What Financial Analysts Do
Financial analysts provide guidance to businesses and individuals making investment decisions. They assess the performance of stocks, bonds, and other types of investments.
Financial analysts typically do the following:
- Recommend individual investments and collections of investments, which are known as portfolios
- Evaluate current and historical data
- Study economic and business trends
- Study a company’s financial statements and analyze commodity prices, sales, costs, expenses, and tax rates to determine a company’s value by projecting the company’s future earnings
- Meet with company officials to gain better insight into the company’s prospects and management
- Prepare written reports
- Meet with investors to explain recommendations
Financial analysts evaluate investment opportunities. They work in banks, pension funds, mutual funds, securities firms, insurance companies, and other businesses. They are also called securities analysts and investment analysts.
Financial analysts can be divided into two categories: buy side analysts and sell side analysts.
- Buy side analysts develop investment strategies for companies that have a lot of money to invest. These companies, called institutional investors, include mutual funds, hedge funds, insurance companies, independent money managers, and nonprofit organizations with large endowments, such as some universities.
- Sell side analysts advise financial services sales agents who sell stocks, bonds, and other investments.
Some analysts work for the business media and are impartial, falling into neither the buy side nor the sell side.
Financial analysts generally focus on trends affecting a specific industry, geographical region, or type of product. For example, an analyst may focus on a subject area such as the energy industry, a world region such as Eastern Europe, or the foreign exchange market. They must understand how new regulations, policies, and political and economic trends may affect investments.
Investing is become more global, and some financial analysts specialize in a particular country or region. Companies want those financial analysts to understand the language, culture, business environment, and political conditions in the country or region that they cover.
The following are examples of types of financial analysts:
Portfolio managers supervise a team of analysts and select the mix of products, industries, and regions for their company’s investment portfolio. These managers not only are responsible for the overall portfolio but also are expected to explain investment decisions and strategies in meetings with investors.
Fund managers work exclusively with hedge funds or mutual funds. Both fund and portfolio managers frequently make split-second buy or sell decisions in reaction to quickly changing market conditions.
Ratings analysts evaluate the ability of companies or governments to pay their debts, including bonds. On the basis of their evaluation, a management team rates the risk of a company or government not being able to repay its bonds.
Risk analysts evaluate the risk in investment decisions and determine how to manage unpredictability and limit potential losses. This job is carried out by making investment decisions such as selecting dissimilar stocks or having a combination of stocks, bonds, and mutual funds in a portfolio.
Financial analysts held about 236,000 jobs in 2010. They work primarily in offices. Most work full time, and many work more than 40 hours per week. They travel frequently to visit companies or potential investors, and face deadline pressure. Much of their research must be done after office hours because their days are filled with telephone calls and meetings.
Many financial analysts work at large financial institutions based in New York City or other major financial centers. In 2010, about 46 percent of financial analysts worked in finance and insurance industries. They worked primarily for security and commodity brokerages, banks and credit institutions, and insurance carriers. Others worked throughout private industry and for government.
Financial analysts often work more than 40 hours a week. In fact, almost one-third of full-time analysts usually work between 50 and 70 hours a week.
How to Become a Financial Analyst
Financial analysts typically must have a bachelor’s degree, but a master’s degree is required for advanced positions.
Many positions require a bachelor’s degree in a related field, such as accounting, business administration, economics, finance, or statistics. Employers often require a master’s in business administration (MBA) or a master’s degree in finance. Knowledge of options pricing, bond valuation, and risk management are important.
The Financial Industry Regulatory Authority (FINRA) is the main licensing organization for the securities industry. It requires licenses for many financial analyst positions. Most of the licenses require sponsorship by an employer, so companies do not expect individuals to have these licenses before starting a job.
Certification is often recommended by employers and can improve the chances for advancement. An example is the Chartered Financial Analyst certification from the CFA Institute, which financial analysts can get if they have a bachelor’s degree, 4 years of experience, and pass three exams. Financial analysts can also become certified in their field of specialty.
Employment of financial analysts is expected to grow 23 percent from 2010 to 2020, faster than the average for all occupations. A growing range of financial products and the need for in-depth knowledge of geographic regions are expected to lead to strong employment growth.
Investment portfolios are becoming more complex, and there are more financial products available for trade. In addition, emerging markets throughout the world are providing new investment opportunities, which require expertise in geographic regions where those markets are.
Regulatory reform enacted in 2010 should allow the financial industry to grow at a similar pace as in previous decades. Restrictions on trading by banks may shift employment of financial analysts from investment banks to hedge funds and private equity groups.
Despite employment growth, competition is expected for these high-paying jobs. Growth in financial services should create new positions, but there are still far more people who would like to enter the occupation than there are jobs in the occupation. Having certifications and a graduate degree can significantly improve an applicant’s prospects.
Financial analysts typically start by specializing in a specific investment field. As they gain experience, they can become portfolio managers, who supervise a team of analysts and select the mix of investments for the company’s portfolio. They can also become fund managers, who manage large investment portfolios for individual investors. A master’s degree in finance or business administration can improve an analyst’s chances of advancing to one of these positions.
Occupations with job duties that are similar to those of financial analysts include:
- Budget Analysts
- Financial Managers
- Insurance Underwriters
- Personal Financial Advisors
- Securities, Commodities, and Financial Services Sales Agents
Sources of Additional Information
“Financial Analyst.” Career Opportunities in Banking, Finance, and Insurance. 2nd. Fitch, Thomas. New York: Ferguson Publishing, 2007. 85–86.
“Financial Analyst.” Guide to Your Career. 5th ed. Bernstein, Alan B. New York: Princeton Review, 2004. 318–319.
“Financial Analysts.” 150 Best Jobs for Your Skills. Ed. Laurence Shatkin. St. Paul: JIST Works, 2012. 282.
“Financial Analysts.” 200 Best Jobs for College Graduates. Eds. Michael Farr and Laurence Shatkin. St. Paul: JIST Works, 2009. 228.
“Financial Analysts.” Best Jobs for the 21st Century. Ed. Laurence Shatkin. St. Paul: JIST Works, 2012. 312.
“Financial Analysts.” Ferguson’s Careers in Focus: Financial Services. 3rd ed. New York: Ferguson Publishing, 2006. 62–72.
Financial Analysts. Trenton, NJ: Center for Occupational Employment. Video. http://web1.dol.state.nj.us/cgi-bin/cv.mov?carvidFileName=b_13-2051.00-06.mpg
American Academy of Financial Management (AAFM)
1670-F E Cheyenne Mtn. Blvd.
Colorado Springs, CO 80906
American Finance Association (AFA)
University of California
Haas School of Business
Berkeley, CA 94720-1900
Securities Industry and Financial Markets Association (SIFMA)
120 Broadway, 35th Fl.
New York, NY 10271
Society of Quantitative Analysts
PO Box 6
Rutledge, MO 63563