Financial Analyst vs. Research Analyst: An Overview
Financial analysts examine, collect, and interpret financial information to help companies make business decisions. Financial analysis is an umbrella term that covers several functions that financial analysts might perform.
Some financial analysts analyze financial market trends to help with an investment decision while others examine financial statements of companies to help pinpoint a specific company's investment potential.
A research analyst is someone who typically performs investigative analysis, which can involve finding financial information, examining, interpreting, and reporting on the data collected.
Research analyst roles can vary whereby an analyst might perform equity analysis for stock investing, market research for launching a new product line, or analyze and rate bonds or debt instruments.
Below, we'll explore the differences between a financial analyst and a research analyst as well as the potential employment opportunities and salaries.
- Financial analysts examine, collect, and interpret financial information to help companies make business decisions.
- Financial analysts analyze financial market trends to help with an investment decision while others examine financial statements of companies to identify an investment's potential.
- A research analyst performs investigative analysis, which can involve finding financial information, examining, interpreting, and reporting on the data collected.
A common role of financial analysts involves analyzing investments and their market performances. They rely on fundamental analysis to determine a company's value or its investment opportunity. The detailed process might include analyzing a company's profitability, revenue, earnings, sales, and outstanding debt.
Financial ratios are used to interpret the data, which helps compare a company's data to other companies within the same industry. Financial analysis involves the heavy use of accounting and many hours reviewing and interpreting a company's financial statements such as the balance sheet and income statement.
Financial analysts collect and analyze data but always within the context of a prior deductive understanding of how markets should function. Financial analysts must also understand economic principles and be able to create written reports of their interpretations and make recommendations. In short, financial analysts are usually behind-the-scenes experts.
Financial analysts are also employed outside the investment world. For example, banks provide credit to companies called commercial lending. Before a bank can lend money to a company, it must analyze a company's financial statements and its ability to pay back a loan. Financial analysts help to break down a company's financial situation and report on it to the underwriters making the credit decision. Although the thinking behind financial analysis is systemic, it's also subjective.
Financial analysts tend to be a more specialized role than research analysts, but that doesn't mean there isn't a huge variety of them as well. Almost all financial analysts start out with at least a bachelor's degree in finance, economics, mathematics, or accounting. Many employers prefer a candidate have some form of professional certification, such as a chartered financial analyst (CFA) designation or a master of business administration (MBA).
If a financial analyst performs investment advisory services, such as recommending stocks, bonds, or insurance products, then the appropriate professional licenses will be necessary. These licenses can include the Series 7 or Series 65 exams or state exams for life insurance and health insurance licenses.
If a financial analyst is involved in corporate finance for a company, or in the banking industry, there may be additional training. For example, commercial credit training is typically needed for FAs to be able to analyze companies for credit approval at a major bank.
The 2021 median pay for financial analysts was $81,410, according to the Bureau of Labor Statistics or BLS. Top financial analysts for major investment firms can earn certainly more than the stated average, while entry-level analysts for smaller companies can expect $45,000 to $50,000 in compensation.
The BLS is bullish on future job prospects for financial analysts. It predicts a 6% growth in financial analyst jobs in the ten years from 2020 and 2030—on par with the financial industry as a whole and a little faster than expectations for the broader economy.
Research analysts tend to be more data crunchers than financial analysts. Research analysts can also be used in determining an investment's valuation or the value of an asset. These analysts can work on market research to spot trends but can also work as equity analysts to prepare reports for buy or sell recommendations.
Research analysts tend to focus more on mathematical models to produce objective answers about historical data. A research analyst can take a series of inputs, and calculate the most efficient way to maximize output. Research analysts are used to help improve a company's operations through advanced mathematical and analytical methods. These analysts help businesses investigate and solve complex problems, and allow the companies to make better business decisions.
A subset of research analysts is the market research analyst, who breaks down what consumer data says about a product, service, or the market. Market research analysts often examine the potential market for a product's success. They interpret client data and customer trends with the goal of helping companies understand what consumers are buying, at what price, and what they're not buying.
Also, market research analysts are employed in the investment industry to analyze the overall financial market trends for equity and bond markets. As a result, the role can require a great deal of statistical knowledge, computer skills, and a solid understanding of economics.
Research analysts can be found everywhere and in any industry, not just the financial sector. Nearly any academic background could viably serve a prospective researcher, as long as the researcher has the requisite technical, mathematical, and analytical skills.
The 2021 median pay for operations research analysts, which is more of a mathematical role, was $82,360 per year according to the Bureau of Labor Statistics or BLS. The median salary for market research analysts, which is more of a product and sales role, was $63,920 per year in 2021.
Investment research analysts can earn more than $100,000 at major banks, but more representative salaries for other research analysts tend to fall between $50,000 and $70,000 per year.
Research analysts can take on a variety of roles working for corporations, investment banks, hedge funds, insurance companies, and brokerages.
BLS job outlook statistics are even rosier for research analysts than financial analysts. The agency projected growth from 2021 to 2031 to be 19% for market research analysts and 23% for operations research analysts.
Special Considerations: Work-Life Balance
Finding a proper work-life balance can be difficult in any industry, but the financial industry has had a reputation of making employees work late and miss family time, particularly for those who work on Wall Street.
A 2021 Goldman Sachs study suggests that financial analysts report working an average of 98 hours per week, and sometimes 105 hours. Market research analysts work similar hours, if not fewer.
These jobs aren't as demanding (and don't pay as much) as private equity jobs or investment banking jobs. It's standard for an analyst to receive 20 or more days a year in paid time off, at least one day off on weekends, and time out of the office on holidays.
Work hours tend to increase as an analyst's work draws closer and closer to New York, London, or Tokyo. Investment bankers and other high-level financial professionals rely on analysts for support.
While the expected growth rate for research analyst positions appears to be higher, financial analysts start out making a higher median salary and might have more room to advance within the financial world. Both roles involve the analysis and interpretation of data, trends, and a sound understanding of math and finance.