On the AIM
Blog we recently wrote about the career path and opportunities for
financial analysts. This posting includes more about the role and steps
involved to become an analyst. Marquette’s
Applied Investment Management program helps prepare students for careers as
financial analysts. Note: much of this content about the responsibilities of a financial analyst is sourced from Investopedia.
In the finance
industry, one of the most coveted careers is that of the financial 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 analyst
field, but there are some preparations you can make to position yourself for
this career. If you're interested in a career as a financial analyst, read on
to find out what you can do to groom yourself for the job.
What Is a
Financial Analyst?
A financial
analyst researches macroeconomic and microeconomic conditions along with
company fundamentals to make business, sector and industry recommendations.
They also often recommend a course of action, such as to buy or sell a
company's stock based upon its overall current and predicted strength. An
analyst must be aware of current developments in the field in which he or she
specializes as well as in preparing financial models to predict future economic
conditions for any number of variables.
Background of
Financial Analysts
If you are still
an undergraduate student who is considering a career as a financial analyst, it
is best to take courses in business, economics, accounting and math. (See AIM
program curriculum). Other majors that are looked upon favorably include
computer sciences, biology, physics and even engineering. Many of the junior
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. Keep in mind that participating in these exams will
require sponsorship from a FINRA member firm or a self-regulatory organization.
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 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 or one of the other exams that are highly regarded by the financial
services industry. Many institutions also have training programs for those
candidates who show promise in the field.
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. 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 venture capital in a
particular company.
What to Expect
on the Job
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
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 Journal, The
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.
