How to Become a Financial Analyst

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What Is a Financial Analyst?

A financial analyst makes recommendations on prospective investments based on an examination of the data about a company, an industry, or a sector. The financial analyst may work for a bank, insurance company, real estate investment brokerage, or other data-driven business.

A financial analyst researches macroeconomic and microeconomic conditions along with company fundamentals to make a judgment about the potential success of an investment. They recommend a course of action, such as buying or selling stock, based on the past performance and future outlook of the company that issues it.

Financial analysts work in junior and senior capacities within a firm, and it is a niche that often leads to other career opportunities.

Key Takeaways

• A financial analyst pores over data to identify business opportunities or make recommendations on proposed actions.
• Junior analysts spend much of their time on data gathering, financial modeling, and spreadsheet maintenance.
• Senior analysts may spend time developing investment theses, speaking with company management teams and other investors, and marketing ideas.
• A bachelor’s degree in math or a finance-related major is commonly sought.

Understanding the Financial Analyst

The financial analysts who are best known to the public evaluate individual stocks and bonds and present their conclusions to prospective investors. However, there are financial analysts at work in many other areas of business.

For example, businesses that use the franchise model often employ financial analysts to track 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.

An analyst must be aware of current developments in the field in which they specialize and prepare financial models to predict future economic conditions for any number of variables.

Required Skills and Education

The qualifications to become a financial analyst are less rigid and well-defined than those of many high-paying careers. Unlike law and medicine, there are no standard educational requirements. Some roles require licenses but this varies among employers and specializations.

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. Biology and engineering degrees may interest an employer, especially if the applicant is interested in specializing in those industries.

In this highly competitive job market, a master’s degree gives an applicant a boost.

A successful career as a financial analyst requires strong quantitative skills, expert problem-solving abilities, adeptness in logic, and above-average communication skills. Financial analysts have to crunch data, but they also have to report their findings to their superiors clearly, concisely, and persuasively.

Note

The big investment banks, where the huge first-year salaries are paid, recruit almost exclusively out of MBA programs at elite universities like Harvard and Princeton. These graduates are often hired as associates right out of business school.

Certification Exams to Take

If you are not an MBA graduate student or an economics major as an undergraduate, you may want to consider studying for and taking the Series 7 and Series 63 exams. The Series 7 exam will require sponsorship from a FINRA member firm or a regulatory organization.

Completing the Series 7 and Series 63 exams can demonstrate a basic familiarity with investment terms and accounting practices. You might also consider a newer exam created by FINRA in 2018 called the Securities Industry Essentials (SIE) exam.

Other more advanced certifications may be needed down the road when you’re already established in a junior analyst position.

Types of Analyst Positions

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

Buy-Side Analysts

Most financial analysts work on what is known as the buy side. They help their employers decide 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 and revenue 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 their forecasts are invaluable in decision-making. 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 will only increase in the future.

Sell-Side Analysts

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 in a fund’s portfolio to determine if and when individual stocks should be sold. The recommendations of these research analysts carry a great deal of weight in the investment industry, including for people employed at 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 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 specialize even further within a specific sector or industry. An analyst may concentrate on energy or technology, for example.

Investment Banking and Equity Analysts

Analysts in investment banking firms often play a role in determining whether or not certain deals between companies, such as initial public offerings (IPOs) or mergers, and acquisitions (M&As), are feasible based on corporate fundamentals.

Analysts assess current financial conditions—relying heavily on modeling and forecasting—to make recommendations as to whether a certain merger is appropriate for that investment bank’s client or whether a client should invest venture capital in an enterprise.

Analysts who help make buy and sell decisions for big banks and who attempt to identify IPO opportunities are called equity analysts. 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 big salaries to lure the best talent.

Equity analysts often deal with huge sums of money. When they make a winning prediction, the gain for the employer is often in the millions of dollars. Equity analysts are handsomely compensated for their contributions.

Median Salary Is Not Mediocre

Most financial analysts make significantly less than those in other professions in the finance industry, particularly 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.

In the fourth quarter of 2023, according to the U.S. Bureau of Labor Statistics (BLS), the average weekly income for a full-time wage or salary worker in the U.S. was $1,145. This translates to a yearly income of about $59,540.

Compare that to the median annual income for financial analysts across all experience levels in 2022 (the latest data available) was $96,220 per year. 

Granted, It’s not unusual for an analyst to work 80 or more hours per week.

Financial Analyst Job Outlook

Employment-wise, the outlook is good for the financial analyst profession. While it’s a competitive field, in 2022 there were around 376,100 total jobs in this field, according to the latest available BLS statistics. The profession is expected to grow about 8% in the decade between 2022-2032.

The BLS notes:

Demand for financial analysts tends to grow with overall economic activity. Financial analysts will be needed to evaluate investment opportunities when new businesses are established or existing businesses expand. In addition, emerging markets throughout the world are providing new investment opportunities, which require expertise in geographic regions where those markets are located.

What to Expect on the Job

Financial analysts need to remain vigilant about gathering information on the macroeconomic level, as well as gathering information about specific companies and assessing their financial fundamentals via company balance sheets.

Analysts must do a lot of reading on their own time. They tend to peruse 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 frequently attend conferences with colleagues who share the same specialty.

When in the office, analysts need to be proficient with spreadsheets, relational databases, and statistical and graphics packages. They use these tools to develop recommendations for senior management and to produce detailed presentations and financial reports that include forecasting, cost-benefit analysis, and trend analysis.

Analysts also interpret financial transactions and must verify documents for their compliance with government regulations.

Opportunities for Advancement

In terms of interoffice protocol, analysts usually interact with one another as colleagues, while also reporting to a portfolio manager or other more senior management role.

A junior analyst may work their way up to senior analyst in 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 a senior manager in a retail bank or insurance company.

Some analysts go on to become investment advisors or financial consultants.

Skill Set for Success

The most successful junior analysts are those who are proficient in the use of spreadsheets, databases, and PowerPoint presentations and learn other software applications.

Most successful senior analysts have developed interpersonal relationships with superiors and are available to mentor junior analysts.

Analysts must also develop communication and people skills by crafting written and oral presentations that impress senior management.

What Is the Job Outlook for a Financial Analyst?

According to U.S. government estimates, employment of financial analysts is projected to grow 8% from 2022 to 2032 (faster than the average for all occupations), with 27,400 new job openings per year in that period.

Many of those openings are expected to result from the need to replace workers who transfer to different occupations or retire.

What’s the Difference Between a Financial Analyst and an Equity Research Analyst?

Financial analysts look at market trends to help with investment decisions or examine the financial statements of companies to identify an investment’s potential. 

An equity research analyst looks closely at a company’s financial information, examining, interpreting, and reporting on the data collected to come up with a price target for a stock.

What Type of Education Do I Need to Become a Financial Analyst?

According to the BLS, a majority of financial analysts hold a bachelor’s degree in a field related to finance, including finance and accounting, economics, statistics, analytics, business management, or mathematics.

The Bottom Line

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.

Read the original article on Investopedia.