Laid-Off Sell-Side Analysts Weigh Options Outside Research

By Jessica Papini

NEW YORK (Dow Jones)--More than 1,000 sell-side analysts have been laid off in the U.S. in the past year, and many will have to find new careers outside research.

The financial crisis has led to lower commissions, spurring layoffs at companies ranging from Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) to middle-market securities firms. The demise or merger of securities companies also has added to the number of analysts seeking new jobs.

Integrity Research estimates that 15% of sell-side analysts have been laid off over the past 12 months. "The majority of laid-off analysts are not going to find jobs back in research," said Sandy Bragg, chief executive at Integrity Research Associates LLC. "It is an extremely difficult environment for analysts."

Going from the sell side - where analysts work for brokerage and securities firms - to the buy side is difficult now. Many hedge funds imploded in the past year or are laying off analysts as well. Additionally, traditional money-management companies, also under pressure from declining markets, generally aren't hiring analysts.

Analysts have some options for staying in research, such as setting up their own independent firms, looking for work at smaller banks or boutiques that happen to be hiring, or finding a job in a role similar to research, such as investor relations.

For example, well-known banking analyst William Tanona was laid off from Goldman Sachs last year, and last month joined London-based boutique firm Collins Stewart.

Other analysts have decided to break free from research positions at large firms and start their own firms, including William Pecoriello, a longtime consumer-staples analyst at Morgan Stanley who recently launched ConsumerEdge Research. At their own firms, they may take a non-traditional approach to research - some may customize work for clients, or not boil their research down to buy or sell recommendations.

But many analysts will need to leave the industry; junior analysts in particular will have a difficult time finding a job, said Bragg.

While the numbers aren't broken out in the U.S., a recent European Thomson Reuters Extel survey found that 1,200 sell-side analysts lost their jobs over the past 12 months. According to the survey, there were 5,119 equity analysts in Europe as of the beginning of June, down 15% to 20% from the year earlier.

Steve Kelly, global head of Extel Surveys at Thomson Reuters said: "While the survey was conducted in Europe, it is indicative to what is happening globally, and similar experiences are taking place in the U.S. and Asia."

Some believe the U.S. industry might be hardest hit. Daryl Jones, managing director at independent research firm Research Edge, said he believes U.S. analyst layoffs have been more than 1,000, maybe even twice that many. The U.S. sell-side analyst market was larger and overbuilt compared with Europe, due partly to the huge growth in hedge funds over the past few years, Jones said.

Commissions in the U.S. are declining at a similar magnitude to commissions in Europe, Bragg said. Commissions are down 30% to 40% at some buy-side firms, meaning less money getting doled out for research.

"The business has clearly shrunk and there are not enough chairs for people," said Richard Lipstein, managing director at executive-search firm Boyden World Corp. in New York. While research isn't going away, cost pressures have weighed on the business. "Research is still a viable, needed profession, but it is clear that a lot of analysts will have to leave the business," he said.