Sunday, July 27, 2014

What About a Career as a Financial Analyst?

Rising juniors considering applying to Marquette’s AIM program should evaluate different career options. In the finance industry, one of the most desirable careers is that of being a financial analyst. In this article, we examine what financial analysts do.

The financial industry is highly competitive and it is challenging to break into the field, but it is possible to find a position as a financial analyst. After reading this article, if it seems like something you are interested in as a career, then maybe the AIM program is for you. Read on to find out more about a career as a financial analyst.

What Does a Financial Analyst Do?
A financial analyst researches economic, industry and company fundamentals to make business decision and investment recommendations. They often propose a course of future action, such as to buy or sell common stock based upon the firm’s current and forecasted strength. A financial analyst must be aware of current developments within the markets and industry trends. They must be capable of producing complex financial models in order to predict future economic conditions based on a wide number of variables.

Background of Financial Analysts
Since you might still be an undergraduate student who is considering a career as a financial analyst, it is best to take courses in finance, economics, accounting and mathematics. Other majors that are looked upon favorably include those in STEM (science, technology, engineering and math). Many of the entry level analysts hired by firms have these backgrounds, while 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. It is important to keep in mind that participating in these exams are challenging and will require sponsorship.

The CFA charter requires the passage of three annual exam that are highly technical; however, the Series 7 and 63 exams can be other ways for a student to prove a basic familiarity with investment terms and accounting practices. If you look at a sample CFA exam and it seems overwhelming, start with practicing for the Series 7 and 63 exams and then work your way up to the CFA exam or begin to interview for junior analyst positions after passing those Series exams. This is where being a member of the AIM program can help prepare you for the rigorous CFA exams.

Types of Analyst Positions
Financial analysts tend to specialize based on the type of institution they work for. Analysts are hired by banks, buy- and sell-side investment firms, insurance companies and investment banks. Of these specialties, three major categories of analysts are those that work for 'sell-side' investment firms, those that work for 'buy-side' investment firms and those that work for investment banks.

Within the investment industry, most analysts tend to work either for buy-side investment firms, where they research stocks for an in-house fund, or sell-side firms that write research reports for buy-side firms. Buy-side firms are investment houses that manage their own funds. In these companies, analysts research companies as they look for stocks to add to an investment fund. 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.

At a sell-side firm, analysts evaluate and compare the quality of securities in a given sector or industry. Based on this analysis, the analysts then make reports with certain recommendations such as: buy, sell, strong buy, strong sell or hold. These recommendations carry a great deal of weight in the investment industry including analysts working within buy-side firms.

Even within these specialties, there are subspecialties such as analysts who specialize in equities and those that specialize in analyzing fixed-income instruments. Many analysts also specialize even further within a specific sector or industry. An analyst may specialize in energy or technology, for example.

Analysts in investment banking firms, however, differ from analysts in buy- and sell-side firms as they often play a role in determining whether or not certain deals are feasible based on the fundamentals of the companies involved in a deal. This type of analysis can include IPOs or mergers and acquisitions (M&A). Analysts assess current financial conditions as well as rely heavily on modeling and forecasting to make recommendations to senior partners as to whether or not a certain merger is appropriate for that investment bank's client or whether another client of the investment bank should invest private equity or venture capital in a particular company.

What to Expect on the Job
Financial analysts need to remain observant about gathering information on the overall economy as well as information about specific companies and the fundamental microeconomics of their balance sheets. In order to stay on top of financial news, analysts will need to do a lot of reading on their own time. Analysts tend to read publications such as The Wall Street JournalThe Financial Times and The Economist as well as financial websites.
Being an analyst also often tends to involve a significant amount of travel. Some analysts travel to companies to get a first-hand look at company 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 develop 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.

Opportunities for Advancement
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 his or her way up to a senior analyst in 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 management in a retail bank or an insurance company. Some analysts go on to become investment advisors or financial consultants.

Tips for Success
The most successful junior analysts are ones that develop proficiency in the use of spreadsheets, databases, 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 that are promoted also learn to develop communication and people skills by crafting written and oral presentations that impress senior management.

The Bottom Line
While 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.