Career advice: Financial analyst versus equity analyst

Young professionals who are quantitatively inclined, skilled problem solvers and logical thinkers, and who keep up to date with the markets should consider a career as a financial analyst. In a broad sense, financial analysts examine financial data to help companies make investing decisions.

Some financial analysts work internally and help their employers make investments, while others work for third-party firms hired by outside clients to lend their expertise. The field of financial analysis is a rather broad category. Some financial analysts look at the big picture, analyzing overall market trends to locate profitable investments in different industries and market segments. Others take a micro approach, breaking investment opportunities down company by company to try to pinpoint the investment potential of each. These professionals are called equity analysts.

Equity analysts come in two types: buy-side analysts and sell-side analysts. Buy-side analysts work for fund managers at mutual fund brokers and financial advisory firms. They research companies in their employers' portfolios, as well as other companies that may represent profitable investment opportunities. Based on this research, they prepare reports that offer buy and sell recommendations to management.

Sell-side equity analysts often work for the big investment banks, such as Goldman Sachs. Their jobs entail researching the financial fundamentals of companies the bank is considering taking public and determining which ones have the strongest potential to become profitable.

For aspiring financial analysts, one of the most important decisions is whether to specialize as an equity analyst or pursue another niche under the broader umbrella of financial analysis. The following comparison explains some of the subtle differences between a career as a financial analyst and an equity analyst.

No licensing board or regulatory authority sets hard-and-fast educational minimums for financial analysts or equity analysts. However, a bachelor's degree has become a de facto minimum for receiving an offer to work in either field. Beyond this, the individual firms doing the hiring set the standards.

Because financial analysis is the broader of the two careers, more employment opportunities abound, from huge Wall Street investment banks to insurance companies and small, local firms. Educational standards can vary depending on which of these routes an applicant pursues. At the very least, he or she should have a bachelor's degree, with the most preferable majors being economics, finance and statistics.

Equity analysts are much more concentrated on Wall Street at the big investment banks. The big banks are known to look for the best of the best when hiring those right out of college. Because of this, they focus their recruiting efforts almost exclusively on top-tier schools, such as the Ivy Leagues, Duke and the University of Chicago. While applying with a degree from a lesser-rated school is short of a death knell in the field, the plain fact is, statistically, a Princeton grad has a much stronger shot at landing an equity analyst position compared to a graduate of a typical large state university. For graduates of non-top-tier schools who still want to pursue equity analysis, their best bet is getting into, and graduating from, an elite MBA program.

Financial analysts and equity analysts need strong analytical and quantitative skills, problem-solving ability and, equally importantly, a love for the markets. Just as a financial advisor or stockbroker keeps a finger constantly on the pulse of the market, analysts who study investment data must do the same to draw accurate conclusions from the data.

While both careers require hard work and dedication, equity analysts in particular, due to the nature of their likely employers, should be prepared for a tough grind and a lot of work hours. A job at a big investment bank is not a 9-to-5 gig with weekends off. The average workweek, particularly during the first few years, could very well be upward of 80 or 90 hours. In fact, some banks have bunk rooms so that analysts working into the night can crash for a few hours before being back at their desks before the following day's opening bell.

An equity analyst almost invariably makes more money than a traditional financial analyst, but he or she puts in a lot more hours to earn that money. As of 2017, the average annual base salary for an entry-level financial analyst was $55,300, according to Salary.com. Bonuses, when given, are usually small and tied to company performance, not individual metrics. 

Equity analysts, by contrast, earn a median base salary of $80,400. Equity analysts also have the potential to double their base pay with bonuses, even during the first year. A common first-year total income goal for an equity analyst is $140,000. Most financial analysts, though they make above-average incomes, have to work many years before getting to the income an equity analyst can make his or her first year, and some never get there.

According to the U.S. Bureau of Labor Statistics (BLS), the job outlook for financial analysts is strong through 2026. Projected job growth in the field is 11% compared to 7% growth across all occupations. The BLS lumps equity analysts with financial analysts when making employment projections.

It's worth noting that the job market for equity analysts is, for obvious reasons, tied to the health of the big banks. This health was tenuous for a period beginning in 2008, but thanks to restructuring, along with an injection of taxpayer-funded aid, investment banks are doing much better. Assuming no subsequent turbulence, equity analysts should continue to enjoy a strong job market.

These careers require similar skills, education and background. One consideration is what kind of employer you want to work for. Basically, if you prefer a smaller or mid-sized company, you have a much better shot as a financial analyst given the aforementioned fact that most equity analyst jobs are at big investment banks.

Another consideration is, of course, money. If your No. 1 goal is a big paycheck, become an equity analyst at a big bank. Keep in mind you are probably going to be settling in at the office for an evening of work while your financial analyst friends are at the gym, happy hour, or playing rec league softball. If work-life balance is at the top of your list, lean toward financial analysis, and definitely stay away from the big investment banks.