Financial analysts can be divided into two categories: buy side analysts and sell side analysts. Analysts on the buy side work for companies that have a great deal of money to invest. These companies, called institutional investors, include mutual funds, hedge funds, insurance companies, independent money managers, and nonprofit organizations with large endowments. Buy side financial analysts devise investment strategies. Conversely, sell side analysts help securities dealers, such as banks and other firms, sell stocks, bonds, and other investments. The business media hire financial advisors that are supposed to be impartial, and occupy a role somewhere in the middle.
Financial analysts generally focus on trends impacting a specific industry, region, or type of product. For example, an analyst will focus on a subject area such as the utilities industry, an area such as Latin America, or the options market. Firms with larger research departments assign analysts even narrower subject areas. They must understand how new regulations, policies, and political and economic trends may impact the investments they are watching. Risk analysts evaluate the risk in portfolio decisions, project potential losses, and determine how to limit potential losses and volatility using diversification, currency futures, derivatives, short selling, and other investment decisions.
Some experienced analysts called portfolio managers supervise a team of analysts and select the mix of products, industries, and regions for their company’s investment portfolio. Hedge fund and mutual fund managers are called fund managers. Fund and portfolio managers frequently make split-second buy or sell decisions in reaction to quickly changing market conditions. These managers are not only responsible for the overall portfolio, but are also expected to explain investment decisions and strategies in meetings with investors.
Ratings 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 defaulting on its bonds. Other financial analysts perform budget, cost, and credit analysis as part of their responsibilities.
Financial analysts use spreadsheet and statistical software packages to analyze financial data, spot trends, create portfolios, and develop forecasts. Analysts also use the data they find to measure the financial risks associated with making a particular investment decision. On the basis of their results, they recommend whether to buy, hold, or sell particular investments.
Financial analysts held about 492,100 jobs in 2020. The largest employers of financial analysts were as follows:
- Securities, commodity contracts, and other financial investments and related activities - 18%
- Credit intermediation and related activities - 14%
- Professional, scientific, and technical services - 11%
- Management of companies and enterprises - 11%
- Insurance carriers and related activities - 7%
Financial analysts work primarily in offices but may travel to visit companies or clients.
Most financial analysts work full time and some work more than 40 hours per week.Education & Training Required
A bachelor's or graduate degree is required for financial analysts. Most companies require a bachelor’s degree in a related field, such as finance, business, accounting, statistics, or economics. An understanding of statistics, economics, and business is essential, and knowledge of accounting policies and procedures, corporate budgeting, and financial analysis methods is recommended. An MBA or a master's degree in finance is often required. Advanced courses or knowledge of options pricing, bond valuation, and risk management are important.Certifications Needed (Licensure)
The Financial Industry Regulatory Authority (FINRA) is the main licensing organization for the securities industry. Depending on an individual's work, different licenses may be required, although buy side analysts are less likely to need licenses. The majority of these licenses require sponsorship by an employer, so companies do not expect individuals to have these licenses before starting a job. Experienced workers who change jobs will need to have their licenses renewed with the new company.Other Skills Required (Other qualifications)
Strong math, analytical, and problem-solving skills are essential qualifications for financial analysts. Good communication skills are necessary because these workers must present complex financial concepts and strategies. Self-confidence, maturity, and the ability to work independently are important. Financial analysts must be detail-oriented, motivated to seek out obscure information, and familiar with the workings of the economy, tax laws, and money markets. Although much of the software they use is proprietary, financial analysts must be comfortable working with spreadsheets and statistical packages.
With the increasing global diversification of investments, companies are assigning more financial analysts to cover foreign markets. These analysts normally specialize in one country, such as Brazil, or one region, such as Latin America. Companies prefer financial analysts to have the international experience necessary to understand the language, culture, business environment, and political conditions in the country or region that they cover.