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For anyone with a mind for business, a big-picture outlook and strong communication skills, becoming a financial analyst may be a promising career path. Financial analysts can work in a variety of industries studying economic trends, making predictions and offering recommendations for investments and other money moves.
Most financial analyst jobs require at least a bachelor’s degree. After gaining some work experience, financial analysts can increase their prospects through licenses and certifications. Our guide explores more details about how to become a financial analyst.
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What Do Financial Analysts Do?
In general terms, financial analysts advise companies and individuals on wealth management, financial planning strategies and wise investment decisions. These professionals must be able to distill large amounts of information into concise recommendations.
Financial analysts assess whether a company is worth investing in by poring over its financial history. These professionals may also help companies decide how to invest in growing industries and provide advice on any risks associated with potential investments.
Financial analysts study economic, political and global trends to make recommendations, but while these professionals need a broad understanding of the market, they aren’t expected to know everything. Analysts tend to focus on one industry, region or product, and they build expertise in their specialty area.
Work Environment
Financial analysts don’t just work with securities. They may be employed by companies to analyze other types of investment, such as real estate or marketing dollars. Analysts may even work for media or research companies. Rather than advising clients on profitable investments, these workers analyze trends and publish their findings or predictions.
Financial analysts typically work in an office environment, but some work remotely. The job can sometimes be high-stress, and analysts may work long hours to keep up with the latest information and fast-changing data.
Types of Financial Analysts
Several job titles fall under the financial analyst umbrella. Below we list a few examples.
- Financial risk analysts make investment decisions that limit potential losses.
- Ratings analysts assess whether companies (or governments) can pay their debts.
- Portfolio managers determine the mix of investments in their clients’ portfolios, and they answer to stakeholders.
- Fund managers—who work with hedge funds or mutual funds—and portfolio managers both make buy-and-sell decisions to maximize returns.
What Skills Do Financial Analysts Need?
Financial analysts should, of course, have analytical minds and be detail-oriented in their research. They need both strong math skills—specifically in statistics and probability—and computer literacy, as analysts use software to look at trends and make forecasts.
These professionals should also have a good grasp of economics and know how to read and interpret financial statements. Depending on their specialization, they may need to be familiar with field-specific legal and ethical requirements.
After conducting research, financial analysts need to make decisions. Their recommendations can affect a company’s longevity, so they must be thorough but decisive. Analysts have to communicate their choices clearly and effectively, often through reports or presentations.
How Much Does a Financial Analyst Make?
Becoming a financial analyst is a strong option for anyone seeking a higher-than-average paycheck. As of May 2022, the median annual wage for financial analysts was $96,220, according to the U.S. Bureau of Labor Statistics (BLS). In contrast, the median wage for all workers was $46,310.
Working as an analyst in the information services industry offers the most lucrative pay. These workers earn a mean annual salary of $148,040.
Job Outlook
The field is also growing at a steady pace. The BLS projects employment for financial and investment analysts to grow by 8% from 2022 to 2032, which is faster than the average projected growth for all jobs. This amounts to about 29,000 new financial analyst jobs by 2032.
As you may guess, increases in economic activity affect the demand for financial analysts. Expanding and emerging industries require the help of financial analysts to guide their growth.
Globalization is a factor as well. As more markets develop around the world, companies need analysts to advise on where to expand or invest. The BLS predicts that these investors will hire financial analysts who have a deep understanding of political, economic and cultural trends in the geographical areas at play.
Buy-Side Analysts vs. Sell-Side Analysts
Financial analysts—not including those who work for research and media companies—fall into two main categories: buy-side analysts and sell-side analysts.
Buy-Side
Buy-side analysts help companies choose where to invest. These companies, known as institutional investors, include pension funds, hedge funds, money managers and insurance companies. This category also encompasses nonprofit groups with endowments, which are large donations that have been invested to increase the original cash value.
Most financial analysts are on the buy side. While they don’t perform any stock transactions themselves, they advise companies on the most profitable investments. This may involve actual securities, real estate or even franchise opportunities. Employers may also have analysts look at their business practices, marketing spending or other returns on investment.
Sell-Side
Sell-side analysts, on the other hand, advise agents who sell securities or other investments. This is a much narrower field than the buy side. Research analysts, for example, analyze companies’ financial data and create reports that recommend whether to buy, sell or hold those stocks. They also flag trends in individual stocks within fund portfolios.
As the CFA Institute notes, one of the pressures on sell-side analysts is that they are responsible for accurate stock ratings. Their findings are used by buy-side analysts to make decisions, and those ratings carry a lot of weight within the industry.
Note that financial analysts aren’t responsible for actually buying or selling any investments. Instead, these professionals must rely on strong data analysis and communication skills to persuade stakeholders to carry out their recommendations.
Other Financial Analysts
Instead of focusing on either the buy side or the sell side exclusively, some financial analysts take a wider view of a company’s financial health and overall business performance. These Financial Planning and Analysis (FP&A) professionals typically work for corporations and help their employers create long-range financial plans that support the company’s overall goals and strategy.
Certified Internal Auditor and Certified Fraud Examiner Keith Duff notes that FP&A financial analysts “are typically responsible for creating budgets and forecasts for the corporation, analyzing budget vs. actual variances and conducting other analyses which support the decision-making of the corporation.”
How To Become a Financial Analyst
Below we explore the steps required to become a financial analyst.
Financial Analyst Education Requirements
Most firms require candidates to have at least a bachelor’s degree. The CFA Institute recommends a finance-related major such as a bachelor’s degree in finance, accounting, statistics, economics or general business.
While most employers don’t require a master’s degree, this advanced degree may help analysts move up to the next stage of their careers. With a proven track record, a financial analyst can advance to a role as a portfolio manager or a fund manager for wealthy individual investors. An M.B.A. can demonstrate an analyst’s communication and business knowledge.
Financial Analyst Certification
Entry-level licenses for financial analysts are available from the Financial Industry Regulatory Authority (FINRA). FINRA regulates the securities industry and offers dozens of exams for various job types. Most of these exams require employer sponsorship.
In most cases, financial analysts must pass the Securities Industry Essentials® exam, which covers basic information about the industry. General securities representatives must pass the Series 7 exam.
After gaining some work experience, analysts may pursue the Chartered Financial Analyst (CFA) charter, administered by the CFA Institute.
CFA candidates must have a bachelor’s degree or be within 11 months of completing one. If not, they should have a significant amount of work and/or higher education experience over at least three years. They also need an international passport, two to three professional references and 4,000 hours of qualifying work experience.
Take note that the CFA charter isn’t an easy course—it requires more than 900 hours of individual study on top of professional work hours. Prospective CFAs must also complete three levels of exams before they can apply to become charterholders.
Frequently Asked Questions (FAQs) About Financial Analysts
What are the top three skills for a financial analyst?
Financial analysts must be detail-oriented and analytical because each recommendation can have a significant impact on their employer or the market as a whole. They also need math and computer skills to help them synthesize data and come to conclusions. Communication skills are just as important.
What qualifications do I need to be a financial analyst?
To become a financial analyst, you should earn a bachelor’s degree in a subject related to finance, such as business, economics or statistics. Once hired, you will probably need to pass qualification exams through FINRA to begin practicing.
Is a financial analyst the same as an accountant?
No. Both roles deal with finances, but in very different ways. Accountants typically focus on recording financial data, which they then compile and report in financial statements. Financial analysts, on the other hand, analyze these statements in the context of overall economic trends to make recommendations for the most profitable investments.
How long does it take to become a financial analyst?
You can become a financial analyst within four years, or the time it takes you to earn a bachelor’s degree. Depending on the type of work you plan to do, it may take additional time to earn licensure through FINRA as well.
