A financial analyst is a finance professional who guides business and economic decisions. Some financial analysts work at investment banks, facilitating large transactions between corporations. Others may focus on tracking the performance of a product or service and making recommendations to improve profits.
In this guide, we’ll go over:
- What Is a Financial Analyst?
- Types of Financial Analysts
- Financial Analyst Salaries
- How to Become a Financial Analyst
- Skills for Financial Analysts
Find your career fit
Discover if this is the right career path for you with a free virtual work experience.
What Is a Financial Analyst?
In general, a financial analyst analyzes finances, but they use this analysis to help clients and companies decide how to spend money to boost profits. For example, some analysts may help clients sell stocks and bonds to increase capital, while others may facilitate initial public offerings (IPOs) or mergers and acquisitions (M&A).
Not every financial analyst works with stocks or acquisitions, though. In fact, virtually every aspect of the global economy requires financial analysts to gather, organize, analyze, and present information. For example, an analyst may focus on tracking the performance of a company’s product in one specific market. The analyst then can make models for what might happen if the company changes different aspects of its business approach.
Ultimately, analysts help individuals, companies, and organizations figure out what can happen if they spend or use money in specific ways and the best possible outcomes.
Common Responsibilities of Financial Analysts
Some common responsibilities are:
- Gather, organize, and analyze data: This includes financial statements, historical financial trends, stock trading details, and the performance of similar-sized companies in the same industry.
- Make forecasts: Forecasting finances is where analysts become more like psychics than businesspeople. Using past and current data, analysts predict what could happen based on specific variables.
- Build models: Analysts create models to help predict future financial performance. For example, using Excel, an analyst may build a discounted cash flow (DCF) model to see how profitable an investment might be in the future.
- Present information: Typically using slideshows (also called decks) and reports, analysts need to communicate their findings to higher-ups and clients in a concise manner.
- Maintain relationships: Internally, analysts need to maintain strong relationships with their coworkers and with other departments so the collection of data can be a smooth process. Some analysts may need to maintain relationships with external clients, too.
>>MORE: Learn more about being a full-time analyst with the JPMorgan Chase & Co. Corporate Analyst Development Virtual Experience Program.
Where Do Financial Analysts Work?
Most analysts either work on the buy side or sell side of corporate finance:
Buy SideSell SideFocuses on guiding clients’ investing decisions — the clients have cash available to buy into investing options, like purchasing stocks or acquiring other companies. These clients include hedge funds, private equity firms, mutual funds, pension funds, and insurance companies. Focuses on selling investments, like stocks and bonds. These analysts typically work in investment banks, private corporations, and brokerage firms. Analysts then sell these securities (stocks and bonds) to buy side organizations, like mutual hedge funds.
Financial analysts may also work for government agencies and private corporations. It’s also possible for analysts to specialize in certain areas like real estate, commodities, risk assessment, and foreign exchange currencies.
Types of Financial Analysts
Financial Planning Analyst
A financial planning analyst is responsible for budgets and forecasting. This type of analyst may make models to predict how key performance indicators (KPIs) may change based on changes to the organization’s budget and spending habits.
Investment Banking Analyst
An investment banking analyst facilitates transactions between large corporations, such as mergers. Analysts at investment banks may also work with client companies to source funding for long-term projects and bring private companies onto the public stock exchange through initial public offerings (IPOs).
Private Equity Analyst
Private equity analysts work within private equity firms researching companies that are not publicly traded. Analysts in these firms assist in buyouts (purchasing a company outright) and venture capital investments.
A ratings analyst typically works in insurance or lending, assessing the credit ratings of various companies and organizations. These analysts are responsible for determining the financial stability of companies and figuring out how likely a company is to repay its debts.
Research analysts have a broad job description. Some research analysts focus on disseminating information to colleagues regarding market trends, historical performance of companies of interest, and important micro- and macroeconomic events that are affecting the markets. Other research analysts may have roles more closely related to investment banking analysts and private equity analysts — doing the research but also assisting in the execution of decisions based on the research.
Risk analysts look at what risks are involved in various aspects of business and investing. This includes calculating risks that exist in the market, chances of return on investment, broad economic shifts that could create future risky situations, and the potential risk involved with business decisions like mergers and acquisitions.
Quantitative analysts deal with the technical aspects of financial analysis. A quantitative analyst may build an algorithm to help their company or bank make faster trades on the public exchange market. On the other hand, a quantitative analyst might focus on pricing stocks and bonds based on vast amounts of risk data and historical trends.
>>MORE: Determine if finance is the right career path for you.
Financial Analyst Salaries
The average salary for financial and investment analysts at all experience levels was $103,020 in 2021, according to the U.S. Bureau of Labor Statistics (BLS). However, analysts working in securities averaged annual wages of $124,020, and those working in the insurance industry saw average salaries of $102,170. Ultimately, experience level and industry are key factors in how much an analyst can make.
Even more important, though, is where the analysts work. At the big investment banks on Wall Street, even analysts just beginning their careers may see big paychecks. In 2021, CNBC reported that Goldman raised first-year analyst base salaries to $110,000, while rival investment banks offer $100,000 base salaries. Those base salaries also don’t include the other forms of compensation these banks typically provide. An investment banker’s salary may also include starting bonuses, performance bonuses, commission, and profit sharing.
>>MORE: Check out some of the best-paying finance career options.
How to Become a Financial Analyst
For those interested in becoming a financial analyst, what degree provides the best chances of success? Unfortunately, there isn’t a simple answer. While finance, economics, and statistics degrees can give analysts a good foundation to work from, a degree in accounting or business can equip analysts with different skills to bring to the table. Additionally, specialized degrees in areas of interest can give analysts a way into more specialized roles.
Many analysts also choose to get an MBA at some point in their careers. Having an MBA can open more opportunities for advancement within financial institutions. Some may even get a Ph.D. in finance, statistics, or economics to make themselves more marketable.
The chartered financial analyst (CFA) designation from the CFA Institute is the most highly sought-after certification for financial analysts. However, this charter isn’t required, and there are many other certification options available for prospective and current analysts. Some of the most common certifications include:
- Certified management accountant (CMA): Shows the analyst has a strong understanding of accounting principles and can apply that knowledge to corporate strategy and budgeting
- Financial risk manager (FRM): Displays high-level knowledge of risk analysis, credit and market risk, investment management, and creation of risk models
- Certified financial planner (CFP): Signifies the analyst is skilled at giving financial advice to clients in a holistic and ethical manner
- Certified fund specialist (CFS): Proves working knowledge of mutual funds, fund analysis, and portfolio management
- Certified government financial manager (CGFM): Denotes competency in governmental accounting, financial reporting, and managing budgets for local, state, and federal government agencies
- Certified international investment analyst (CIIA): Broadly recognized certification in Europe and Asia that shows the analyst understands corporate finance, fixed income and equities, portfolio management, market structures, and ethics
Licenses and Registrations
Analysts who work directly with buying and selling securities must pass exams and obtain licensure with the Financial Industry Regulatory Authority (FINRA). These exams focus on the regulatory structures of securities markets and ensure only qualified analysts and securities brokers are active. The FINRA exams most commonly taken by financial analysts include:
- Securities industry essentials (SIE) exam: This introductory exam for prospective traders and analysts focuses on fundamental information like the structure of the markets, regulatory agencies, and industry ethics. This exam is often a prerequisite for other tests.
- Series 7 exam: Also called the General Securities Representative exam, this test is the base-level test for registering with FINRA and becoming licensed to work with public markets.
- Series 79 exam: This is a specialized exam for investment banking activities, including issuing debt, facilitating mergers, and handling corporate restructuring.
- Series 86 & 87 exams: As specialized exams for research analysts, these cover the analysis and reporting of equity securities and industry research.
At a certain point, analysts may need to register with the U.S. Securities and Exchange Commission (SEC). However, this is typically for analysts who’ve become advisors and have more than $100 million in assets under their control.
>>MORE: Explore what working in securities analysis is like with Citi’s Sales and Trading Virtual Experience Program.
Skills for Financial Analysts
Besides degrees, certifications, and licensing, what ultimately matters most is analysts’ skills. Analysts need to have the quantitative and analytical skills necessary to do the job. Some of the most valuable skills every type of financial analyst can possess include:
- Understanding the equity and debt capital markets
- Familiarity with financial models like the capital asset pricing model (CAPM)
- Knowledge of specific performance metrics, such as the price-to-earnings ratio
- A general idea of different business valuation approaches
Kick-start your finance career using Forage’s free finance virtual experience programs.
Image credit: Canva