A career as an analyst in the field of financial services is consistently ranked among the most desirable jobs in the sector. The primary responsibility of a financial analyst is to comb through data in order to spot possibilities or assess outcomes for the purpose of making recommendations for company choices or investments. Within a company, a financial analyst might work in either an entry-level or senior capacity; also, this field often serves as a stepping stone to other professional prospects.
Because of the high level of competition in the financial services business, it might be difficult to break into the profession. Continue reading if pursuing a career as a financial analyst is something that interests you; here, you'll learn what steps you may take to be ready for the role.
A financial analyst sifts through mountains of data in order to locate profitable company possibilities or suggest suitable investments.
Data collection, financial modeling, and spreadsheet upkeep are often the primary responsibilities of more junior analysts.
The majority of time for more senior analysts is often spent generating investment theses, consulting with firm management teams and other investors, and brainstorming marketing concepts.
A bachelor's degree in a math or finance-related major is helpful, but a master's degree in finance, a math-related field, or an MBA will also help get your foot in the door, as will industry certifications such as a CFA charter. In addition, a master's degree in a math-related field or an MBA will help you get your foot in the door.
Who Is a Financial Analyst and What Do They Do?
Financial analysts investigate firms' financial data in order to provide them with insight that may assist them in making important business choices. Quite sometimes, the results of their research are intended to guide the choices that firms make about their investments.
To be more precise, financial analysts do research on macroeconomic and microeconomic situations in addition to the fundamentals of companies in order to produce forecasts about enterprises, industries, and sectors. A plan of action, like as purchasing or selling a company's shares based on its overall performance and prognosis, is often recommended by these analysts as well.
As well as being able to construct financial models that can forecast future economic situations based on a wide range of factors, an analyst is expected to maintain a current awareness of changes in the area in which they have chosen to focus their expertise.
Not all financial analysts provide their employers with market analysis, either of stocks or bonds, or assistance in investing decisions. In addition, businesses have the option of employing an analyst to make use of numerical data in order to evaluate the performance of different marketing strategies in comparison to their expense. Businesses that operate using the franchise model often have financial analysts on staff. These analysts are tasked with keeping tabs on individual franchisees as well as groups of franchises that operate within the same area. The analysts anticipate future profits and losses after determining where the strengths and weaknesses of the organization reside.
Competencies and Academic Background Needed
When compared to the requirements of other high-paying jobs, those needed to become a financial analyst are far less stringent and well defined. In contrast to the fields of law and medicine, there are no universally required educational minimums. Your company and the precise responsibilities of your employment are two of the elements that will determine whether or not you are obliged to get a license.
Having said that, in the 21st century, being a financial analyst requires a bachelor's degree, most ideally with a concentration in economics, finance, or statistics. This is the qualification that has become the standard. Other majors that are seen highly include accounting, mathematics, and even biology and engineering, and this is particularly true for students who are interested in specializing as analysts within the aforementioned fields. If you do not have at least a bachelor's degree, you do not have a realistic chance of being hired for an analyst position since the level of competition is too high and the majority of available jobs need an undergraduate or advanced degree.
Recruiting takes place almost entirely at highly regarded academic institutions, such as Harvard University and Princeton University, by the large investment banks that are responsible for paying out the enormous first-year wages. Candidates who have degrees from less prominent colleges have the opportunity to improve their prospects by furthering their study and earning an MBA from a school that is highly rated in the field of business. Right out of business school, MBA graduates are often employed for positions as senior analysts.
A successful job as a financial analyst demands high mathematical skills, expert problem-solving ability, proficiency in the application of reasoning, and above-average communication skills. This is true regardless of the level of schooling the individual has. Not only are financial analysts required to do data analysis, but they must also explain their conclusions to their superiors in a way that is understandable, succinct, and convincing.
Certification Tests That Can Be Taken
If you are not already enrolled in a graduate program for business administration (MBA) or an undergraduate program with an economics concentration, you may want to think about preparing for the Series 7 and Series 63 tests or enrolling in the Chartered Financial Analyst (CFA®) Program. It is important to keep in mind that in order to take the Series 7 test, you will need to get sponsorship from either a FINRA member company or a regulatory entity. The Financial Industry Regulatory Authority (FINRA) launched a brand new test in October 2018 called the Securities Industry Essentials (SIE) exam with the goals of streamlining the registration process for multiple categories of securities industry jobs and reducing the amount of knowledge that candidates are required to demonstrate more than once.
In contrast to the highly technical nature of the CFA test, the Series 7 and Series 63 examinations provide candidates with additional opportunities to show a fundamental understanding of investing terminology and accounting procedures. If you look at a sample CFA test and it appears daunting, start by taking the SIE and then work your way up to the CFA exam. Alternatively, after passing the SIE, you may start interviewing for junior analyst roles. A large number of establishments also provide training programs for those who have potential in the industry.
Different Categories of Analyst Jobs
The realm of financial analysis is very diverse, both in terms of the job titles that are available and the career pathways that may be pursued. There are three primary groups of analysts that are employed within the financial and investment sector. These analysts are employed by:
Buy-side companies (investment houses that manage their own funds)
In addition to working for national and international financial institutions, financial analysts may also be employed by regional and local financial institutions, insurance firms, real estate investment brokerages, and other data-driven businesses. Any company that often faces challenging choices regarding the allocation of its financial resources is a good candidate for the services of a financial analyst, who may possibly bring value to the organization.
Analysts on the Buying Side
The vast majority of financial analysts are employed by companies that fall under the category known as the buy side. They advise their employers on the best ways to invest their money, whether it be in stocks and other securities for an internal fund, the purchase of income properties (in the case of a real estate investment business), or the distribution of marketing expenditures. Some analysts do their work not for a particular employer but rather for a third-party firm that offers its customers financial analysis services. This is the case for those who work in the field of investment research. This demonstrates the significance of the work that a financial analyst conducts since a whole sector of the economy revolves around it.
Most of the time, buy-side financial analysts do not have the last say in determining how their employers or customers spend their money. Nevertheless, the patterns that they discover and the predictions that they make are quite helpful in the process of making decisions. It stands to reason that the need for highly qualified buy-side financial analysts will only continue to rise in the years to come given the rapid pace at which global financial markets are undergoing change and the apparently daily changes that occur in regulatory frameworks.
Analysts on the sell side
Sell-side analysts are responsible for assessing and contrasting the quality of the securities that are traded in a certain industry or sector. They then prepare research reports based on this analysis, in which they make recommendations such as "buy," "sell," "strong buy," "strong sell," or "hold." In addition to this, they monitor the stocks that are held in a fund's portfolio in order to ascertain whether or not the fund's stake in a particular stock should be sold and when this should take place. The suggestions made by these research analysts carry a significant amount of weight within the investing sector, notably for those individuals who are working at buy-side organizations.
The position of sell-side analyst at a large investment bank is often regarded as one of the most prominent (and well-paid) in the field of financial analysis. These analysts assist financial institutions in valuing their own investment products and marketing and selling such products to customers. They gather information on the bank's stocks and bonds and then apply quantitative analysis to make projections regarding the performance of these instruments in the market. On the basis of this research, they provide buy and sell recommendations to the customers of the bank, directing them to invest in certain securities from the menu of products offered by the bank.
Even within these areas of expertise, there are subspecialties, such as analysts who concentrate on fixed-income products or equities. A great number of analysts also specialize even deeper inside a certain market or business area. An analyst may choose to specialize in either technology or energy, for instance.
Financial Advisors, Investment Bankers, and Equity Analysts
On the basis of the business fundamentals, analysts working for investment banking firms typically play a part in deciding whether or not specific agreements between companies, such as initial public offerings (IPOs), mergers and acquisitions (M&A), are possible. Analysts evaluate the present economic climate and mainly depend on modeling and forecasting in order to come up with suggestions on whether or not a certain merger is suitable for the client of an investment bank or whether or not a customer should invest venture capital in a business.
Equity analysts are financial market analysts that assist large banks in making buying and selling decisions and who look for promising initial public offering (IPO) chances. Their primary concern is with stock markets, and they assist clients in locating businesses offering ownership options with the greatest potential for profit. In the discipline of financial analysis, equity analysts often earn salaries that are among the highest of any other specialists. This is in part due to the businesses that they work for; large investment banks offer enormous wages in order to entice the most qualified candidates.
When analyzing stocks, equity analysts often work with very large quantities of money. When they make a forecast that comes true, the gain that results for their organization is often in the millions of dollars. As a result of this, equities analysts get generous compensation.
The Average Wage Is Not Average at All
The majority of financial analysts make salaries that are noticeably lower when compared to salaries earned by those working in other professions within the banking business, notably 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. This disparity can be attributed to the fact that entry-level financial analysts tend to earn higher salaries. According to the Bureau of Labor Statistics (BLS) of the United States of America, the average weekly income for a full-time wage or salary worker in the United States on a weekly basis was $1,010 as of the fourth fiscal quarter of the year 2021. Taking into account a typical work week of 40 hours, this equates to an annual salary of around $52,520.
According to information provided by the Bureau of Labor Statistics (BLS) of the United States of America, the median annual pay for financial analysts in the year 2020 was $83,660 per year per year (or $40.22 per hour). This figure accounts for all experience levels. Therefore, on the whole, financial analysts begin their careers with much higher starting salaries than the usual worker. In addition, financial analysts working for large Wall Street businesses often earn a much higher salary, even in their first year on the job.
Financial Analyst Job Outlook
The field of financial analysis is one that is expected to see favorable job growth in the near future. According to the most recent BLS statistics, there were approximately 492,100 total jobs in this field in the year 2020. The BLS projects that the profession will grow by approximately 6 percent in the decade between the years 2020 and 2030. Despite the fact that it is a competitive field, this profession is expected to grow. According to the BLS:
The level of general economic activity is often correlated with an increase in demand for financial analysts. When new firms are started or when current businesses grow, there will be a demand for financial analysts who can analyze the potential returns of investment possibilities. In addition, new investment possibilities are becoming available in developing markets all over the globe. In order to capitalize on these chances, one must have knowledge in the geographic locations in which the emerging markets are situated.
What Kind of Work to Anticipate and Why
It is essential for financial analysts to maintain vigilance in both the process of information gathering on the macroeconomic level and the process of information gathering regarding specific companies, in particular the evaluation of the financial fundamentals of these companies via company balance sheets. Analysts will need to undertake a significant amount of reading in their own time if they want to remain current with the latest financial news. Financial websites and newspapers like The Wall Street Journal, The Financial Times, and The Economist are common sources of information for analysts, who also read publications like these.
In addition to this, becoming an analyst often requires a large amount of travel. Some analysts go to firms in order to obtain a better understanding of how things work on the ground level. In addition to this, analysts usually participate in conferences with other professionals that work in the same field as they do.
Analysts learn to be skilled with spreadsheets, relational databases, statistical and graphical tools, and other software while they are working in the office. They put these technologies to use in order to provide extensive presentations and financial reports that include forecasting, cost-benefit analysis, and trend analysis. Additionally, they make suggestions for senior management using these tools. Additionally, analysts are responsible for the interpretation of financial transactions and the verification of papers to ensure that they comply with regulatory requirements.
Possibilities for Professional Advancement
Analysts often communicate with one another as colleagues in terms of the protocol that governs interoffice communication, while simultaneously reporting their activities to a portfolio manager or some other more senior management function. Within three to five years, an analyst who is starting out at the junior level might work their way up to the senior level. Senior analysts who are interested in furthering their careers have the opportunity to pursue positions such as portfolio manager, partner in an investment bank, or senior manager in retail banks, insurance companies, or other financial institutions. After gaining more experience, some analysts decide to pursue careers as investment counselors or financial consultants.
Competencies Necessary for Victory
Junior analysts who are proficient in the use of spreadsheets, databases, and PowerPoint presentations, in addition to other software tools, have a greater chance of achieving success in their careers. The senior analysts who not only put in long hours but also cultivate interpersonal ties with their superiors and mentor other younger analysts are the ones who tend to be the most successful overall. Analysts who advance in their careers learn how to improve their communication and people skills by developing written and spoken presentations that impress higher-ups in the organization.