Jerry Diao had all the makings of a successful Wall Street analyst. A degree in statistics from UC Berkeley. An MBA from NYU. And a job in equity research at a big bank covering Silicon Valley tech stocks.

But instead of a life of market-moving stock calls, six-figure bonuses and glad-handing execs on another great quarter of earnings, these days, Diao plies his trade on social media, dishing out advice on the finance industry. On YouTube, Diao goes by the nom de guerre “Richard Toad,” and until recently, he masqueraded his irreverent takes behind an avatar of Shrek.

It’s been humbling for Diao, who started out in so-called sell-side research six years ago. He’s had to move back home to Northern California, and despite a 40,000-strong following, his “five-figure income” is just a third of what he used to earn. But after trying, and failing, to get back into the industry after leaving Wall Street in 2022, Diao has little choice. Making it as a “content creator,” he says, is the No. 1 goal now.

“Maybe in hindsight, I will thank all the companies that rejected me,” he said.

Diao, 37, is just one of scores of former analysts who’ve had to reinvent themselves in recent years in the face of a seismic upheaval reverberating through Wall Street.

The pandemic did, briefly, fuel a burst of hiring in equity research but when it faded, it left the same potent forces in place that have been gutting the industry for years. Regulations on how banks charge for research, a shrinking market for publicly listed companies, and the popularity of index-tracking funds have conspired to squeeze equity research in ways few could have imagined even a decade ago. Leaps in artificial intelligence only threaten to accelerate that trend, with firms like JPMorgan already experimenting with AI-powered analyst chatbots, sowing deeper doubts about the value of fundamental analysis and whether investors will keep paying for it.

Compared with their post-financial crisis peak, it’s estimated that the biggest banks globally have slashed the ranks of equity analysts by over 30% to lows not seen in at least a decade. Those who remain often cover twice, or even three times, as many companies.

The fallout is already

reshaping Wall Street.

And the pay, while still far higher than most jobs in industries outside finance, has stagnated. For example, starting salaries for entry-level equity analysts currently range from $110,000-$170,000 a year, barely above their levels before the financial crisis, according to Vali Analytics.

They have been climbing of late — up by some $20,000 on average from a low in 2020. But after taking inflation into account, total compensation remains about 30% lower than it was pre-crisis, the data show.

The fallout is already reshaping Wall Street. It’s also having knock-on effects on the structure of the stock market itself, in how individual companies, both big and small, are valued. (More on that later.)

No one expects compensation to return to the heyday of the late ’90s and early 2000s, of course, when star analysts like Mary Meeker and Jack Grubman were fêted like celebrities and reportedly made upwards of $15 million or more, and stock recommendations, more often than not, were geared toward winning underwriting business for their banking arms. And it’s not too hard to understand why equity analysts might be in the crosshairs as automation proliferates, investors embrace cheap, passive-investing strategies like ETFs and the broader market keeps hitting record after record.

Nevertheless, the numbers underscore an industry in steep decline.

At the world’s 15 biggest banks, the number of equity analysts has fallen to about 3,000 from almost 4,600 a decade ago, according to Vali Analytics. The biggest cuts have occurred in Europe and Asia, excluding Japan. Data from Coalition Research shows a similar decline. Apart from an outlier or two, the reductions have been widespread and few equity research departments have been spared. Industry insiders say Citigroup and Deutsche Bank were among the more notable banks in paring headcount. Both declined to comment. (Bloomberg LP, the parent company of Bloomberg News, produces equity research that competes with analysis from Wall Street firms.)

Meanwhile, despite a small uptick in the first half of last year, spending on research globally has sunk 50% since 2018, data from Substantive Research show. That year, MiFID II was enacted, forcing asset managers in the UK and European Union to pay for research, rather than offering it for free as part of a suite of services. US brokers supplying research to Europe-based managers also became subject to the rule two years ago.

The result? Equity research has become “an orphaned child that’s always looking for a home,” according to Robert Buckland, who was Citigroup’s head of equity strategy until 2023.

Some former analysts have managed to find work at hedge funds, while others have jumped ship to work in investor relations at firms they once covered. Buckland himself is now at a startup called EngineAI, which applies AI programs to various fields, including equity research.

For those who have stuck around, job security is tenuous.

Take, for instance, George O’Connor. The technology analyst has bounced around London from one firm to the next in recent years, and has now worked for a half-dozen shops since becoming an equity analyst in the late 1990s. Currently at Progressive Equity Research, O’Connor says the “unbundling” of research from trading, ostensibly meant to level the playing field, gave big banks an upper hand because they could charge less for more wide-ranging coverage.

“There was also a flight to cheap driven by much larger global providers, which sort of knocked smaller companies out of the water,” he said. “It’s just economics 101.”

You don’t get the “same level

of information you had when a

company had 20 people covering it.”

Individual analysts are saddled with more companies to cover, leaving less time for in-depth analysis. According to Zaki Ahmed, a veteran headhunter who runs recruiting firm Financial Search, banks often want analysts to cover as many as 20 stocks as they shrink their research teams.

The buyside is feeling the pinch, too. Matt Stucky, a money manager at Northwestern Mutual Wealth Management, says there either simply aren’t enough analysts covering the companies he’s interested in or they’re spread too thin. As a result, he’s had to do more of the legwork himself to get the answers he wants.

You don’t get the “same level of information you had when a company had 20 people covering it,” Stucky said.

Currently, companies in the Russell 2000 Index with fewer than 10 analyst recommendations have ballooned to some 1,500 from 880 a decade ago, an increase of 70%, data compiled by Bloomberg show. Conversely, coverage has become concentrated in the biggest names. Today, about 97% of the S&P 500 have 10 or more ratings, up from about two-thirds in 2014.

A growing body of evidence suggests stocks that fall off the sell-side radar often struggle to attract investors, distorting valuations and making markets less efficient.

One academic paper, which looked at data over a 40-year period, showed how investors consistently over- or undervalued companies covered by fewer analysts. Another study found firms that had a decrease in coverage showed a significant decline in investor recognition, increasing their cost of capital. A third showed that low-coverage stocks traded less and had wider bid-ask spreads, while “orphaned” companies were far more likely to be delisted.

They’re also more likely to underperform. Small-cap companies with no coverage, for example, have lagged behind those covered by more than 10 analysts by nearly 3 percentage points a year since 2001, according to Steven DeSanctis, a small- and mid-cap strategist at Jefferies.

“For small companies that are already covered by fewer analysts to start with, each one less will hurt them more,” said Kevin Li, a professor at Santa Clara University and co-author of one of the papers. “The downtrend is probably not preventable, given the move away from active investment. Now, with AI, we could see that (human) role reduce further.”

Part of the irony is that the lack of in-depth analysis which asset managers bemoan is a direct consequence of their unwillingness to pay for it. And as they “continue to spend less and less” for bank research, Integrity Research’s Mike Mayhew says they’ll likely look for more cost-effective ways to fill the gaps.

That includes relying on in-house analysts or non-bank sources like those on blogging platform Substack, often written by the very analysts caught up in budget cuts and staffing culls. Northwestern Mutual’s Stucky subscribes to a few himself and values their “unfiltered” takes. (He declined to identify them.)

Indeed, online finance blogs have exploded in recent years, with Substack estimating it now hosts tens of thousands of them.

One is written by Alex Morris. He runs TSOH Investment Research (it stands for The Science Of Hitting — he’s a big baseball fan), which has racked up nearly 700 paid subscribers since 2021. At $499 annually, that equates to roughly $260,000 a year after fees, etc. — more than double what he earned at the Fiduciary Group, a small investment adviser in Savannah, Georgia.

Morris discloses his recommendations at 5 p.m. Eastern time and then invests in them the next day. Last year, his 10-stock portfolio, which included Netflix and Meta, returned 21%, versus the S&P 500 Index’s 23% gain. It’s the third time in the past four years that he’s fallen short of his benchmark, yet he’s continued to attract followers despite his mixed record.

Asked why they should stick with him rather than buying an ETF, Morris says history suggests the S&P 500’s outsize gains won’t likely last. Part of his draw, he says, is that he talks about his winners and losers and puts all his investable assets behind his calls.

“The industry has had issues in the past in terms of what the person writing the research actually thinks, versus what they would do if they were managing their own money,” he said.

Another is by Barry Knapp, a longtime strategist who built a following over four decades on Wall Street with Lehman Brothers, BlackRock, and most recently, Guggenheim. He currently has “hundreds” of paying Substack subscribers, each of whom forks over $999 a year for his macro research.

His home office faces the slopes of Vail, Colorado, a nice change from his commutes into Manhattan. But Knapp says that even with his résumé and built-in following, the market for sell-side research isn’t what is used to be.

“For someone like me to go back and work on the Street for a number that is not even close to what I was making in 2000?” Knapp mused. “What would be the point?”

Reliable figures on how lucrative financial blogging is as a full-time profession are scant, as is data on how many analysts have parlayed their Wall Street bona fides into genuine success on social media. While some, like Morris and Knapp, have managed to make it work, the signs suggest that most end up toiling away in relative obscurity.

Back in the San Francisco Bay Area, Diao continues to create content on YouTube, Substack and Instagram, hoping one day to break through.

He touts the benefits of his newfound vocation. No need to dress up or commute to the office, no more 80-hour weeks. He can produce all his blogs and podcasts in his bedroom with a laptop and a microphone.

All he needs now is a little bit of luck — and a few more paying subscribers.

“These kinds of things, once they hit critical mass, can suddenly become big enough to pay rent and put meals on the table,” Diao said. “And at this point, that’s all I’m hoping for, because the freedom that comes with it, you can’t put a price on that.”