What does the decline of sell-side research mean for workers?

What has the decline of sell-side research brought to workers? What kind of workplace significance has it created? This article introduces the importance of sell-side research positions, analyzes the advantages and disadvantages of the profession, and speculates on future development trends.

There is no doubt that after the substantial reduction in the commission rate of public funds, the decline of domestic sell-side research (commonly known as securities research institutes, including a small number of third-party research institutions) is inevitable. Today, I would like to explore in more depth the workplace significance of the decline of sell-side research - what does this mean for workers, especially the "senior white-collar workers" among them? At present, there are more than 2,000 analysts in China who hold securities investment consulting licenses; together with research assistants, sales, administrative staff, and analysts who have not yet obtained a license (have been in the industry for less than two years), there may be 4,000 people eating the "sell-side research" bowl of rice. This number is actually not large, only equivalent to the number of people in a business unit of a large Internet company, or the number of professional positions in one or two large foreign companies in China. However, the actual importance of sell-side research positions is far more than that - it plays the role of an "analytical talent pool" for the entire workplace. Specifically:

1. For those who are new to the workplace, a securities research institute is a good "Whampoa Military Academy", which can provide higher salaries while giving them the opportunity to engage in analytical work; on the one hand, it can exercise industry research (or macro research) capabilities, and on the other hand, it can accumulate experience in communicating with external clients.

2. For those who already have a certain amount of work experience, the securities research institute is a "transit station" or "revolving door", which can be used for attack or defense. It is suitable as a springboard between the real economy and the financial industry (no matter which way you jump to), and it can also create a "personal IP"; of course, if you can adapt to it, it is not a bad idea to continue working there for a long time.

Over the past year, among my friends, there are as many as five who have switched from the Internet or technology industry to do sell-side research (or have serious plans to do so). The choice they face is often: "Between a strategic position/business position in a large Internet company and a sell-side research position, which one is more suitable for me at this stage?" Occasionally, there are people from product, commercialization or marketing departments who choose to try their luck in securities research institutes, and their goal is without exception to "use this opportunity to switch from front-line business personnel to analytical positions."

Business positions in Internet giants, strategic positions in all large companies, and investment and M&A positions within companies can all be collectively referred to as "analytical positions" - they require practitioners to have strong industry and market research capabilities, and be able to explain their research to superiors or internal and external customers, and provide them with references for decision-making or operations. In addition to internal training, people suitable for these tasks mainly come from three sources: strategic consulting, sell-side research, and investment banks (referring to IBD in a narrow sense).

Strictly speaking, strategic consulting practitioners are more qualified in making and presenting PPTs, and the senior management of the strategic teams of Internet giants are also filled with people from consulting companies. The problem is that foreign strategic consulting firms (represented by MBB) have very few employees in China, and their business has been shrinking in recent years (there are even rumors of collective holidays); the status and salary of local strategic consulting firms are too low. For people who already have a certain amount of work experience, it is really difficult to use foreign strategic consulting firms as a stepping stone to the workplace.

Investment banking (IBD) practitioners also need certain analytical and communication skills, but any investment banking department is divided into two major parts: coverage and execution. The latter often occupies the majority, and they will not spend too much time on industry research. The financial and internal investment teams of Internet giants use a large number of people from investment banks, while other teams use much fewer. For those who want to find a career springboard, the long investment banking project cycle, less external communication, and the lack of personal IP are all obstacles.

In contrast, sell-side research is not only suitable for cultivating all the skills required for "analytical positions", but also very suitable as a career springboard for workers. We can even say that it is a natural transit station for workers who "want to change careers or want to find a new way out"!

1. The "position pool" is large enough and the staff mobility is high enough. No matter you are at the entry level or the chief level, there will always be several positions suitable for you (whether you can grab them or not is another matter).

2. The work pace is fast and the period of "becoming famous" is short. One year is enough to make certain achievements, and two to three years are enough to build personal IP, thereby accumulating capital for the next job hopping.

3. Those who change careers have strong universality and can be engaged in finance, investment, strategy, and business analysis. Occasionally, they can work on the front line of products or business (mostly in new businesses), and their development direction is very flexible.

Speaking of shortcomings, there are a lot of shortcomings in sell-side research positions, such as frequent business trips, long overtime, serving clients all day long, and no personal time... However, these shortcomings are common in most high-end white-collar positions in China. In addition, due to the natural short-sightedness of the A-share market, the sell-side research is becoming more and more shallow and more and more divorced from industry practice, which is also an irreversible trend. However, whether the above problems can be overcome depends on the individual. No matter how short-sighted the market is or how superficial the customers are, there will always be a place for those who want to do research seriously. Therefore, sell-side research still has irreplaceable value for workers.

In 2017-2021, the golden age of China's Internet industry, a large number of sell-side analysts flocked to Internet giants and startups. At first, they were mainly foreign capital, and then large Chinese capital such as "Three Zhong and One Hua" was mixed in. Later, various securities companies went into the sea. In 2022-2023, as the Internet industry fell into a low ebb, a reverse trend emerged. Not only did those who left that year return to the sell-side, but those who were disappointed with the Internet giants also began to break into the sell-side to try their luck. In other words, the role of "Whampoa Military Academy" played by sell-side research used to be a little heavier, but now it is mainly a "transit station". Since most domestic securities companies are state-owned enterprises, some securities research institutes with less fierce competition and relatively loose assessments can even act as a "safe haven". Even if the work pressure is still very high, it is at least better than private enterprises.

However, the overall reduction in the commission rate of public funds and the resulting cost reduction and efficiency improvement of sell-side research (which has actually already begun) are breaking this "transit station". The 0.075% institutional commission rate can support about 4,000 sell-side practitioners, so what about the 0.04% commission rate? Can it support half of them, or even less? Moreover, after completely becoming a cost center, it is doubtful how much patience brokerage research institutes have to train young people and wait for middle-aged people who jump in from outside to adapt to the environment.

I estimate that in the future, the research institutes of domestic securities companies will show a polarized trend: a few large and powerful top securities companies that attach great importance to the strategic value of research will still provide more positions and higher salaries to the research institutes; the vast majority of securities companies will reduce their investment, at least to control losses within a certain range. Regardless of the above-mentioned securities companies, the number of positions in their research institutes will show a shrinking trend. It is becoming increasingly difficult to enter the sell-side, and it is becoming increasingly boring after entering. Reflected in the financial statements of securities companies, this is just a minor mention; but for thousands of senior workers, the impact is huge.

Where can young people who want to receive analytical skills training, middle-aged people who want to change careers or change tracks within the industry, or job-hoppers who simply want to try something new go? The above has listed the two tracks of strategic consulting and investment banking, and pointed out their limitations. Apart from this, there are probably only funds (secondary market buyers), PE/VC (primary market buyers), and some financial advisory positions (boutique investment banks). Their limitations are even more obvious.

Buyers in the secondary market have a harder time doing business, and their salaries are often lower than those of sellers. Buyers in the primary market are currently facing the dilemma of the decline of US dollar funds and the reduction of RMB funds to the "living room" of local investment promotion. Their salaries and career development are no longer as good as before. Interestingly, the best way to switch from the industry to the above-mentioned buyers is to switch to the seller first, which once again highlights the "transit station" status of sell-side research. As for financial advisors... when the primary market is dead (except for AI), how good can they be?

The examples we listed above are mainly about the "mutual job-hopping" between emerging industries such as the Internet and securities research institutes. In fact, in traditional industries, such as food and beverage, medicine, etc., the "transit station" role of sell-side research is more important, because the job-hopping options for practitioners in these industries are relatively narrow. Even if you just want to change your job function, it is quite difficult to find opportunities within the industry. In this case, seizing the time window of the industry in the capital market and opening up a new world in the workplace through sell-side research is an effective path that has been repeatedly verified. Now that the sell-side team has shrunk, this path has also become narrower.

Just half a month ago, another friend in the Internet industry asked me if I should still consider opportunities in securities research institutes. My answer is: it depends on the job stability, especially how long the boss is willing to invest. No one wants to face a large-scale salary cut or job transfer after half a year or a year of changing career tracks, right? If the "transit station" becomes a "dead end", who would be willing to go?

Frankly speaking, I don't know how workers should face this series of chain reactions. Some problems are destined to have no immediate solution, and one problem affects the entire system. The Count of Monte Cristo said it well: All human wisdom lies in the two words "wait" and "hope". At this moment, besides waiting and hoping, what else can workers do?

Author: Pei Pei, leader of the Phantom Thieves

Source: WeChat public account "Internet Phantom Thieves" (ID: TMTphantom)