In the financial services industry, one of the most coveted careers is that of the Financial Analyst. Financial Analysts or Financial Research Analysts as they are sometimes called 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, there are certain things you need to know to groom yourself for the job.
What Financial Analysts Do? :
Financial Analysts conduct quantitative analyses of information affecting investment programs of public or private institutions. They assess the performance of stocks, bonds, and other types of investments. Thus they provide guidance to businesses and individuals making investment decisions.
Financial Analysts typically do the following:
- Recommend individual investments and collections of investments, which are known as portfolios
- Evaluate current and historical data
- Study economic and business trends
- Study a company’s financial statements to determine its value
- Meet with company officials to gain better insight into the company’s prospects and management
- Prepare written reports
- Meet with investors to explain recommendations
In a nutshell we can say that Financial Analysts evaluate investment opportunities. They work in banks, pension funds, mutual funds, securities firms, insurance companies, and other businesses. They are also called securities analysts and investment analysts.
Types of Financial Analysts
There are several different kinds of financial analysts. Some are called investment analysts. They can function internally to a company representing the buy-side (These could be investment banking analysts, or analysts for mutual funds). They could also be sell side analysts, Who are specialists in their given sector or area of expertise. These are the people write most of your analyst reports you read in the popular financial media.
Financial Analysts normally deal with financial planning and analysis, or FP&A (Forecasting, cost structures, and capital budgeting for projects.) Investment analysts come from an economics or finance background usually, and financial analysts come from a strong accounting background.
Financial analysts can be divided into two categories:
1. BUY-SIDE ANALYSTS
2. SELL-SIDE ANALYSTS
Buy-Side Financial Analysts develop investment strategies for companies that have a lot of money to invest. These companies, called institutional investors, include mutual funds, hedge funds, insurance companies, independent money managers, and non-profit organizations with large endowments, such as some universities. So they work in helping “Buying Investments”
Sell-Side Financial Analysts advise financial services sales agents who sell stocks, bonds, and other investments. They help in pricing and selling Investments Your typical Investment Bankers fall in this category.
Some analysts work for the business media and belong to neither the buy side nor the sell side.
Financial Analysts generally focus on trends affecting a specific industry, geographical region, or type of product. For example, an analyst may focus on a subject area such as the energy industry, a world region such as Eastern Europe, or the foreign exchange market. They must understand how new regulations, policies, and political and economic trends may affect investments. Investing is becoming more global, and some financial analysts specialize in a particular country or region. Companies want those financial analysts to understand the language, culture, business environment, and political conditions in the country or region that they cover.
Typical Nomenclatures of Financial Analysts
- Portfolio Managers supervise a team of analysts and select the mix of products, industries, and regions for their company’s investment portfolio. These managers not only are responsible for the overall portfolio, but also are expected to explain investment decisions and strategies in meetings with investors.
- Fund Managers work exclusively with hedge funds or mutual funds. Both fund and portfolio managers frequently make split-second buy or sell decisions in reaction to quickly changing market conditions.
- 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 not being able to repay its bonds.
- Risk Analysts evaluate the risk in investment decisions and determine how to manage unpredictability and limit potential losses. This job is carried out by making investment decisions such as selecting dissimilar stocks or having a combination of stocks, bonds, and mutual funds in a portfolio.
Scenario of Financial Analysis
- According to US Department of Labour the Employment of financial analysts is projected to grow 16 percent YOY from 2012 to 2022, faster than the average for all occupations. A growing range of financial products and the need for in-depth knowledge of geographic regions are expected to lead to strong employment growth.
- Investment portfolios are becoming more complex, and there are more financial products available for trade. In addition, emerging markets throughout the world are providing new investment opportunities, which require expertise in geographic regions where those markets are located.
- The continued implementation of financial regulatory reform could constrict growth in the industry, as rule-making bodies place a greater emphasis on stability. Restrictions on trading by banks may shift employment of financial analysts from investment banks to hedge funds and private equity groups.
Despite employment growth, strong competition is expected for these high-paying jobs. Growth in financial services should create new positions, but there are still far more people who would like to enter the occupation than there are jobs in the occupation. Having certifications like Accredited Financial Analyst from a Global Body like American Academy of Financial Management USA and a graduate degree can significantly improve an applicant’s prospects.
How to Become a Financial Analyst?
Financial analysts typically must have a bachelor’s degree, but a master’s degree is often required for advanced positions.
Most positions require a bachelor’s degree. A number of fields of study provide appropriate preparation, including accounting, economics, finance, statistics, mathematics, and engineering. For advanced positions, employers often require a master’s in business administration (MBA) or a master’s degree in finance. Knowledge of options pricing, bond valuation, and risk management are important.
Licenses, Certifications, and Registrations
The Financial Industry Regulatory Authority (FINRA) is the main licensing organization for the securities industry in USA. It requires licenses for many financial analyst positions. Most of the licenses require sponsorship by an employer, so companies do not expect individuals to have these licenses before starting a job. In India there is no such Licensing Requirement as on Date but Certification is often recommended by employers and can improve the chances for advancement.
An example is the Accredited Financial Analyst (AFA) certification from the AAFM USA, which financial analysts can get if they have a bachelor’s degree, and pass two exams.
Financial analysts typically start by specializing in a specific investment field. As they gain experience, they can become portfolio managers, who supervise a team of analysts and select the mix of investments for the company’s portfolio. They can also become fund managers, who manage large investment portfolios for individual investors. A master’s degree in finance or business administration can improve an analyst’s chances of advancing to one of these positions.
- Analytical Skills. Financial analysts must process a range of information in finding profitable investments.
- Communication Skills. Financial analysts must explain their recommendations to clients in clear language that clients can easily understand.
- Computer Skills. Financial analysts must be adept at using software packages to analyze financial data, see trends, create portfolios, and make forecasts.
- Decision Making Skills. Financial analysts must provide a recommendation to buy, hold, or sell a security. Fund managers must make split-second trading decisions.
- Detail Oriented. Financial analysts must pay attention to details when reviewing possible investments, as small issues may have large implications for the health of an investment.
- Math Skills. Financial analysts use mathematical skills when estimating the value of financial securities.
To be successful, financial analysts must be motivated to seek out obscure information that may be important to the investment. Many work independently and must have self-confidence in their judgment.