In the financial services industry, one of the most coveted careers is that of the analyst. The main role of a financial analyst is to pore over data to identify opportunities or evaluate outcomes for business decisions or investment recommendations. Financial analysts can work in both junior and senior capacities within a firm, and it is a niche that often leads to other career opportunities.
The financial services industry is competitive and it can be tough to break into the field. If you're interested in a career as a financial analyst, read on to find out what you can do to prepare yourself for the job.
- A financial analyst pores over data to identify business opportunities or make investment recommendations.
- More junior analysts tend to do a lot of data gathering, financial modeling, and spreadsheet maintenance.
- More senior analysts tend to spend time on developing investment theses, speaking with company management teams and other investors, and marketing ideas.
- A bachelor's degree in a math or finance-related major is helpful, but a masters in finance, a math-related field, or an MBA will also help get your foot in the door, as well as industry certifications such as a CFA charter.
What it Takes to be a Financial Analyst
What Is a Financial Analyst?
Financial analysts examine financial data and use their findings to help companies make business decisions. Often, their analysis is meant to inform the investing decisions of companies.
More specifically, financial analysts research macroeconomic and microeconomic conditions along with company fundamentals to make predictions about businesses, sectors, and industries. They also often recommend a course of action, such as buying or selling a company's stock based upon its overall performance and outlook.
An analyst must be aware of current developments in the field in which they specialize, as well as in preparing financial models to predict future economic conditions for any number of variables.
Not all financial analysts analyze the stock or bond markets or help their employers make investments. Companies may also hire an analyst to use numerical data to pinpoint the efficacy of various marketing techniques relative to cost. Businesses that utilize the franchise model often have financial analysts who are responsible for tracking individual franchises or groups of franchises within a geographic region. The analysts determine where the strengths and weaknesses lie and make profit and loss forecasts.
Required Skills and Education
Compared to many high-paying careers, the qualifications to become a financial analyst are much less rigid and well-defined. Unlike law and medicine, no career-wide educational minimums exist. Whether you face any required licensing depends on factors, such as your employer and your specific job duties.
That said, in the 21st century, a bachelor's degree—preferably with a major in economics, finance, or statistics—has become a de facto requirement for becoming a financial analyst. Other majors that are looked upon favorably include accounting and math, and even biology and engineering—especially if one has an interest in specializing as an analyst in those industries. The competition is too great, and undergraduate or advanced degrees are too common in the job market, to have a serious chance of applying for an analyst position with less than a bachelor's degree.
The big investment banks, where the huge first-year salaries get paid, recruit almost exclusively at elite colleges and universities, such as Harvard University and Princeton University. Candidates applying with degrees from less prestigious schools can increase their chances by continuing their education and obtaining an MBA from a highly-ranked business school. MBA graduates are often hired as senior analysts right out of business school.
Regardless of education, a successful career as a financial analyst requires strong quantitative skills, expert problem-solving abilities, adeptness in the use of logic, and above-average communication skills. Financial analysts have to crunch data, but they also have to report their findings to their superiors in a clear, concise, and persuasive manner.
Certification Exams to Take
If you are not an MBA graduate student or an economics major as an undergraduate, you may want to consider studying for the Series 7 and Series 63 exams or participating in the Chartered Financial Analyst (CFA®) Program. Keep in mind that participating in the Series 7 exam will require sponsorship from a FINRA member firm or a regulatory organization. In October 2018, FINRA created a new exam called the Securities Industry Essentials (SIE) exam to reduce duplicative testing of knowledge when taking exams to register in multiple categories and to make it easier to enter the securities industry.
While the CFA exam is highly technical, the Series 7 and Series 63 exams are other ways to demonstrate a basic familiarity with investment terms and accounting practices. If you look at a sample CFA exam and it seems overwhelming, start by taking the SIE and then work your way up to the CFA exam, or begin to interview for junior analyst positions after passing the SIE. Many institutions also have training programs for candidates who show promise in the field.
Types of Analyst Positions
The field of financial analysis is broad, featuring a variety of job titles and career paths. Within the financial/investment industry, the three major categories of analysts are those who work for:
- Buy-side firms (investment houses that manage their own funds)
- Sell-side firms
- Investment banks
Financial analysts may also work for local and regional banks, insurance companies, real estate investment brokerages, and other data-driven companies. Any business that frequently makes weighty decisions on how to spend money is a place where a financial analyst can potentially add value.
The majority of financial analysts work on what is known as the buy-side. They help their employers make decisions on how to spend their money, whether that means investing in stocks and other securities for an in-house fund, buying income properties (in the case of a real estate investment firm), or allocating marketing dollars. Some analysts perform their jobs not for a specific employer but for a third-party company that provides financial analysis to its clients. This shows the value of what a financial analyst does; an entire industry exists around it.
Buy-side financial analysts rarely have the final say in how their employers or clients spend their money. However, the trends they uncover and the forecasts they make are invaluable in the decision-making process. With global financial markets evolving faster than ever and regulatory environments changing seemingly daily, it stands to reason that the demand for skilled buy-side financial analysts will only increase in the future.
At a sell-side firm, analysts evaluate and compare the quality of securities in a given sector or industry. Based on this analysis, they then write research reports with certain recommendations, such as "buy," "sell," "strong buy," "strong sell" or "hold." They also track the stocks that are in a fund's portfolio in order to determine when/if the fund's position in that stock should be sold. The recommendations of these research analysts carry a great deal of weight in the investment industry, including for people employed at buy-side firms.
Perhaps the most prestigious (and highest-paid) financial analyst job is that of a sell-side analyst for a big investment bank. These analysts help banks price their own investment products and sell them in the marketplace. They compile data on the bank's stocks and bonds and use quantitative analysis to project how these securities will perform in the market. Based on this research, they make buy and sell recommendations to the bank's clients, steering them into certain securities from the bank's menu of products.
Even within these specialties, there are subspecialties: analysts who focus on stocks or on fixed-income instruments. Many analysts also specialize even further within a specific sector or industry. An analyst may concentrate on energy or technology, for example.
Investment Banking and Equity Analysts
Analysts in investment banking firms often play a role in determining whether or not certain deals between companies such as initial public offerings (IPOs), mergers, and acquisitions (M&A) are feasible, based on corporate fundamentals. Analysts assess current financial conditions–as well as relying heavily on modeling and forecasting–to make recommendations as to whether or not a certain merger is appropriate for that investment bank's client or whether a client should invest venture capital in an enterprise.
Analysts who help make buy and sell decisions for big banks and who attempt to locate auspicious IPO opportunities are called equity analysts. Their focus is primarily on equity markets; they help find companies that present the most lucrative opportunities for ownership. Typically, equity analysts are among the highest-paid professionals in the field of financial analysis. This is partly a function of their employers; the big investment banks use huge salaries to lure the best talent.
Equity analysts often deal with huge sums of money. When they make a winning prediction, the gain for the employer is often in the millions of dollars. As such, equity analysts are handsomely compensated.
Median Salary is Not Mediocre
Most financial analysts make significantly less than those in other professions in the finance industry, particularly in New York City. However, the median annual income for an entry-level financial analyst is significantly higher than the median annual income for a full-time wage or salary worker in the United States overall. As of the fourth fiscal quarter of 2021, according to the U.S. Bureau of Labor Statistics (BLS), the average income for a full-time wage or salary worker in the U.S. on a weekly basis was $1,010. For a 40-hour work week, this translates to a yearly income of approximately $52,520.
According to data from the U.S. Bureau of Labor Statistics (BLS), the median annual income for financial analysts across all experience levels in 2020 was $83,660 per year per year (or $40.22 per hour). So, on average, financial analysts start out much better paid than the typical worker. In addition, financial analysts at the big Wall Street firms often make much more, even during their first year.
Financial Analyst Job Outlook
Employment-wise, the outlook is good for the financial analyst profession. While it's a competitive field, in 2020 there were around 492,100 total jobs in this field according to the latest available BLS statistics, the profession should grow about 6% in the decade between 2020-2030. The BLS notes:
Demand for financial analysts tends to grow with overall economic activity. Financial analysts will be needed to evaluate investment opportunities when new businesses are established or existing businesses expand. In addition, emerging markets throughout the world are providing new investment opportunities, which require expertise in geographic regions where those markets are located.
What to Expect on the Job
Financial analysts need to remain vigilant about gathering information on the macroeconomic level, as well as gathering information about specific companies, specifically assessing their financial fundamentals via company balance sheets. In order to stay on top of the financial news, analysts will need to do a lot of reading on their own time. Analysts tend to peruse publications such as The Wall Street Journal, The Financial Times, and The Economist, as well as financial websites.
Being an analyst also often involves a significant amount of travel. Some analysts visit companies to get a first-hand look at operations on the ground level. Analysts also frequently attend conferences with colleagues who share the same specialty as they do.
When in the office, analysts learn to be proficient with spreadsheets, relational databases, and statistical and graphics packages. They use these tools in order to develop recommendations for senior management and to produce detailed presentations and financial reports that include forecasting, cost-benefit analysis, and trend analysis. Analysts also interpret financial transactions and must verify documents for their compliance with government regulations.
Opportunities for Advancement
In terms of interoffice protocol, analysts usually interact with each other as colleagues, while also reporting to a portfolio manager or other more senior management role. A junior analyst may work their way up to senior analyst over a period of three to five years. For senior analysts who continue to look for career advancement, there is the potential to become a portfolio manager, a partner in an investment bank, or a senior manager in a retail bank or insurance company. Some analysts go on to become investment advisors or financial consultants.
Skill Set for Success
The most successful junior analysts are ones who develop proficiency in the use of spreadsheets, databases, and PowerPoint presentations and learn other software applications. Most successful senior analysts, however, are those who not only put in long hours but also develop interpersonal relationships with superiors and mentor other junior analysts. Analysts who are promoted also learn to develop communication and people skills by crafting written and oral presentations that impress senior management.
The Bottom Line
A career as a financial analyst requires preparation and hard work. It also has the potential to deliver not just financial rewards, but the genuine satisfaction that comes from being an integral part of the business landscape.