Mainly the City with some travel.
All the big banks, investment banks and brokers big and small, plus the credit rating agencies.
Where does the role fit in?
Not even a professional fund manager can track all the investment options that he or she has. They need expert opinion about markets, companies, industries and the general economy. All the major investment banks and brokers in the City employ teams of analysts to provide those expert opinions. For the most part, they are gathered together in research departments. However, many specialist analysts work elsewhere in the bank, providing expertise where it is needed.
What you do
There are lots of different species of analyst. Generally speaking, however, most research departments employ two main types.
This is the biggest group. Equity analysts track both individual companies and entire industries, providing detailed reports on their sector and expert opinion on trading strategies - for example, whether to buy or sell. They provide these opinions in three different ways:
- Notes - short buy/sell recommendations in the form of brief documents comprising no more than four pages. Here they have to try to predict the course of a share’s price, based on both its fundamental performance and -to a lesser degree - overall market sentiment.
- Sector analysis - these can be no more than four-page general notes on the direction of a specific sector. Occasionally, however, they run into hundreds of pages, analysing all the key changes and trading opportunities facing a sector, as well as containing a full profile of all the firms actively involved in it.
- Conference calls and meetings with clients - sales staff and brokers will ask analysts to join calls or meet with major clients in order to deliver their expert assessments direct.
Analysts have many other responsibilities
- Providing opinion for corporate finance teams (see Corporate finance). Analysts will frequently be called upon to write notes on an industry or a company that the bank’s corporate finance teams are working with - for example, during the run-up to an initial public offers (IPO), which is when a company first issues and sells shares.
- Providing strategic opinions to the bank’s own traders and risk analysts, so that the bank itself knows what to invest in, and conversely which companies or industries to avoid.
- Talking to the press - banks always like to see their analysts quoted in the Financial Times!
All the big banks and brokers have economists. They do a very similar job to the equity analysts, but concentrate on predicting the course of the economy rather than the price of a particular share. This advice is needed by both the bank and its customers. It is the state of the economy and the level of demand that determines how successful companies will be - and therefore how much they will be able to pay their investors.
However, more important than predicting company performance is trying to predict the reaction of government to economic performance. Interest rates are critical in all markets, since they are fundamental to the price of all market instruments (especially those that actually pay interest, like a bond).
Economists spend their days writing reports on the major national and regional economies. They do presentations on economic performance, both to staff at the bank and to major customers. Leading bank economists are often quoted in the media, as are those who work for some of the specialist economic analysis companies in the City.
Outside of these 'main' job roles, there are a number of specialist activities.
Fixed income/bond analysts
Bonds are government and company debts that can be bought and sold. They provide a fixed return to investors through interest payments, and, just as there are analysts who specialise in shares, so there are also analysts who specialise in bonds. As an example, a company may need to raise £100 million to build a new factory. They will usually create a bond to do this - say, a 10-year bond paying 7% per year. This means that over the 10 years the company will pay £7 million in interest a year, as well as repaying the whole £100 million at the end, from the profit made from the investment (hopefully). During the 10-year period, banks and investors can trade these bonds between each other, although in general they are traded at a slower pace than shares.
This is a very different trade from that of equities or shares. Most of the basic work is done outside of the banks. The big credit rating agencies have teams of analysts who determine the so-called credit rating of a bond. This rating is basically an assessment of how likely it is that the company or government that borrowed the original money will keep paying the interest and will repay the debt when it becomes due. So, a bond that is AAA-rated is almost certain to be repaid. Credit ratings analysts are therefore effectively credit risk analysts, a trade of its own (see Credit risk officer).
Thanks to the efforts of these credit rating agencies, much of the basic analysis work on bonds is already done. As a result, bond analysts working for a bank play a very different role from equity analysts. They often sit much closer to the dealing room and are much more attuned to market sentiment and macro-economics, on the subject of which they regularly communicate with the bank’s economists. Bond analysts are looking to advise customers on whether interest rates will change, in which case the price of every bond in the market also changes. They are also looking to see if credit ratings may change, which again affects prices. In addition, they are experts in pricing a bond or other fixed-income instrument. The bank will be working with clients to issue new bonds, and the analysts will be expected to help with pricing that bond so that other investors in the market buy it. Without a credit rating to go on, however, or without a price set by the market, pricing a bond is complex.
Across all markets, sales staff and brokers need people who watch the markets and help in formulating trading strategy. Usually these people are well known and often on TV. They spend much of their time talking to clients about where markets will go and how they should invest. Most investors invest for the long term, and the strategists can help them while taking into account current market sentiment. Often, these market strategists are drawn from the bank’s teams of economists, or even from the ranks of its brokers. They probably write fewer reports than other analysts. Again, unlike equity analysts, they are most likely to sit on the trading floor so they are 'wired' into the market.
What you need to get the job
A 2:1 in a relevant degree is a minimum requirement.
Increasingly, these jobs go to people with postgraduate degrees, and almost all economists these days will have a postgraduate degree in economics.
Equity analysts also often have postgraduate degrees, though many will instead have a professional accounting and finance qualification. A number of analysts will be trained accountants.
Fixed income or bond analysts have to be very good with numbers (as do equity analysts) and these people tend to have degrees in quantitative subjects.
In general you will need to be:
- confident with numbers
- good at making presentations
- able to write well, and quickly
- at least bi-lingual. Languages are very useful for spreading your coverage into overseas markets. Analysts’ teams generally include people from all over the world
- thick-skinned. You will occasionally be asked to address the traders during the morning briefing held each day. Traders can be very cruel to analysts!
Most research departments are effectively made up of junior and senior analysts, with the latter mentoring the former.
Being a senior analyst (in most US banks this will come with the title of vice president, while in European banks you are more likely to be called an associate director) is a good and well-paid position in its own right. As for career progression:
- as an equity analyst you could become head of research, or a market strategist
- as an economist, you could become chief economist or head of research
- as a fixed income/bond analyst you could aim to be head of fixed income research, or chief market strategist
Most analysts will get bonuses aligned with the team that they most regularly support. So, a banking analyst will get bonuses aligned with the team that trades those stocks. Often, this will be nationally aligned, so a team that trades French shares will be supported by a couple of researchers specialising in French stocks.
Qualifications and career progression
Increasing numbers of analysts now take the Chartered Financial Analyst (CFA) qualification. Economists and market strategists will not need to do so, since they will not have to know much about the fundamental pricing of a share. Not all banks will insist on this qualification, however, and while equity analysts now often take it, bond analysts don’t. A recent trend has been for people wanting to get into the industry taking the CFA in their own time. This may be a way of getting in if you don’t have the right background, but if you have a strong degree or a relevant postgraduate qualification, you won’t need it.
What your bank will insist you do quite quickly after joining them is to get a regulatory qualification, enabling you to talk to clients and give investment advice. Usually this would be the Certificate in Securities from the Securities and Investment Institute. Some people will do this qualification before they get a job, showing intent and commitment, and it has the added advantage of being an easier commitment than the very demanding CFA.
These vary from role to role, but are broadly as set out below.
£25,000-£40,000 for a junior equity analyst, plus potential for joining bonuses on entry and bonuses from 20% to 100%.
For those staying in the branch network:
£50,000-£120,000 plus bonuses for an equity analyst.
£250,000+ plus bonuses for a head of research or a chief economist.