-to analysts in their field has substantial value for a buy-side analyst.

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Although buy-side firms rarely pay for or purchase sell-side research outright, they are frequently indirectly responsible for a sell-side analyst’s salary.

Typically, the buy-side firm provides soft dollars as a deferred payment fl-side firm.

Soft dollars are extra to the sell-side firm funds paid when trades are executed through sell-side firms.

Analysts on the sell-side

If you’ve ever watched a financial news show, you’ve most likely heard a reporter mention “analysts.”

These analysts are often sell-side analysts who provide unbiased advice based on proprietary research on a company’s securities.

Defined, a sell-side research analyst’s role is to monitor a set of firms, usually in the same industry, and to produce frequent research reports to the firm’s clients. 

As part of that process, the analyst will often develop models to forecast the firm’s financial performance and speak with customers, suppliers, competitors, and other industry experts.

From the general public’s perspective, the general public’s perspective research report, a set of financial estimates, a price target, and a recommendation on the stock’s predicted performance.

The projections obtained from the models of numerous sell-side analysts can also be averaged to provide a single expectation known as the consensus estimate.

Roles Of The Buy Side vs. Sell Side

Roles Of The Buy Side

Mutual funds and exchange-traded funds (ETFs)

Mutual funds are the most common type of investment fund, with over $17 trillion in assets. 

In contrast to passive funds such as ETFs and index funds, they have actively managed funds, which means that portfolio managers and analysts assess investment opportunities. 

Currently, 59 percent of mutual funds are invested in stocks (equities), 27 percent in bonds (fixed-income), 9 percent in balanced funds, and 5 percent in money market funds.

Meanwhile, ETF funds are a growing rival to mutual funds. 

ETFs, unlike mutual funds, are not actively managed, allowing investors to reap the same diversification benefits without incurring the same high fees. ETF assets now total $4.4 trillion 

Hedge Funds

Hedge funds are an investment fund type. Unlike mutual funds advertised to the general public,s are private and are not permitted to advertise to the general public. 

Furthermore, to invest with a hedge fund, investors must have a high level of wealth and investment criteria. In exchange, hedge funds are not subject to the same regulatory constraints on trading methods as mutual funds.

In contrast to mutual funds, hedge funds can use more speculative trading tactics, such as short selling and taking highly leveraged (risky) positions. Global assets managed by hedge funds total $3.1 trillion.

Private equity

Private equity funds pool investor cash and take significant shares in firms to maximize investor returns through changing the financial structure, operational performance, and management of the company they hold. This technique differs from hedge funds and mutual funds, focusing on larger public businesses and acquiring more minor, passive positions in a more extensive range of companies. Private equity today manages $4.7 trillion in assets 5. Learn more about a personal equity associate’s job.

Positions On The Sell-Side

The investment bank performs several critical services that enable it to serve as a seller of corporate securities to investors. Among these roles are:

Investing banking (M&A and corporate finance)

The investment banker is the key contact between corporations and their clients. The banker’s mission is to investigate and comprehend its corporate clients’ capital-raising requirements and identify chances for the bank to win business.

Markets for equity capital

When an investment banker determines that a client is considering raising equity capital, ECM gets to work. ECM’s role is to guide businesses through the process. For IPOs, for example, ECM teams are the primary hub in deciding structure, pricing, and reconciling the customers’ objectives with current capital market realities.

Debt capital markets

The DCM team performs the same function as the ECM team but on the debt capital side.

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Trading and sales

When the decision to raise cash is taken, the sales and trading floor contact investors and sell the securities. 

The sales and trading function not only assists in the subscription of initial debt and equity offerings, but they are also central to the investment bank’s intermediary function in secondary capital markets, buying and selling already trading securities on behalf of clients (and occasionally for the bank’s account “prop trading”).

Equity research

Sell-side research analysts are another name for equity research analysts (in contrast to buy-side research analysts). 

The sell-side research analyst contributes to these-side raising process, and sales and trading in general, by and tings and other potentially valuable information on the companies they cover. 

These findings are shared directly with the investment bank’s sales personnel and equities research reports. 

While sell-side equities research is supposed to be independent and separate from the investment bank’s capital raising activities, concerns about the function’s inherent conflicts of interest arose during the late 1990s tech bubble and continue to this day.

How does The Buy Vs. Sell-Side Make Money?

Buy-side

Buy-side firms profit from trade activities that involve purchasing low and selling high. They must provide value by finding and buying underpriced stocks. 

For example, a buy-side analyst tracking the price of a technology stock may see a price reduction compared to other equities, but the tech company’s performance remains strong. 

The analyst may therefore presume that the tech stock price will rise shortly. The buy-side firm will give a purchase recommendation to its clients based on the analyst’s research.

Sell-side

Fees and commissions are how sell-side businesses make a living. As a result, their primary purpose is to close as many sales as possible. On the sell-side of the financial market, market makers are a powerful force. 

They participate in foreign exchange markets by buying and selling large amounts of currency, underwriting, managing bond issues purchased directly from the US Treasury, taking proprietary positions, and selling both companies individual investors.

Important Distinct

Although both sell-side and buy-side analysts monitor and analyze equities, there are significant differences between the two positions.

In terms of salary, sell-side analysts often earn more, although there is a broad range, and buy-side analysts with successful firms (mainly hedge funds) can do far better. 

Working conditions undoubtedly favor buy-side analysts; sell-side analysts are constantly on the road and frequently work longer hours, even though buy-side analysis is arguably a more stressful job.

As the job titles may imply, there are considerable disparities in what these analysts are compensated for doing. 

In reality, sell-side analysts are compensated primarily for information flow and access to management (and high-quality information sources). 

Compensation for buy-side analysts is far more dependent on the quality of the analyst’s recommendations and the fund’s overall success (s).

The importance of precision varies across the two vocations. Contrary to popular belief, good models and financial estimates are less critical for a sell-side analyst but can be vital for a buy-side analyst. 

Similarly, some social media believe that price targets and buy/sell/hold calls are not essential to sell-side analysts. 

In reality, analysts can be beverage when it comes to modeling, or stock picks but still perform admirably if they deliver meaningful information.

On the other hand, a buy-side analyst cannot afford to be wrong frequently, or at least not to the extent that it significantly influences the fund’s relative performance.

Analysts on the buy-side and sell-side must also follow various regulations and standards. Similarly, buy-side analysts often faceless stringent laws regarding share ownership, disclosures, and outside employment, at least regulators (individual employers have different rules concerning these practices).

Careers On The Buy Side vs. Sell Side

Buy-side Jobs

After a few years on the sell-side, finance professionals frequently “graduate” to the buy-side. Banks are excellent training grounds with their different analyst and assocWithms that typically span two to four years. Analysts or banks associates may consider moving to the buy-side at that point. The following summarizes the critical career pathways accessible on the buy-side.

  • Portfolio administration
  • Wealth management
  • Private equity
  • Venture capital
  • Hedging money
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Sell Extracurricular Activities

There is a broader range of occupations accessible on the sell side, with more entry-level prospects than on the purchase side. The main career pathways accessible on the sell-side are summarized below.

  • Investment banking
  • Equity research
  • Sales and Trading
  • Commercial & Corporate Banking

Skills For The Buy Side vs. Sell Side

Buy-side skills

As previously stated, the analyst or associate level skillsets are relatively similar. Still, because there is less salesmanship necessary on the buy-side, it tends to attract a more cerebral and less sociable sort of individual (although this is just a broad generalization).

The following are the primary talents necessary on the buy-side:

  • Industry investigation
  • Financial modeling
  • Exceptional abilities
  • Creating research reports
  • Increasing capital
  • Obtaining desired rates of risk-adjusted return

Sell-side skills

Several qualities distinguish the buy-side from the sale side. Duties may be pretty similar at the most junior levels, while roles differ dramatically at the most senior levels. 

As the term “sell” implies, more salesmanship is necessary on the sell-side than on the buy-side.

The following are the primary talents necessary on the sell-side:

  • Industry investigation
  • Financial modeling
  • Exceptional abilities
  • Creating research reports
  • Presentations in a pitchbook
  • Client relationship management
  • Obtaining new business
  • Selling and closing transactions

Compensation On The Buy Side vs. Sell Side

Total remuneration (pay and bonus) varies considerably based on the position, the firm, the city, and various other factors. 

As a result, generalizations concerning the compensation discrepancies between the sale and buy sides are difficult to establish, but here are a few items to consider:

Jobs on the buy-side often need more experience, and individuals are sometimes regarded to “graduate” from the sell-side to the buy-side.

Buy-side employment typically includes a performance bonus component (a carried interest in private equity or the 2-and-20 structure in hedge funds), resulting in significant upside potential income if the investments perform successfully.

Success bonuses are also standard in sell-side employment, and they can be based on both personal performance and the firm’s performance.

It’s safe to assume that you can make more money on the purchase side, but don’t underestimate the ability of a rainmaker investment banker on the sell-side to make a lot of money.

FAQs

What is the distinction between buy-side vs. sell-side mergers and acquisitions?

The buy-side entails working with purchasers and identifying chances to acquire other firms. Sell-side M&A, on the other hand, entails collaborating with sellers who are looking for a buyer for a client’s business.

What exactly is the sell-side?

The term “sell-side” refers to the financial industry segment involved in the manufacture, promotion, and sale of stocks, bonds, foreign currency, and other financial products.

How does the sell-side generate revenue?

Because the business handles all aspects of the trade on the customer’s behalf, sell-side firms are compensated through commissions levied on the sale price of the stock. The concept of a spread would be another source of funds.

Is the buy-side compensated more?

The average salary on the buy-side and sell-side is not significantly different, but the buy-side has a substantially greater ceiling.

Conclusion

There is more possibility for recognition on the sell-side than on the purchase side at the start of your career.

Your name on research papers can help you develop a solid reputation because they are frequently released publicly to clients and media sources.

As you advance in your career on the sell side, you may become a go-to media expert in your field.

References

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