CareerExplorer’s step-by-step guide on how to become a financial analyst.
Is becoming a financial analyst right for me?
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Individuals who wish to work in finance should lay a career foundation by taking related courses in high school. Classes in applied mathematics, accounting, economics, and business will ease the transition to university level courses.
Most financial analysts have a Bachelor’s degree in business administration, finance, economics, statistics, or accounting. Standard courses include:
Business law and ethics
Recent graduates who wish to work on the buy side of the industry should pursue positions with a mutual or pension fund, investment bank, or insurance company. Those interested in a role on the sell side should concentrate on finding opportunities with securities firms.
Financial analysts often specialize in a specific financial product, geographic region, or industry. For example, they might focus on the options market, deal in primarily Asia-based investments, or work solely in the telecommunications field.
Even entry-level positions are very competitive. In these roles, financial analysts commonly work under the guidance of a senior analyst. Their tasks often include analyzing income statements, maintaining files, processing client financial statements, and analyzing plans and forecasts. Employers generally run in-house training programs for their newly hired analysts.
As analysts move into more senior positions, they may become:
These analysts select the mix of financial products, industries, and geographic regions for their company’s investment portfolio. They are responsible for the overall performance of the portfolio and expected to explain investment decisions and strategies in meetings with stakeholders.
Like portfolio managers, fund managers make buy or sell decisions in reaction to quickly changing market conditions. These managers, though, work exclusively with hedge funds or mutual funds.
These 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.
These analysts assess the risk in investment decisions. They manage unpredictability and limit potential losses in a portfolio by selecting dissimilar stocks or a combination of stocks, bonds, and mutual funds.
Licensure (mandatory for some roles)
Some financial analysts are required to obtain one or more licenses, especially if they deal with securities firms on the sell side of the industry. Licensure is overseen by the Financial Industry Regulatory Authority (FINRA). According to the U.S. Bureau of Labor Statistics, employers generally sponsor their employees’ licensure. If analysts change employers they must renew their license.
Certification (recommended / optional)
Many employers expect financial analysts to pursue Chartered Financial Analyst (CFA) certification through the CFA Institute. Analysts with at least a Bachelor’s degree (or in the final year of a Bachelor’s program) and four full years of qualifying work experience are eligible to sit for the Institute’s three exams. Passing the exams – which test competency in corporate finance, financial markets, economics, accounting, and portfolio management – is commonly considered a qualification for advancement to more senior financial analyst positions.
It is recommended that candidates study at least three hundred hours for each of the three CFA exams. Only one in five students passes the full set of exams.
Master’s Degree (recommended / optional)
While an undergraduate degree is sufficient for many positions, Master’s level education is quite common among financial analysts. Employers seeking to fill advanced roles often prefer candidates who have earned a Master’s of Business Administration (MBA).
How to become a Financial Analyst
A Bachelor’s degree, preferably with a major in economics, finance, or statistics, has become the de facto requirement for individuals entering the financial analysis industry. Other majors that are looked upon favorably are accounting and math. Coursework in these programs commonly includes mathematical statistics, managerial finance, investment analysis, accounting, international business, business law, marketing, and ethics.
A recent graduate with a Bachelor’s degree can expect to begin in a junior position under the guidance of a senior analyst. After several years of experience, many financial analysts pursue a Master’s of Business Administration (MBA), since continuing progression to more senior roles usually necessitates a graduate degree. At this level, students study advanced business and management theories and typically concentrate on one specific financial sector, such as international investment or project management.
Some financial analyst jobs require licensure from the Financial Industry Regulatory Authority (FINRA). Many employers expect analysts to pursue certification. The preeminent credential in the field is the Chartered Financial Analyst (CFA) awarded by the CFA Institute.
Within the financial analysis industry, there are two major categories of analysts:
Buy-side financial analysts
The majority of financial analysts work on what is known as the buy side. These analysts work for organizations – known as ‘institutional investors’ – that have money to invest. Examples of institutional investors are mutual funds, pension funds, hedge funds, insurance companies, hospitals, and universities. Buy-side analysts help their employers make decisions on how to spend their money, whether that means investing in stocks and other securities for an in-house fund, buying income properties for a real estate investment firm, or allocating marketing dollars.
Financial analysists who work on the buy-side of the industry rarely have the final say on how their employers or clients spend their money. However, the trends they uncover and the forecasts they make are invaluable in the decision-making process.
Sell-side financial analysts
These analysts help companies price and sell their own investment products. Perhaps the most prestigious and highest-paid financial analyst job is that of a sell-side analyst for a large investment bank or securities firm. In this role, analysists compile data on stocks and bonds and use quantitative analysis to project how these securities will perform in the marketplace. Based on this research, they make buy and sell recommendations.
These analysts may also play a role in determining whether or not certain deals between companies (IPOs, mergers and acquisitions) are feasible, based on corporate fundamentals.
Within these two specialties, there are subspecialties. Analysts may choose to focus on stocks or on fixed-income instruments. They may also specialize further with a specific sector or industry, such as energy or technology.