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A financial analyst gathers financial data, assesses their findings, and makes projections about economic opportunities. They monitor external financial trends, create forecast models, and identify opportunities for profit.
Financial analysts also recommend ways to cut costs and increase revenue within companies and organizations. They perform quantitative research and analysis and make presentations about their findings to clients and colleagues.
According to the Bureau of Labor Statistics (BLS), securities, commodity contracts, and financial investment firms employ the most financial analysts in the United States. The most lucrative industry for financial and investment analysts is information services.
As analytical and detail-oriented professionals, financial analysts are inquisitive workers who enjoy research. Individuals wondering, "What is a financial analyst?" can use this guide for information on the profession.
What Does a Financial Analyst Do?
Financial analysts monitor the economy while looking for ways to help their clients increase profits. They evaluate financial data, examine market trends, and forecast financial performance. Whether working for individuals, organizations, or large corporations, financial analysts offer advice on wise financial decision-making.
Financial analysts do their due diligence by researching macroeconomic and microeconomic trends to provide responsible, informed financial guidance. This work often includes developing and testing models, staying current with new technologies and market conditions, and scrutinizing the needs of their clients to identify the best financial options. Typical responsibilities of financial analysts include:
Research Financial Trends: Financial analysts use historical and current financial data to identify market trends. They use reports issued by federal and international agencies, corporate entities, and other bodies that investigate the marketplace to gain a broad view of the economy. Analyze Financial Statements: Financial analysts use documents like profit and loss statements, balance sheets, and tax reports in their work. This analysis requires knowledge of mathematics and statistics. Create Financial Models: Financial models use expense and earning data to calculate results for future financial decisions. Often developed in spreadsheets, financial models allow financial analysts to forecast financial performance and make recommendations about financial decisions. Recommend Investments: Equipped with an in-depth understanding of the economy, financial analysts advise individuals and groups to make wise investment decisions. This includes stocks, bonds, mutual funds, and annuities, depending on client needs. Make Financial Information Accessible: When financial analysts present recommendations to clients, they translate financial trends and opportunities into detailed yet easily understood reports and presentations.
Key Hard Skills for Financial Analysts
Accounting: Financial analysts must know accounting standards and principles. They also need to understand budgeting and forecasting, cost analysis, and related accounting activities. Financial Modeling: Because different financial models apply to varying situations, financial analysts must know what financial models exist and when to use them. Examples include discounted cash flow, merger and acquisition, and budget models. Financial Literacy: Financial analysts read financial statements, pull insights from the information, and make decisions based on their findings. By understanding financial jargon, financial analysts can comfortably read income statements and reports by the U.S. Security and Exchange Commission. Business Valuation: This process involves determining the worth of a business or parts of a business. Factors for business valuation include income, assets, and the overall market.
Key Soft Skills for Financial Analysts
Interpersonal Skills: Financial analysts need to listen to their clients to understand their goals and desired outcomes. They also must clearly relay financial information to clients. Financial analysts often must present information verbally and likely need public speaking abilities. Motivation: When working alone or on a computer for long hours, staying focused and on task can be difficult. Financial analysts must possess the drive to push forward and carry out their duties fully. Critical Thinking: These professionals collect financial documents and different types of financial data, requiring them to pull conclusions from their findings. Financial analysts arrive at responsible recommendations by thinking critically about the big picture and how it applies to client needs. Resilience: Financial analysts must be comfortable with facing resistance or rejection. Perseverance is essential for financial analysts in their efforts to do what is best for their clients.
Financial Analyst Areas of Expertise
Financial analysts may specialize in a subset of the field. Specialties can include types of investment like stocks, bonds, or securities, along with specific geographic locations. Financial analysts may focus on areas like risk analysis, portfolio management, and fund management. These subsets apply to specific roles in the field, as covered in the following section.
Financial Risk Analyst
Financial risk analysts work for insurance companies, banks, and businesses to determine potential risks and outcomes of financial decisions. They collect documents, review financial data, and identify ways to mitigate financial risks. In some contexts, risk analyst duties resemble an actuary's responsibilities.
Within the field of financial risk analysis, individuals may specialize further and focus on risk associated with credit, the market, or regulatory compliance. Experience and additional training can result in promotions and increased earning potential as financial risk managers or senior financial risk analysts.
Common Job Titles
Credit risk analyst Market risk analyst Operational risk analyst Regulatory risk analyst Senior financial risk analyst
Securities analysts work for financial institutions like commercial banks, investment banks, and insurance firms. They focus on tradable assets like stocks, bonds, mutual funds, and pension funds.
Securities analysts use financial data to recommend when to buy, sell, or trade securities. Specializing in securities requires expertise in understanding the nuances and regulations relating to equity, debt, and hybrid securities.
Common Job Titles
Equity analyst Investment analyst Ratings analyst
How to Become a Financial Analyst
Most financial analysts have bachelor's degrees in business, accounting, finance, or other related fields. These degrees typically require four years of coursework and practical requirements. Many employers prefer candidates with master's degrees in these areas.
While not required, earning a certification as a chartered financial analyst from the CFA Institute can help individuals pursue careers in financial analysis. Additional credentials for financial analysts include those offered through the Financial Industry Regulatory Authority.
With experience and continued education, financial analysts can take on additional duties, focus on specific aspects of finance, or move into financial planning and management.
What Is a Financial Analyst's Career Outlook?
The BLS projects that employment for financial analysts will keep pace with the average for all occupations from 2020-2030. With high levels of employment in the financial investment industry, states like New York and California lead the way in employment for financial analysts. New York also features the highest salaries for financial analysts.
Location, industry, and background all influence salaries for these professionals. Financial analysts earned mean wages over $81,000 in May 2021, per the BLS, but in New York, financial analysts receive annual mean wages approaching $132,000.
Career Spotlight: Derek Burkett, CFA, FRM, CAIA
Why did you become a financial analyst? What initially interested you about the field?
I studied economics as an undergraduate and really loved the subject. As I was getting ready to graduate, I considered pursuing a Ph.D. and a career as an academic, but I was also interested in going into finance as a practitioner.
Ultimately, I decided that what I really wanted was to learn practical skills and work in financial analysis or investment management, so I enrolled in a master of finance program and then the chartered financial analyst (CFA) program. During that experience, I found that I really loved the challenge of valuing companies, which led me to the valuation consulting industry.
As a result of my education, experience as a consultant, and my industry connections, I eventually was recruited to work at Kaplan Schweser, educating future CFA charter-holders. So, I have been able to fulfill my desire to work as a financial analyst and as an educator.
What education did you need to pursue this career?
Financial analysts typically have at least an undergraduate degree, often in economics, finance, accounting, or another business discipline. In my case, I had a bachelor's in economics, a master's in finance and had passed the level I CFA exam when I started working as a valuation consultant.
Although university degrees in business fields are common among analysts, many professionals have backgrounds in science, engineering, or other fields. For individuals with non-business backgrounds, designations such as the CFA charter help bridge the knowledge gap and open doors to finance careers.
What kinds of opportunities do financial analysts have without the charter? Is it possible to land a successful job and not be a CFA?
The CFA charter is extremely valuable not only because it provides a wealth of knowledge and technical skill required for financial analysis and portfolio management, but also because it serves as a signaling mechanism for employers regarding the intelligence, work ethic, critical thinking, and commitment to ethical practice of the analyst.
That said, there are many very successful investment professionals who are not CFA charter-holders. They work in all the same roles at all the same levels that CFA charter-holders do and can have successful careers without the charter. So it's possible to be successful with or without the charter; however, having CFA after your name will definitely give you an edge over others.
What was the career path that led you to this position? What do you think helped you most on your journey?
In my role at Kaplan Schweser, I led our global CFA business, working closely with the product, sales, marketing, and other teams to produce the best-in-class CFA exam prep products and services. I've held prior roles in this industry creating content and teaching CFA candidates.
Prior to that, I worked as a consultant in the business valuation industry and continued to take projects from time to time, even after I left to work at Kaplan. The work I did in valuation consulting has served me well at Kaplan, allowing me to analyze and value potential acquisitions and work with internal and external deal teams as we have executed acquisitions.
My background as an analyst has also allowed me to understand the fundamentals of the business I operate and be able to communicate our results to key stakeholders. It's been hugely rewarding, and I still consider myself an analyst at heart, even though my role has changed so much over time.
What are some of the most rewarding aspects of working as a financial analyst? Some of the most challenging aspects?
I think the most rewarding aspect is seeing your work make an impact. When you spend a lot of time building financial models and writing reports, it's exciting to see it get put to use, whether that is in a transaction, supporting an investment decision, or developing a business strategy.
One of the most challenging aspects is dealing with ambiguity. We rarely have perfect information and must apply our judgment. That can be uncomfortable at times, but it is also an opportunity to apply our experience and skill.
What do you think is the most important skill financial analysts need to succeed?
Learn to ask the right questions and communicate the results of your work. A lot of attention is paid to the technical skills needed to become an analyst. Every analyst must develop technical skills, or they won't have a job for long.
However, the most successful analysts develop deep insight into the models they build, the underlying assumptions, the numbers they produce, and the reports they develop. Producing high-quality analysis is valuable and necessary, but the top analysts add even more value by developing the skills to communicate complicated analyses with experts and non-experts alike.
What advice would you give to students considering your career?
Take the time to talk to analysts in different roles at different companies to understand the diversity of roles and corporate environments. Take courses that incorporate financial statement analysis, valuation, and financial modeling, if available. Utilize resources on CFA Institute's website.
They have a wealth of free information on the investment profession. Finally, consider enrolling in the CFA program if you have already decided that a career as a financial analyst is right for you. The ROI on the CFA charter is extremely high. It's simply one of the best investments you can make in yourself and your career.
Derek Burkett currently serves as director of advanced designations at Kaplan Schweser (a division of Graham Holdings Company, NYSE: GHC), a global education company focused on training candidates for elite financial designations, including CFA, financial risk manager (FRM), and chartered alternative investment analyst (CAIA). He is responsible for defining the global strategic direction and educational goals of the CFA, FRM, and CAIA product lines.
Mr. Burkett has taught and authored content related to securities analysis, asset valuation, asset management, risk management, and alternative investment analysis. Mr. Burkett is also an experienced valuation professional and has previously held positions at valuation consulting firms where he valued public and privately held businesses, derivatives, intangible assets, provided merger and acquisition advisory services, and performed various economic analyses for litigation purposes.
Questions About the Financial Analyst Job Description
What does a financial analyst do?
Financial analysts advise clients about financial decisions based on data assessment. They consider financial statements, economic trends, and performance indicators to make financial projections.
What are the top three skills for financial analysts?
Financial analysts must possess critical thinking skills, quantitative research and analysis abilities, and financial literacy.
Where does a financial analyst work?
Financial analysts work at financial institutes, such as investment firms, banks, and credit unions. Along with working as independent consultants, financial analysts find employment with corporations, insurance companies, and government agencies.
Is a financial analyst a stressful job?
What a financial analyst does is not excessively stressful, but looming deadlines may create stressful scenarios in the workplace.
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