March 5, 2025

What’s the Difference Between a Sell-side Analyst, a Buy-side Analyst, and a Banking Analyst? (And What Are the Buy-side, Sell-side, and Chinese Walls)?

I’m pretty sure there’s a joke here. Let’s try it. 

A sell-side analyst, a buy-side analyst, and a banking analyst walk into a bar. 

The sell-side analyst recommends his favorite cocktail to the other two but orders water, because he’s not allowed to have one himself. 

The buy-side analyst listens to the sell-side analyst’s recommendation and orders a drink but keeps its identity secret from the other two. 

Meanwhile the banking analyst looks at his watch, mouths an expletive, forgoes a cocktail, and heads back to his investment bank because he’s only put in fourteen hours of work that day. 

It may need a little polishing. 

Time and again over the years I’ve heard first-time biotech executives get confused over the kind of analyst they’ve been talking to (and worse, some confuse banks with buy-side institutions as a result). The distinction however is vitally important because two classes of analyst exist on different sides of the Chinese wall from the third. 

Here then are some simple definitions. First let’s start with the distinction between the buy-side and the sell-side. 

Buy-side:

The buy-side refers to institutions who invest money and the people who work for them. They are the owners of nearly all financial assets.

The buy-side includes funds, fund managers, analysts and administrators that work for people like Franklin Templeton, Fidelity, BlackRock, Perceptive, Cormorant, RA Capital, Bain Capital etc.

Sell-side:

The sell-side refers to institutions and the people working at them who make money from providing trade execution, research, and deal flow to the buy-side. They are paid commissions and fees. The sell-side does not hold long-term stakes in any underlying security but may hold some for the practice of market making.

Examples of sell-side firms include J.P. Morgan, Morgan Stanley, Jefferies, Cowen, Leerink, Cantor Fitzgerald, Piper Sandler, etc. Sell-side employees include traders, bankers, equity capital markets personnel, institutional salespeople, research analysts, corporate access desks, and commercial bankers to name but a few. 

Don’t get confused. 

As financial institutions have grown over the years, there exist buy-side entities that are also part of sell-side organizations e.g. J.P. Morgan Asset Management, Goldman Sachs Asset Management etc. In such instances, these buy-side funds are treated as normal customers of the sell-side banks they belong to with no direct relationship (or accountability) between personnel. 

Chinese walls:

Named after the Great Wall of China, Chinese walls are designed to be impenetrable (invisible) walls within banks, through which confidential information or peer pressure cannot pass. 

Because of these informational walls, the conversations a corporate executive has with an investment banker (about potential financing for example) can never be relayed to non-banking personnel inside the bank, or to anyone else outside of the bank. This enables bankers to provide advice based on insider knowledge, without the risk of that information becoming public. 

If bankers ever need to share confidential information with non-banking personnel, they can be brought “over the wall” – but only with the help of a bank’s compliance department, which ensures the legality of all subsequent actions. 

With that preamble over, let’s talk about different types of analysts. 

Sell-side analysts:

Sell-side analysts are the best. I say this because I was once one at both J.P. Morgan and Barclays Capital. They are paid by the banks they work for to publish recommendations on stocks, which they typically declare a buy, hold or sell. These recommendations are usually accompanied by price targets.

This collective investment advice (e.g. buying this stock at its current price of $5.00 because my analysis shows it is likely worth $10.00) is intended exclusively for the bank’s clients, who are typically investment funds (mutual funds, hedge funds, pension funds etc.,), family offices, and individuals. 

Sell-side analysts are opinionated (they are paid to be) and often come with egos that match their pay packets and clout in the biotech world.

As part of their analysis, sell-side analysts will study companies extensively (typically involving multiple meetings with management) and create Excel models for how they expect them to perform. From these models – and allowing for the time value of money and the probability of each drug’s chance of eventually being approved – they generate their price targets and recommendations. 

Sell-side analysts are frequently called on by the buy-side to interpret a company’s clinical data or financial results.

Sell-side analysts are public-facing and are heavily involved in healthcare investor conferences, webcasts and podcasts to inform their client base of the latest happenings among companies under their coverage. 

They can cover perhaps as many as 30-50 companies/stocks, though often with the help of large teams.

Analysts often won’t have the word analyst in their title – which is more likely to be Managing Director, Principal, Vice President, Manager, Associate or Analyst (in descending order of seniority – and note titles vary from bank to bank). 

Commentary from sell-side analysts affect a biotech’s share price – second only to news officially released from companies themselves. An upgrade or a downgrade by an analyst will move your stock, with the extent determined by how respected the analyst is and how reputable their bank is. 

Consequently, sell-side analysts are typically forbidden from owning or trading in the stocks they cover because of their ability to affect the stock price. 

Buy-side analysts:

Occasionally, you will come across someone who tells you they’re an analyst, but actually works for a fund e.g. T. Rowe Price, Fidelity or Black Rock. 

These analysts do a very similar job to the sell- side analysts just described, except that their research is proprietary to their fund and isn’t disseminated more widely. Their recommendations and price targets are typically secret. 

Buy-side analysts exist because some funds believe they can produce in-house analyses that are better than the sell-side, thus giving their fund(s) an advantage when making investments. 

Interestingly, buy-side analysts are frequent consumers of sell-side reports and analysis and often use those reports to help them form their own view. 

Buy-side analysts can work for a fund manager, or their research can be for the eyes of multiple portfolio managers across different funds within the same firm. Thus, when you talk to one analyst, you may be affecting investment decisions across more than one fund. 

Because they are not public facing, buy-side analysts don’t need to do marketing. They are the attendees at healthcare investor conferences, alongside fund managers, but they are not the organizers. 

If you meet a buy-side analyst, treat them with respect. They may not be the decision maker at their respective fund/institution, but they will likely have the ear of the portfolio manager who is. 

Banking analysts: 

Lastly, occasionally you will meet someone who calls themselves an analyst but is actually an investment banker.

Or at least they will be when they grow up. 

Banking analysts are the workhorses of the investment banking industry. You may never actually meet one (because they are often kept as far away from clients as possible), but sometimes they will be called upon in a meeting to explain their work to the senior bankers and client present. 

If you ever receive a fifty-plus page PDF or PowerPoint presentation from a banker, it will have been produced by a banking analyst. 

Banking analysts are the only ones on the confidential side of the Chinese wall we talked about earlier. Anything you say to them will be kept in confidence. By contrast, anything you say to a sell-side analyst or buy-side analyst is immediately in the public domain (unless – in very rare circumstances – when they have been brought “over the wall” by compliance).