What You Need To Know About Financial Analysts

What You Need To Know About Financial Analysts

About Financial Analysts:

The increased popularity of analyst ratings over many years has expanded their influence over the price of securities. The slightest change in an analyst's rating for a particular stock can make the stock take off - or send it into a tailspin. Some people believe that analysts have too much power; others point to the conflicts of interest today's analysts face. Whatever the reason, it's important that all investors understand the different categories of analysts and what drives each analyst's recommendations. 

Types of Financial Analysts

Buy-Side:

Buy-side analysts work for large institutional investment firms such as mutual funds, hedge funds or insurance companies. They offer recommendations on securities found in the accounts of their employers. These analysts focus their research on specific sectors or securities that are of interest to the investment firm. These reports are mainly for internal use.


Sell-Side :

Generally employed by broker-dealers and investment banks, sell-side analysts are a part of the retail investment division. Their recommendations and ratings are created to sell an investment and are typically offered free of charge to the clients of the brokerage firm. The reports issued by sell-side analysts are generally more detailed and focused than those of the buy-side analysts. (If you're looking for a career in this field, find out more in Becoming A Financial Analystand Sizing Up A Career As A Ratings Analyst.)


Conflict of interest for analysts:


This is one of the most significant areas of conflict of interest for analysts. Investment banks are financial institutions that perform services such as underwriting (issuing stocks and bonds); they also act as an intermediary between the issuers of securities and the investing public. In essence, when a company decides to go public, it will obtain the services of an investment bank to help facilitate the process and sell the new securities to investors. Consequently, an analyst may face a conflict of interest for the following reasons:

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