Buy-Side vs. Sell-Side Finance: Roles & Compensation

Full-service broker-dealers and investment banks run three primary front-office functions: investment banking, sales and trading, and research, supported by middle-office risk and IT teams and back-office operations that clear and settle trades.

1. Investment banking

   M&A advisory and underwriting securities

   In the investment banking department, bankers advise corporate clients on mergers and acquisitions (M&A), act as underwriters or participate in selling groups for public equity and debt offerings, and serve as placement agents for private offerings. As the SEC's investor publication on analyst recommendations notes, underwriting securities offerings and providing investment banking services can bring in more revenue for multi-service firms than brokerage operations or research reports.

   Investment banking interview prep

2. Sell-side research

   Sector coverage, ratings, and corporate access

   In the research department, sell-side analysts track a specific industry or sub-sector and publish periodic written reports on covered subject companies. Per the SEC's 2022 Staff Report on Investment Research, these reports typically include market narratives, financial metric projections, target prices, and overall recommendations such as buy, hold, or sell. Sell-side analysts also provide corporate access for institutional buy-side clients by hosting industry conferences, organizing non-deal roadshows, and arranging one-on-one meetings or field trips with corporate executives.

3. Sales and trading

   Indirect research monetization and trade execution

   While independent research firms sell their reports on a subscription basis, sell-side broker-dealers usually do not charge directly for written research prior to unbundling rules. Instead, they monetize research indirectly when institutional investors route trades through the firm's sales and trading desk, generating brokerage commissions or markups and spreads from firm inventory.

Buy-side work spans three distinct workflows outlined in the CFA Institute's Level III Specialized Pathways: public markets portfolio management, private markets transactions, and private wealth management.

1. Public markets

   In-house multi-sector research and portfolio management

   In public markets portfolio management, buy-side Equity and Credit Analysts conduct in-house research across multiple sectors. They combine their own financial modeling with external sell-side reports and alternative data (such as satellite imagery, point-of-sale shopper data, app usage, web traffic, and machine learning tools) to counsel Portfolio Managers (PMs) on which securities to buy, hold, or sell. Buy-side analysts face direct pressure for accuracy because their research drives actual capital allocation, and they make money when their calls perform. Public markets portfolio management covers index-based and active equity strategies, fixed-income yield curve and credit spread positioning, risk budgeting, derivative hedging, and trade execution.

2. Private markets

   General Partner vs. Limited Partner workflow ($29.6T gross assets)

   In private markets, the workflow is rooted in M&A and deal-making rather than public stock picking. Preqin data cited by the CFA Institute forecast the alternatives market to grow from $14 trillion to $23 trillion by 2026, close to half of US equity market capitalization. On the regulatory reporting side, the SEC's Private Fund Statistics (data through 2025Q4 from Form PF filings by SEC-registered investment advisers with at least $150 million in private fund AUM) show 58,891 reported private funds managing $29.6 trillion in gross assets and $19.0 trillion in net assets. GPs manage funds across buyout equity, growth equity, venture capital, private debt (leveraged loans, high-yield bonds, mezzanine, and unitranche debt), distressed special situations, real estate, and infrastructure. Limited Partners (LPs) are the asset owners who commit capital to GP funds.

3. Private wealth

   Advising High-Net-Worth clients (US$5M+)

   Private wealth management advises High-Net-Worth clients (worth US$5 million or more) on goals-based wealth planning, tax efficiency, concentrated business positions, and intergenerational wealth transfer. Global investible assets rose from $160 trillion in 2000 (4x GDP) to $510 trillion in 2020 (6x GDP), with liquid assets projected by Bain to grow from $130 trillion to $230 trillion by 2030, doubling wealth management industry revenues.

When you interview for research or portfolio management roles, you need to know how the buy side pays for external sell-side or independent research. In the United States, institutional money managers have historically used client assets to pay for both order execution and research through bundled commission payments known as soft dollars under the Section 28(e) safe harbor of the Exchange Act. Section 28(e) protects money managers from breach of fiduciary duty liability when they pay more than the lowest execution rate, provided they determine in good faith that the commission is reasonable in relation to the brokerage and research services received. Managers also use Client Commission Arrangements (CCAs) to execute a trade through one broker-dealer and direct a portion of the bundled commission into a pool to pay another provider for research. Hard dollars are direct cash payments for research, often paid straight out of the buy-side asset manager's own profit and loss (P&L) resources rather than client assets. In January 2018, the European Union implemented MiFID II, requiring covered managers to unbundle research payments from execution commissions and pay either out of their own P&L or through a separate Research Payment Account (RPA) funded by a specific client research charge.

1. P&L vs. commissions

   96% EU P&L payments vs. 90%+ US bundled commissions

   An EC Report cited by the SEC found that 96% of surveyed EU firms paid for research out of P&L following MiFID II (with 67% also using RPAs), whereas an IPE Magazine report noted US asset owners still funded over 90% of US manager research budgets via bundled commissions. In CRSP and IBES data from 2016 to 2020, the median number of issuers covered per analyst firm stayed around 16, and from 2016 to 2019, 82.5% to 82.6% of exchange-listed stocks received research coverage before declining to 76.9% in 2020.

2. Advisers Act status

   Section 202(a)(11) and broker IA registration

   Under Section 202(a)(11) of the Advisers Act, a US broker-dealer is excluded from registering as an investment adviser only if its advice is solely incidental to brokerage and it receives no special compensation. To accept unbundled hard-dollar cash payments, at least five brokers (including Bank of America Merrill Lynch, Deutsche Bank, Jefferies, Nomura Securities, and BMO Capital Markets) registered research units as investment advisers, alongside temporary SEC staff no-action relief.

3. Budget compression

   20% to 40% research budget cuts and fee drops

   Studies cited by the SEC found that average asset manager budgets for external equity research fell by 20% to 30% between 2017 and 2019 (and 30% to 40% at the largest firms). Some bulge-bracket banks priced full annual access to written research for as little as $10,000, while independent boutiques saw average annual fees fall from $45,000 to $30,000.

Consider an invented company, Apex Industrial Automation, which trades at $50.00 per share with 20 million diluted shares outstanding (a $1,000 million market capitalization) and $200 million in net debt, giving it an Enterprise Value (EV) of $1,200 million. Apex generates $150 million in current EBITDA (trading at 8.0x EV/EBITDA). This worked example is written by our team to illustrate both workflows.

1. Workflow 1: Sell side

   Equity research analyst after Q3 earnings ($60.13 target price)

   Apex reports Q3 earnings at 4:05 PM. The sell-side analyst updates the three-statement forecast model, joins the 5:00 PM earnings call Q&A, and publishes a client note before the market opens. The analyst forecasts next-twelve-months (NTM) EBITDA to rise from $150 million to $165 million (+10.0%). Applying a peer-group target multiple of 8.5x EV/EBITDA yields a projected Enterprise Value of $1,402.5 million ($165 million times 8.5). Subtracting $200 million of net debt leaves an implied Equity Value of $1,202.5 million, or a 12-month target price of $60.13 per share ($1,202.5 million divided by 20 million shares, +20.3% upside). The analyst reiterates a Buy rating, includes the mandatory FINRA Rule 2241 rating distribution table and Reg. AC certification, and calls buy-side clients to explain the revision.

2. Workflow 2: Buy side

   Private equity associate underwriting a buyout (2.23x MOIC, 17.4% IRR)

   A General Partner firm considers taking Apex private at $60.00 per share ($1,200 million equity purchase price, or $1,400 million total Enterprise Value including the $200 million net debt refinance, which is 9.33x current $150 million EBITDA). Instead of publishing a 12-month target price, the PE associate builds a 5-year Leveraged Buyout (LBO) and downside case model for the internal Investment Committee. The GP funds the $1,400 million purchase with 50% debt ($700 million at 4.67x EBITDA) and 50% sponsor equity ($700 million). Over five years, EBITDA grows from $150 million to $210 million (+40.0% total growth), and cumulative free cash flow pays down $300 million of debt, leaving $400 million in ending net debt. Exiting in Year 5 at the entry multiple of 9.33x EV/EBITDA gives an exit Enterprise Value of $1,959.3 million ($210 million times 9.33). Subtracting the $400 million remaining debt leaves $1,559.3 million in exit equity value. Dividing $1,559.3 million by the $700 million initial equity check produces a 2.23x Multiple on Invested Capital (MOIC), or an approximate 17.4% Internal Rate of Return (IRR) over 5 years. The associate then stress-tests exit multiple compression to 7.5x before recommending whether to bid.

Many junior finance professionals treat sell-side analyst and associate programs as a training ground for what the CFA Institute calls the 'job after the job' on the buy side. About half of discretionary Portfolio Managers are CFA charterholders, and recruiting pathways follow four main tracks.

1. Track 1

   Investment Banking Analyst or Associate to Private Markets GP Investment Associate

   A transactions workflow role rooted in M&A and due diligence across buyout equity, growth equity, private debt, real estate, and infrastructure.

2. Track 2

   Sell-Side Equity or Credit Analyst to Buy-Side Analyst, Portfolio Manager, and CIO

   Moving from publishing single-sector external notes to conducting multi-sector internal research and managing portfolio risk and capital allocation.

3. Track 3

   Sell-Side Equity Research to Corporate Investor Relations (IR)

   Professionals act as a bridge between a public company's C-suite, buy-side institutional investors, and sell-side analysts across quarterly 10-Q/10-K disclosures, quiet periods, roadshows, and Investor Days.

4. Track 4

   Junior Wealth or Relationship Manager to Private Wealth Advisor

   Advising High-Net-Worth families ($5M+) on goals-based wealth planning, tax efficiency, concentrated positions, and intergenerational wealth transfer.

How to explain why you want to leave sell-side coverage or advisory for a buy-side investment seat.

1. 1

   You have spent two years as a sell-side analyst. Why do you want to move to the buy side now, and how do you expect your daily work to change?

   Show the sample answer

   Sample answer. Example answer written by our team. The applicant is invented. In my two years in sell-side industrials coverage, I built three-statement operating models, prepared management presentation materials, and learned how to tear down a 10-K in an afternoon. What frustrated me is that my work stopped at the transaction or the published note. Once a deal closed or a quarterly update went out to clients, I moved on to the next mandate instead of living with the capital allocation decision over a multi-year hold period. I want to move to the buy side as an Investment Associate at your firm because I want to be accountable for the principal investment outcome. I expect my daily workflow to change in three specific ways. First, instead of formatting models to market a transaction or update short-term quarterly consensus, I will be stress-testing downside cases, cash conversion, and debt capacity to protect the fund's capital. Second, I will look across wider industry value chains to compare risk and return rather than staying inside one narrow sub-sector. Third, after an acquisition closes, I will stay involved in business planning, monitoring governance, and driving value creation through exit.

   It credits the technical foundation gained on the sell side without badmouthing the current employer, then names three concrete workflow differences between advisory/research and principal capital allocation.

Use this 5-step checklist written by our team to structure your preparation when recruiting from the sell side to private equity, hedge funds, or asset management.

1. 1. Investment thesis

   Translate every deal or report on your resume into an investment thesis

   Sell-side interviewers ask what you modeled. Buy-side interviewers ask whether you would have put the firm's own capital into the deal at that price, and what single risk could break the thesis.

   Behavioral interview practice

2. 2. Unit economics

   Master unit economics and revenue drivers before opening the spreadsheet

   Explain in plain English how a business makes money and what drives volume, pricing, and margins before quoting valuation multiples.

   Consulting and deal case examples

3. 3. Pitches & deals

   Prepare two actionable pitches or deal teardowns

   For public markets (hedge funds and asset management), prepare one long and one short equity or credit pitch with a variant view. For private markets (PE and private credit), prepare a deep dive on a past M&A transaction, including debt capacity, cash flow conversion, and exit multiple sensitivity.

4. 4. Mental math

   Drill mental math and LBO/DCF mechanics out loud

   Buy-side interviews test how fast you connect operational changes to unlevered free cash flow, debt paydown, and IRR.

5. 5. Credentials

   Match your credentialing to your target workflow

   If you are pursuing the CFA Program, select the Level III specialized pathway (Portfolio Management, Private Markets, or Private Wealth, which accounts for 30% to 35% of the exam alongside the 65% to 70% common core) that matches your target buy-side seat.

   From CFA Institute: Level III Specialized Pathways.