Within the financial services industry companies can be categorized into two broad based categories, buy side and sell side. The financial services industry is split into roughly half buy side companies and half sell side companies. There are many unique differences between the two, and they each act in different capacities. Many people do not understand the difference between the two, and it was only until I started studying my Finance degree in college did I learn the unique differences between the two.
Buy Side vs Sell Side
What are they?
Buy Side: Associated with making decisions with capital and investing it. Involves raising capital from investors and strategically investing it.
Sell Side: Help facilitate decision-making and investments. Involved in pitching different financial products (stocks, bonds, entire companies, etc.) to investors and trying to sell them.
Who are they?
Buy Side: Comprised of hedge funds, mutual funds, asset managers, institutional investors (pension funds, insurance, endowments, trusts), private equity, venture capital, and retail investors.
Sell Side: Comprised of investment banks, commercial banks, stockbrokers, research, market makers, and other advisory services.
Firms can also technically be both, but separate the two functions with a Chinese wall, so there isn’t any interaction.
What are their goals?
Buy side firms are in the long game and are looking to purchase more assets or opportunities and increase their overall assets under management (AUM). They make money by buying low and selling high. They also can be compensated by their clients in the form of a fixed fee or a percentage of assets under management.
Sell side firms are constantly in the market for pitching and selling assets or opportunities. They make money through fees and commissions. They sell financial products, research, advisory, and other financial services to their clients. Buy side firms do their own research as well, but do not share/sell it. Opinions on target prices, upgrades, and downgrades all come from the sell side.
How does the lifestyle compare?
Buy Side: Comparatively more relaxed compared to the sell side. Some buy side companies are long only and invest for the longer term. They are less worried about day-to-day movements (mutual funds, pension funds). Although hedge funds are quite the opposite., and are concerned with short-term performance. Analysts on the buy side don’t typically work into the night like investment bankers, but still have to be responsive during the evenings and weekends.
Sell Side: Tend to work longer and more stressful hours. Constantly have to answer to clients and manage day-to-day market moves. Research analysts on the sell side can become very busy during earnings season.
What are the differences in structure?
Buy Side: Tend to have a leaner structure than the sell side.
Sell Side: Usually have more of a hierarchical structure with many positions in-between.
How does compensation compare?
When comparing the buy side vs sell side compensation tends to be generally around the same. The closer you are to the money, the more you’ll get paid. The only difference is that the ceiling on the buy side is much higher. If you invest well, the sky’s the limit. There can always be exceptions. For example, mutual fund pay is generally very good on a risk-adjusted basis. You would most likely receive a higher base salary, and less volatile bonus compensation. On the flip side, if you were working at a big fund during a good performing year, you could earn a substantially larger bonus.
So which is better, the buy side or sell side? Buy side vs sell side is always a highly debated topic within financial services. There is no one right answer to this question, but many financial services professionals see themselves switching between the two over the course of their careers. Sell slide professionals usually switch over to the buy side, and the move from sell side to buy side is generally harder than the reverse. Because of the skill sets one develops in certain jobs, there is a natural tendency for certain career choices to feed into related careers. Both sides make up Wall Street, so think about which career choice better suits you.