Financial Analysts vs. Financial Consultants: An Overview
At first glance, financial analysts and financial consultants perform very similar jobs. Both acts as experts in financial, economic, and investment matters, and both help other professionals make more informed money decisions. Dig a little deeper, though, and you'll see that analysts and consultants focus on different things and enjoy very different work schedules.
- Financial analysts research other company's financial statements, market trends, tax returns, and investments.
- Financial consultants are outside contractors who work to provide advice and improve the financial condition of an individual company.
- While financial consultants have potentially greater incomes, financial analysts may enjoy a greater degree of work/life balance.
A financial analyst often works for an investment bank or asset manager. He or she examines financial and nonfinancial information, micro and macroeconomic data, and other variables to evaluate the financial health of a company. They frequently use this analysis to make a recommendation about the company that they analyze, such as to buy or sell a stock.
Analysts should be comfortable working within a team-focused environment. Most start out at a junior level and assist a senior team member while gaining work experience.
While financial analysts focus on evaluating external companies, financial consultants provide internally-focused financial advice to corporations. A financial consultant helps a business increase shareholder value and improve capital efficiency. His or her job may be to help put a mergers and acquisitions (M&As) package together or design a compensation strategy for company executives. Many consultants work within the corporate finance division of a business. Others may work independently or within third-party consulting firms.
It is also important to note that many personal financial advisors refer to themselves as "financial consultants." These consultants focus on individuals, not businesses, and are not the kinds of consultants addressed here.
What Type of Education and Skills Are Needed?
A lot of analysts and consultants study economics or finance in undergraduate school, and many go on to earn MBAs. Many began their careers in banking or working with financial advising firms.
Consultants come from a variety of career paths, but there are two broad types of consultant backgrounds. A contractor usually works independently and on short-term projects for much of his early professional life. Other consultants have joined a consulting firm; this type tends to be older and is able to lean back on a network of prior professional connections.
Each career path lends itself nicely to a reputable financial certification. After a consultant has three years of full-time business experience, along with at least a bachelor's degree, they may enroll in an eight-course self-study curriculum for the Chartered Financial Consultant (ChFC) designation.
Similarly, investment analysts frequently pursue a Chartered Financial Analyst (CFA) designation. In order to become a CFA candidate and enroll in the first of three exams, applicants must either have a bachelor's degree or be in the last year of a bachelor's degree program. Alternatively, applicants can have four years of applicable work experience or a combination of work experience and education. In order to receive the CFA designation, the applicant must pass all three levels of the exam and have at least four years of applicable work experience.
What Types of Jobs Are Available?
Analysts are often divided into buy-side or sell-side positions, or else they work for large banks. A buy-side analyst researches investments for his firm, often for an in-house fund. A sell-side analyst provides research and makes recommendations (often to buy-side firms) or works to help promote certain investments.
An investment banking analyst is a different kind of job entirely. These analysts use models and predictive forecasts in support of senior partners for venture capital deals, stock valuations, or other institutional decisions. Some even act like financial consultants and make recommendations for initial public offerings (IPOs) or M&A transactions. Investment banking jobs are highly concentrated in New York City and offer attractive compensation for recent graduates.
Independent consultants tend to have variable income. However, the most lucrative independent consultants are normally former high-ranking financial professionals who, late in their careers, decided to offer advice to other businesses in their field.
The U.S. Bureau of Labor Statistics (BLS) periodically releases a jobs report called the Occupational Outlook Handbook. In this report, the BLS outlines the average salary, required experience, and projected future demand for any number of common jobs in the United States.
According to the BLS handbook, there were 296,100 financial analysts in the U.S. in 2018, and the industry was expected to add an additional 20,300 by 2028. This is a projected 6% growth rate. As of this BLS report, the average salary is $85,660 per year.
The BLS did not release specific figures for financial consultants, probably because of the vague and generic nature of the job title. However, the BLS notes that business and financial occupations are expected to increase more quickly than the average.
Comparing Work/Life Balance
Except at the most senior levels, financial analysts tend to work standard 40- to 50-hour weeks, with time off during the weekends and normal vacation packages. The hours on the job tend to be very busy and even intense, but there is still ample time left over during the week for family, friends, and recreation. However, there have been studies that suggest one in three junior financial analysts work up to 70 hours a week.
This is rarely the case with financial consultants, particularly those who work for major firms as associates. Many junior-level consultants report working 65 hours a week or longer, which means 11+ hour days and a six-day workweek. Consultants also tend to travel a lot and experience extended time away from home. It's not uncommon for young consultants to make six figures but actually earn less than $30 an hour.
Overall, the financial industry is well-known (even infamous) for its long hours and rigorous job demands. There is some evidence that major financial institutions are trying to curb workloads and reduce burnout among their employees, but most aspiring financial professionals should be prepared for many extra hours at their workstations.
Choosing Between Careers
An aspiring financial professional who is torn between a career as a financial analyst and one as a financial consultant should focus on the two areas where these careers are most distinct.
1. Work/life balance and compensation: Broadly speaking, financial consultants have a greater earning potential, but they also tend to work longer hours and spend more time away on business travel. Financial analysts tend to have steadier jobs and less stressful careers.
2. The type of investment analysis that each job performs: Big-picture thinkers who want to perform research at a macro-level find it more suitable to work as analysts. On the other hand, those who love company fundamentals and capital management probably feel more at home in consultancy roles.