Becoming a Financial Analyst

In the financial services industry, one of the most coveted careers is that of the analyst. 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.

Financial analysts examine financial data and use their findings to help companies make business decisions. Often, this analysis deals with investing.

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 to buy or sell 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 work with the stock or bond markets or help their employers make investments. For example, a company might 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.

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 (if one might want to specialize analyzing those industries).The competition is too great, and college (and even advanced) degrees are too common in the job market to have a serious chance of applying with less than a B.A.

The big investment banks, where the huge first-year salaries get paid, recruit almost exclusively at elite colleges and universities, such as Harvard and Princeton. 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.

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. However, as of October 2018, FINRA is taking the common questions from the Series 7 and other tests, and putting them into a new exam called the Securities Industry Essentials exam (SIE). You can take this test without sponsorship (a nice boost to your résumé). Once employed, you will take a “top-off” exam to complete the Series 7, etc.

While the CFA exam is highly technical, the Series 7 and 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. (For more details, see "Financial Analyst Training & Designation Programs.")

Regardless of education, a successful career as a financial analyst requires strong quantitative skills, expert problem-solving ability, 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.

The field of financial analysis is broad, featuring a variety of job titles and career paths. Within the financial/investment industry, 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

Away from Wall Street, financial analysts 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.

Buy Side

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 can only increase.

Sell Side

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 or 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 with those working within 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.

Analysts in investment banking firms often play a role in determining whether or not certain deals between companies (IPOs, mergers and acquisitions) are feasible, based on the corporate fundamentals. Analysts assess current financial conditions, as well as rely 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.

The analysts who work for big banks and help make buy and sell decisions and 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.

Also, equity analysts 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.

Most financial analysts make significantly less than those in other professions on Wall Street. However, the median annual income for a financial analyst – at entry-level – is significantly higher than the median household income in the United States overall. The median annual income for an entry-level financial analyst is $55,265. This is roughly what you can expect to make the first year, even if you do not work for a Wall Street bank. By comparison, as of 2017, the average income for an entire household in the United States, regardless of the experience of the workers in that household, was $51,939. On average, financial analysts start out much better paid than the typical worker.

In fact, to be more apples-to-apples, according to data from the U.S. Bureau of Labor Statistics (BLS), the median annual income for financial analysts across all experience levels, as of May 2017, was $84,300. The mean (average) annual wage was $99,430. Financial analysts at the big Wall Street firms often make much more, even during the first year. In fact, earning total compensation of $140,000 or greater is a common goal for first-year analysts at investment banks.

Employment-wise, the outlook is good for the financial analyst field. While it's a competitive one, there are around 296,100 jobs out there now and according to the latest available BLS statistics, the profession should grow about 11% in the decade between 2016-26 – an increase of 32,200 positions – faster than the average for all occupations. "Demand for financial analysts tends to grow with overall economic activity," the BLS notes. "Demand is also projected to increase as the growth of 'big data' and technological improvements allow financial analysts to access a wider range of data and conduct higher quality analysis. This analysis will help businesses manage their finances, identify investment trends and deliver new products or services to clients."

The states that have the greatest number of analysts are, in descending order: New York (not surprisingly, as it's the home of Wall Street), California, Texas, Illinois and Florida. However, the profession is most concentrated in Delaware (where many companies are headquartered; New York; Washington D.C.; Connecticut; and Massachusetts. Analysts earn in the most in New York, Wyoming, Colorado, California and Alaska.

Financial analysts need to remain vigilant about gathering information on the macroeconomy, as well as information about specific companies and the fundamental microeconomics of their 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 in order to develop recommendations for senior management and to produce detailed presentations and financial reports that include forecasting, cost-benefit analysis, trending and results analysis. Analysts also interpret financial transactions and must verify documents for their compliance with government regulations.

As interoffice protocol goes, analysts interact with each other as colleagues while they tend to report to a portfolio manager or other senior in management. 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 senior manager in a retail bank or an insurance company. Some analysts go on to become investment advisors or financial consultants.

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.

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.