Research Analyst - Explained
What is a Research Analyst?
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Table of ContentsWhat is a Research Analyst?What Does a Research Analyst Do? The Basics of Being a Research AnalystResearch Analyst QualificationsFinancial Analyst Versus Research AnalystBuy Side Versus Sell-Side Analysts
What is a Research Analyst?
A research analyst is a professional with expertise in researching, collating, interpreting, analyzing and presenting data and reports on securities for the use of clients or customers.
A research analyst prepares investigations, reports and data in many fields such as economics, accounting, finance, and others.
A research analyst can also be called a security analyst, equity analyst, investment analyst or rating analyst.
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What Does a Research Analyst Do?
This research analyst conducts research, carries out investigation, launches an inquiry into facts in order to make a report or collation of data that will be useful for financial institutions and clients.
Through the report an analysts presents, recommendations are made to companies or individual investors on the nature of securities or investments which will help them determine whether to buy, sell or hold a position in the market.
Research analysts render services for large financial institutions, investment banks and firms are required to have a professional designation issued by a registered academy.
The reason is that investment banks and financial institutions who are members of the Financial Industry Regulatory Authority (FINRA), can only hire a research analyst with a professional designation.
The Basics of Being a Research Analyst
Due to the distinct services they render, research analysts are pitched into two tents or categories.
The first tent belongs to the buy side research analysts while the other tent is that of the buy side research analysts.
Basically, a buy side research analyst gives recommendations to firms on what securities to invest in or what assets to buy.
Asset management companies often hire these types of research analysts.
Analysts from the sell side are often recruited by investment firms, they give recommendations on the securities to be sold or those to be held.
External clients can also seek the service of these analysts.
Generally, research analysts work for businesses, companies, investment banks, among others.
The buy side research analysts, however, are often considered to have a higher level of academic qualification and professionalism over the sell side analysts.
Here are the key takeaways;
- A research analyst is a professional with expertise in carrying out investigations, research and making reports and presentations on assets and securities for companies and clients.
- Research analysts examine, inquire and find facts on securities and assets for the use of the companies and clients they work for.
- There are two categories of research analysts, those in the buy side and those in the sell side. Both sides give buy and sell recommendations to companies.
- The buy side research analysts are often hired by asset management companies while the sell side analysts are hired by investment firms.
Research Analyst Qualifications
The Qualifications of research analysts are highlighted below;
- A masters degree in finance, accounting or a related field.
- A Chartered Financial Analyst (CFA) professional designation.
- Registration with oversight bodies.
Research analysts who work for firms that are members of FINRA are required to sit for Series 86/87 exams to obtain a license from FINRA. This requirement is limited to analysts who work for companies that have FINRA membership or analysts who intend to do so.
Financial Analyst Versus Research Analyst
In many firms in the United States, there is no clear cut distinction between financial analyst and research analysts, this is because many financial analysts perform the duties of a researcher.
However, to set a pace, a financial analyst is a professional who provides expertise in terms of analysis of investments and evaluation of market performance.
There are certain fundamental economic principles that financial analysts must be aware of, as well as business valuation techniques.
The functions of research analysts are not as broad as those performed by financial analysts.
Rather than focus on economic principles, research analysts pay attention to mathematical and accounting concepts.
Buy Side Versus Sell-Side Analysts
Basically, the buy-side research analysts are employed by asset management firms while the sell-side research analysts are hired by investment sides, this is what distinguish these two groups.
Their allegiance lies to the company that hires them and they give recommendations that will favor the companies.
A sell-side research analyst can also manage investors accounts or work with a brokerage firm.
This analyst offers professional services in exchange for a fee, paid by the client or by a commission paid by the brokerage firm.
A buy-side analyst can also work for mutual funds, hedge funds, or other institutional investors who pay him for the services rendered.