What is a financial analyst?
Financial analysis forms part of financial management and planning. It’s crucial to an organization’s or individual’s long-term economic performance, projections, budgets, business models, and decisions. As a key process, it entails sifting through data to evaluate outcomes, identify investment opportunities, and make forecasts. Professionals in this niche typically analyze data from:
- Particular industries and sectors
- Macroeconomic and microeconomic factors
- Stocks and bonds developments
- Tax and regulatory controls
Are you a critical thinker who enjoys crunching numbers, has a keen eye for detail, strong communication skills, and a penchant for problem-solving? If so, then a career in financial analysis may be an excellent option for you. While it’s an inherently competitive industry, the Bureau of Labor Statistics (BLS) predicts employment will increase by 5% between 2019 and 2029. That’s faster than the average occupation.
This demand is attributed to economic growth and an expanding range of financial products. Furthermore, as emerging markets present new investment opportunities worldwide, experts with in-depth knowledge of specific geographic regions are required. Technological advancements that allow for wider sets of data and more sophisticated analysis tools are also factors.
The role of a financial analyst
Financial analysts play a vital role in the strategic planning of a company, investment firm, bank, institution, or organization. They help executives make informed and data-driven business decisions. With the help of statistical software and data management tools, these professionals are typically responsible for:
- Analyzing financial statements
- Tracking financial performance
- Revenue and expenditure forecasts
- Capital structure modeling
Additionally, financial analysts may be required to collate market trends and company data to identify variances and their causes. Other general duties can include:
- Tracking and analysis of operational metrics
- Financial performance reporting
- Comparative, risk, and cost analysis
- Comparable company analysis (“comps”)
- Data mining, valuation comps, and portfolio creation
- Financial analysis process and policy development
- Developing reporting tools and dashboards
- Analysis standards
- Market trends research
Financial analyst vs. accountant
Although an accountant’s and a financial analyst’s responsibilities overlap at times, there are crucial differences to keep in mind. The former is concerned with a company’s day-to-day financial data and the finer details thereof. In contrast, the latter focuses on historical and current market trends to determine prospects and an organization’s future position.
As previously mentioned, financial analysts pore over data to help guide major business decisions. They’re generally concerned with long-term performance. As such, they’re typically tasked with analyzing financial data and economic factors to:
- Make predictions
- Review spending
- Set budgets
- Identify or evaluate investment opportunities
While accountants may analyze current financial data, they spend the majority of their time reviewing past financial records. Business transactions and company accounts usually form part of their analysis. They may also be responsible for:
- Compiling financial reports
What qualifications are required?
For an entry-level position such as a junior accountant, employers may accept applicants with a bachelor’s degree in economics, business, or finance. However, the majority typically require candidates to have their bachelor’s strictly in accounting. Conversely, an undergraduate degree in any finance-related field is usually accepted for a junior financial analyst position.
As such, staff accountants, for example, could switch careers and pursue a financial analyst position with their bachelor’s degree in accounting. That being said, a master’s degree in business administration is often required for both accountants and financial analysts seeking to advance their careers. In some cases, it may be a prerequisite for entry-level positions.
Additionally, professionals in both fields may require certification, depending on the specific position they hold. For accountants, the most widely recognized designation is the Certified Public Accountant (CPA) awarded by the American Institute of Certified Public Accountants (AICPA).
This certification allows accountants to file tax returns and legally work with the public. Similarly, the CFA Institute awards the Chartered Financial Analyst® designation, recognized worldwide. While not legally required for practice, the CFA and other certifications demonstrate advanced knowledge and aptitude for senior-level positions. Furthermore, financial analysts who buy and sell securities are generally required to be licensed by the Financial Industry Regulatory Authority (FINRA).
Online or on campus
While many students opt to study on-campus, others choose to earn their degrees online. The former is usually ideal for individuals who can pursue their degrees full-time.
The latter may be suitable for those studying part-time, as online programs tend to be more convenient and flexible. Hybrid degree programs usually combine online and on-campus learning. They’re ideal for students who want the benefit of both in-class lessons and online study.
Another noticeable difference between a financial analyst and an accountant is the average salary. According to the BLS’s latest available data, accountants earned a median annual wage of $71,550 in 2019. It’s slightly lower than the median salary for financial analysts in the same year, at $81,590. However, 10% of the highest earners in both professions took home a median annual wage of $124,450 and $156,150, respectively.
Choosing the right career path
If you enjoy documenting a wealth of financial information, crunching the numbers for accuracy, auditing, and tax preparation, then accounting may be a suitable career path. However, if you prefer analyzing data to assist in the decision-making process for businesses, then a financial analyst career could be ideal.
How to become a financial analyst
If you’re considering a career as a financial analyst, you’ll need to be aware of the required qualifications and preferred skills.
Financial analysts should possess a range of skills. Critical thinking is required to draw conclusions from vague or complex sets of data. Strong business acumen and the ability to grasp mathematical concepts are also essential.
Additionally, financial analysts must be confident in their recommendations and able to condense intricate metrics into concise reports to back up their decisions. For this reason, advanced written and oral communication skills are crucial.
Earn your bachelor’s degree
After completing your high school diploma or GED, the next step to becoming a financial analyst is to earn your 4-year bachelor’s degree from an accredited educational institution. Admission requirements typically include a minimum GPA of 2.0, official transcripts, and a completed application.
Employers generally accept junior-position candidates with undergraduate degrees in finance, economics, and accounting. Mathematics, statistics, and engineering are also common undergrad subjects among financial analysts.
However, coursework in business-related fields like finance or accounting is still recommended for applicants with these majors. The following concentrations can also be beneficial:
- Corporate budgeting
- Financial analysis methods
- Bond valuation
- Risk management
- Options pricing
Pursue an internship
While it’s not mandatory, completing an internship can be advantageous. With the highly competitive nature of the financial services industry, having practical experience enhances your resume.
An internship is an excellent opportunity to network with other financial analysts, learn about their day-to-day activities, and perhaps even find a mentor. It gives you a real-life snapshot of what you can expect from this career. Private institutions, banks, and other corporate entities may have internship programs for undergraduate students.
Finding your first job as a financial analyst
Once you’ve earned your bachelor’s degree and completed an internship if desired, you can start applying for entry-level or junior positions. These may include:
- Financial analyst
- Financial reporting analyst
- Pricing analyst
- Corporate financial analyst
- Investment analyst
While the specific functions depend on the employer and vary from sector to sector, junior financial analysts are typically tasked with:
- Data entry and financial report preparation
- Forecast modeling
- Financial performance analysis
- Risk assessment
- Budget and cost analysis
- Interpreting financial data
- Income statement analysis
Junior financial analysts may also work under their senior counterparts, assisting them with more advanced tasks. Although it’s possible for entry-level financial analysts to climb the career ladder without further education, this is usually required for professional progression.
Licenses and certifications
As mentioned, some financial analyst positions may require licensing by the Financial Industry Regulatory Authority (FINRA). It’s an independent organization that regulates and enforces rules for security and broker firms in the U.S.
Financial analysts in the securities sector must be a General Securities Representative registered by FINRA to sell stocks and bonds, variable annuities, municipal bonds, mortgage obligations, and more.
Licensure requirements include passing the Securities Industry Essentials® (SIE®) Exam and the Series 7 Exam. To be eligible, candidates need to be associated with and sponsored by a FINRA member firm or another self-regulatory organization (SRO) member firm.
The Chartered Financial Analyst® (CFA) designation offered by the CFA Institute, while not mandatory, comes with rigorous requirements and takes at least 19 months of self-study. Besides holding a bachelor’s degree and having 4,000 hours of relevant work experience, candidates must also pass Level I, Level II, and Level III exams to become CFA charter holders. It’s a highly sought-after designation among financial analysts who want to expand their professional growth and may be required for some senior-level positions.
Advance your career with a master’s degree
Earning a Master of Business (MBA) degree is the next logical step that many financial analysts take to advance their careers and bolster their earning potential. The average base salary of an MBA holder is $89,331. Some graduate schools may even offer specialized concentrations for students planning to complete the CFA exams.
An MBA degree typically consists of 60 credits hours, amounting to 2 years of full-time study, but it could be longer depending on your chosen program. You can also find more flexible part-time or accelerated options. Alternatively, students can pursue a Master of Finance (M.Fin.) or a dual degree, which combines an MBA with a Master of Science (M.S.) degree.
An MBA or master’s degree is a common prerequisite for senior financial analyst positions and other leadership roles in the field. It equips students with advanced skills and knowledge needed to fulfill portfolio, corporate, and other managerial positions. Coursework may include:
- Hedge fund and portfolio management
- Investments and securities analysis
- Macroeconomics and microeconomics
- Corporate finance
- Quantitative analysis methods
- Strategic leadership
Admission requirements typically include a bachelor’s degree, a minimum GPA of 3.0, a personal statement, letters of recommendation, official transcripts, and GRE/GMAT scores.
Professionals who wish to enter into advanced research or academic roles in financial analysis may choose to earn their Ph.D. in:
- Financial engineering
- Hard sciences
These programs can take anything between 4 and 8 years and usually require students to hold a master’s, undertake original research, and submit and defend a dissertation.
High-level professionals in investment banks, corporate organizations, and financial services firms may benefit from a doctoral degree where applied research and analysis are at the forefront of their roles.
According to the latest Trends in College Pricing and Student Aid Report, tuition and fees per academic year for:
- A bachelor’s degree costs $8,760 at a public 4-year institution and $37,500 at a private nonprofit 4-year institution
- A master’s degree costs $8,950 at a public 4-year institution and $29,670 at a private nonprofit 4-year institution
- A doctoral degree costs $11,440 at a public 4-year institution and $44,910 at a private nonprofit 4-year institution
While online and hybrid degree program costs vary, they may be more affordable than their traditional on-campus counterparts.
Earning a degree from an accredited and reputable school is essential, especially in the competitive financial services industry. The Council for Higher Education Accreditation (CHEA) reviews and recognizes accrediting organizations that meet its high-quality standards. CHEA-approved accreditors in business and accounting include:
Educational, corporate, and federal organizations may offer students financial aid in various forms, including:
Federal or private loans
Loan forgiveness programs
The competitive nature of the financial services industry means many business schools and private companies assist students with their tuition fees. Therefore, it’s wise to determine whether your chosen school or current employer offers any financial aid initiatives.
You can also complete the Free Application for Federal Student Aid to see whether you’re eligible to receive a government-sponsored grant or loan or participate in a work-study program. The U.S. Department of Education website has more information.
Possible career pathways
Financial analysts can work in various settings, including investment, local, or regional banks, brokerage firms, insurance companies, and data-driven companies. Here are a few potential career options.
These analysts typically specialize in a particular sector. They identify investment opportunities and make recommendations for the sole benefit of a fund. Their employers usually include institutional investors such as pension, hedge, fund, or mutual fund entities.
Average salary per year: $108,519
Sell-side analysts are usually employed by brokerage firms to make recommendations to the firm’s various clients on whether to trade stocks. They often use the coined terms – sell, neutral, outperform, or strong buy.
Average salary per year: $100,249
Portfolio managers handle groups of investments and assets. They manage investment funds according to a financial strategy, making adjustments to improve performance in the marketplace. They often use analyses to identify investment potential, make recommendations, and recapitalize revenue that aligns with long-term financial goals.
Average base salary per year: $86,899
Risk management analyst
In financial institutions, these analysts evaluate investment strategies and financial products to determine risk factors, worst-, and best-case scenarios. They’re typically tasked with generating reports that determine financial exposure. This is usually done against expected returns of investments of specific products or strategies.
At non-financial companies, a risk management analyst generally determines ways to contain costs relating to insurance claims of their employer. They’re more concerned with overall reporting procedures and claims processes to identify trends, make recommendations, and adjust strategies accordingly.
Average base salary per year: $70,290
Equity analysts track real estate, stocks, or other investment data of a company. They typically identify market trends and present reports to management. They may also be responsible for overseeing and ensuring that private, pension, or other funds investments perform as expected.
Average base salary per year: $81,718