Financial analysts

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.

Duties

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 to determine its value
  • 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 belong to 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 becoming 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.

How to Become a Financial Analyst

Financial analysts typically must have a bachelor’s degree, but a master’s degree is often required for advanced positions.

Education

Most positions require a bachelor’s degree. A number of fields of study provide appropriate preparation, including accounting, economics, finance, statistics, mathematics, and engineering. For advanced positions, 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.

Licenses, Certifications, and Registrations

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 (CFA) 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.

Advancement

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.

Important Qualities

Analytical skills. Financial analysts must process a range of information in finding profitable investments.

Communication skills. Financial analysts must explain their recommendations to clients in clear language that clients can easily understand.

Computer skills. Financial analysts must be adept at using software packages to analyze financial data, see trends, create portfolios, and make forecasts.

Decision making skills. Financial analysts must provide a recommendation to buy, hold, or sell a security. Fund managers must make split-second trading decisions.

Detail oriented. Financial analysts must pay attention to details when reviewing possible investments, as small issues may have large implications for the health of an investment.

Math skills. Financial analysts use mathematical skills when estimating the value of financial securities. 

To be successful, financial analysts must be motivated to seek out obscure information that may be important to the investment. Many work independently and must have self-confidence in their judgment.

Job Outlook

Financial Analysts

Percent change in employment, projected 2012-22

Financial analysts

16%

Business and financial operations occupations

13%

Total, all occupations

11%

 

Employment of financial analysts is projected to grow 16 percent from 2012 to 2022, 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 located.  

The continued implementation of financial regulatory reform could constrict growth in the industry, as rule-making bodies place a greater emphasis on stability. Restrictions on trading by banks may shift employment of financial analysts from investment banks to hedge funds and private equity groups.

Job Prospects

Despite employment growth, strong 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.

Employment projections data for Financial Analysts, 2012-22
Occupational Title SOC Code Employment, 2012 Projected Employment, 2022 Change, 2012-22 Employment by Industry
Percent Numeric

SOURCE: U.S. Bureau of Labor Statistics, Employment Projections program

Financial analysts

13-2051 253,000 292,400 16 39,300 [XLS]
  Occupation Description Entry-Level Education 2012 Median Pay
Budget analysts Budget analysts

Budget analysts help public and private institutions organize their finances. They prepare budget reports and monitor institutional spending.'

Bachelor's degree $69,280
Financial managers Financial managers Financial managers are responsible for the financial health of an organization. They produce financial reports, direct investment activities, and develop strategies and plans for the long-term financial goals of their organization.' Bachelor's degree $109,740
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Insurance underwriters decide whether to provide insurance and under what terms. They evaluate insurance applications and determine coverage amounts and premiums.'

Bachelor's degree $62,870
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Securities, commodities, and financial services sales agents connect buyers and sellers in financial markets. They sell securities to individuals, advise companies in search of investors, and conduct trades.'

Bachelor's degree $71,720
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Ref: bls.gov
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