Investment banking vs equity research: what is the difference?

Equity research and investment banking are both analytical jobs at the same firms, and both build financial models of companies, but they serve different clients and are deliberately kept apart. A research analyst studies a dozen or so listed companies in one industry and publishes reports, earnings forecasts and a rating, buy, hold or sell, for the funds that trade with the firm. A banker advises those same companies on deals, for a fee. The rules that now keep them apart come from a scandal.

What an equity research analyst does

Sell-side equity research analysts, those working for investment banking and brokerage firms, typically follow and advise on roughly a dozen public companies in a given industry, and spend one to two weeks a month visiting the fund managers who are their clients to pitch ideas[1Source 1Michel Fleuriet, Investment Banking Explained: An Insider’s Guide to the Industry (McGraw-Hill, 2008), “What Exactly Do Research Analysts Do?”, pp. 136–137.]. Their written reports carry buy or sell recommendations, target prices and earnings forecasts; the first report on a company, the initiation of coverage, is the most detailed, and short follow-up notes appear whenever something significant happens[1Source 1Michel Fleuriet, Investment Banking Explained: An Insider’s Guide to the Industry (McGraw-Hill, 2008), “What Exactly Do Research Analysts Do?”, pp. 136–137.]. The models underneath project a company’s financial statements to a fair value, usually with relative-valuation multiples such as price to earnings and enterprise value to EBITDA, checked against a discounted cash flow, to reach a twelve-month target price, from which the rating follows[2Source 2Michel Fleuriet, Investment Banking Explained (McGraw-Hill, 2008), “Analysts Produce Buy/Sell Recommendations”, pp. 138–139.]. A textbook describes the same work as producing detailed models to forecast earnings, applying multiples of revenue, EBITDA, earnings, book value and cash flow, and rating a company overweight, equal weight or underweight against the market’s price; reports are published quarterly with earnings and whenever there is news[3Source 3David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 6, “Research”, p. 151.].

The clients are the buy side: institutional fund managers who have their own in-house analysts covering far more companies each and who rely on the sell side for depth in an industry[1Source 1Michel Fleuriet, Investment Banking Explained: An Insider’s Guide to the Industry (McGraw-Hill, 2008), “What Exactly Do Research Analysts Do?”, pp. 136–137.]. Research at a bank is usually housed in the trading division, and the firm may also run buy-side research for its own asset managers[4Source 4David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 6, “Research”, pp. 150–151.].

What a banker does instead

The investment banking division advises companies on mergers, acquisitions and capital raising, and is paid when a transaction closes. Its models serve a deal rather than a rating: a comparable companies analysisComparable companies analysisComparable companies analysis values a business from the multiples similar public companies trade at: choosing peers, spreading the numbers, picking a range.Terms and methods · updated 28 September 2026 · 1,294 words · 5 sources · 6 min to frame a sale price, a merger model to test accretion, a buyout model for a sponsor. The clients are the companies themselves, and the relationship is with their executives.

Why there is a wall

In the late 1990s the two got mixed. By most accounts, banks attracted deal business with favourable research coverage, issuers treated a positive report as a factor in choosing an underwriter, and analysts’ pay was often influenced by banking or even tied to specific deals; when prices collapsed in 2000 the arrangement came under investigation[5Source 5K. Thomas Liaw, The Business of Investment Banking: A Comprehensive Overview, 3rd ed. (Wiley, 2011), “Analyst Conflicts of Interest”, pp. 307–308.]. The result, in April 2003, was the Global Research Settlement: enforcement actions against the ten largest firms, which agreed to pay about 1.4 billion dollars and to reforms without admitting or denying the charges[6Source 6David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 2, “Regulation Analyst Certification” and “Global Research Settlement”.]. The reforms are what a student meets today as “the wall”. Research and banking staff must be physically separated; the research budget is set without input from banking; analysts’ pay may not be based on banking revenue; bankers have no say in what gets covered; and analysts may not take part in pitching for banking business or in roadshows[7Source 7David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 6, “Conflicts of Interest”, p. 155.]. Regulators also required analysts to certify that their published views are their own and to disclose any pay tied to them[6Source 6David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 2, “Regulation Analyst Certification” and “Global Research Settlement”.].

Another textbook states the principle: because a firm might be tempted to recommend a company simply because it is a client, research is organisationally separated from core investment banking by what the industry calls Chinese walls[8Source 8Giuliano Iannotta, Investment Banking: A Guide to Underwriting and Advisory Services (Springer, 2010), §1.1, “Introduction”.]. The scandal showed that the walls of the 1990s were largely ineffective, and the settlement rebuilt them in rules[9Source 9Jason Draho, The IPO Decision: Why and How Companies Go Public (Edward Elgar, 2004), §11.2.2, “Conflict of Interests”, pp. 270–271, and §11.2.3.3, “Institutional structure”, pp. 274–275.].

Careers

At one large firm, as a textbook describes its programme, graduates join research as business analysts hired directly into industry teams, where the work is analysing companies, running models, synthesising data and dealing with the sales force, clients and the companies covered; associates with a few years’ experience or an advanced degree research companies within an industry[10Source 10K. Thomas Liaw, The Business of Investment Banking, 3rd ed. (Wiley, 2011), “Global Investment Research” (one firm’s division, as the section says).]. Titles broadly mirror banking’s, but the job is a specialist’s from the start, and the same description offers the chance to become an industry specialist rather than to build a client list[10Source 10K. Thomas Liaw, The Business of Investment Banking, 3rd ed. (Wiley, 2011), “Global Investment Research” (one firm’s division, as the section says).].

Frequently asked questions

Is equity research part of investment banking?

It is part of an investment bank, usually inside the trading division, but it is deliberately separated from the investment banking division by rules that date from the 2003 settlement and by the firms’ internal walls[4Source 4David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 6, “Research”, pp. 150–151.][7Source 7David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 6, “Conflicts of Interest”, p. 155.].

What does “sell side” mean in equity research?

Analysts employed by banks and brokerage firms are the sell side; analysts employed by the institutions that buy securities, such as pension and mutual funds, are the buy side. Sell-side research is written for buy-side clients[11Source 11Roni Michaely and Kent L. Womack, “Market Efficiency and Biases in Brokerage Recommendations”, in Richard H. Thaler (ed.), Advances in Behavioral Finance, Volume II (Russell Sage Foundation and Princeton University Press, 2005), ch. 11, its introduction and first footnote.][1Source 1Michel Fleuriet, Investment Banking Explained: An Insider’s Guide to the Industry (McGraw-Hill, 2008), “What Exactly Do Research Analysts Do?”, pp. 136–137.].

Can a research analyst work on deals?

Not on winning them. Since the settlement, analysts are prohibited from taking part in efforts to solicit banking business, including pitches and roadshows, and bankers may not influence coverage or pay[7Source 7David P. Stowell, Investment Banks, Hedge Funds, and Private Equity, 3rd ed. (Academic Press, 2017), ch. 6, “Conflicts of Interest”, p. 155.].

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  author       = {{xlsx.dev}},
  title        = {{Investment banking vs equity research: what is the difference?}},
  howpublished = {xlsx.dev Wiki},
  year         = {2026},
  month        = sep,
  url          = {https://xlsx.dev/wiki/investment-banking-vs-equity-research}
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