3/25/24, 3:06 PM How to Become a Financial Analyst

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How to Become a Financial Analyst

By TROY SEGAL Updated March 10, 2024

Reviewed by KATIE MILLER

Fact checked by SUZANNE KVILHAUG

What Is a Financial Analyst?

A financial analyst makes recommendations on prospective investments based
on an examination of the data about a company, an industry, or a sector. The
financial analyst may work for a bank, insurance company, real estate
investment brokerage, or other data-driven business.

A financial analyst researches macroeconomic and microeconomic conditions

along with company fundamentals to make a judgment about the potential
success of an investment. They recommend a course of action, such as buying
or selling stock, based on the past performance and future outlook of the
company that issues it.

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Financial analysts work in junior and senior capacities within a firm, and it is a
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niche that often leads to other career opportunities.

KEY TAKEAWAYS
A financial analyst pores over data to identify business opportunities or
make recommendations on proposed actions.
Junior analysts spend much of their time on data gathering, financial
modeling, and spreadsheet maintenance.
Senior analysts may spend time developing investment theses,
speaking with company management teams and other investors, and
marketing ideas.
A bachelor's degree in math or a finance-related major is commonly
sought.

Areas of Work
The financial analysts who are best known to the public evaluate individual
stocks and bonds and present their conclusions to prospective investors.
However, there are financial analysts at work in many other areas of business.

For example, businesses that use the franchise model often employ financial
analysts to track individual franchises or groups of franchises within a
geographic region. The analysts determine where the strengths and
weaknesses lie and make profit and loss forecasts.

An analyst must be aware of current developments in the field in which they

specialize and prepare financial models to predict future economic conditions
for any number of variables.

Required Skills and Education

The qualifications to become a financial analyst are less rigid and well-defined
than those of many high-paying careers. Unlike law and medicine, there are no

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standard educational requirements. Some roles require licenses but this varies
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among employers and specializations.

A bachelor's degree—preferably with a major in economics, finance, or statistics

—has become a de facto requirement for becoming a financial analyst. Other
majors that are looked upon favorably include accounting and math. Biology
and engineering degrees may interest an employer, especially if the applicant is
interested in specializing in those industries.

In this highly competitive job market, a master's degree gives an applicant a

boost.

A successful career as a financial analyst requires strong quantitative skills,

expert problem-solving abilities, adeptness in logic, and above-average
communication skills. Financial analysts have to crunch data, but they also
have to report their findings to their superiors clearly, concisely, and
persuasively.

FAST FACT
The big investment banks, where the huge first-year salaries are
paid, recruit almost exclusively out of MBA programs at elite
universities like Harvard and Princeton. These graduates are often
hired as associates right out of business school.

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Certification Exams to Take

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If you are not an MBA graduate student or an economics major as an
undergraduate, you may want to consider studying for and taking the Series
7 and Series 63 exams. The Series 7 exam will require sponsorship from
a FINRA member firm or a regulatory organization.

Completing the Series 7 and Series 63 exams can demonstrate a basic

familiarity with investment terms and accounting practices. You might also
consider a newer exam created by FINRA in 2018 called the Securities Industry
Essentials (SIE) exam.

Other more advanced certifications may be needed down the road when you're
already established in a junior analyst position.

Types of Analyst Positions

The field of financial analysis is broad, featuring a variety of job titles and career
paths. Within the financial/investment industry, the three major categories of
analysts are those who work for:

Buy-side firms (investment houses that manage their own funds)

Sell-side firms
Investment banks

Buy-Side Analysts
Most financial analysts work on what is known as the buy side. They help their
employers decide how to spend their money, whether that means investing in
stocks and other securities for an in-house fund, buying income properties (in
the case of a real estate investment firm), or allocating marketing dollars.

Some analysts perform their jobs not for a specific employer but for a third-
party company that provides financial and revenue analysis to its clients. This
shows the value of what a financial analyst does; an entire industry exists
around it.

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Buy-side financial analysts rarely have the final say in how their employers or
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clients spend their money. However, the trends they uncover and their forecasts
are invaluable in decision-making. With global financial markets evolving faster
than ever and regulatory environments changing seemingly daily, it stands to
reason that the demand for skilled buy-side financial analysts will only increase
in the future.

Sell-Side Analysts
At a sell-side firm, analysts evaluate and compare the quality of securities in a
given sector or industry. Based on this analysis, they then write research reports
with certain recommendations, such as "buy," "sell," "strong buy," "strong sell,"
or "hold."

They also track the stocks in a fund's portfolio to determine if and when
individual stocks should be sold. The recommendations of these research
analysts carry a great deal of weight in the investment industry, including for
people employed at buy-side firms.

Perhaps the most prestigious and highest-paid financial analyst job is that of a
sell-side analyst for a big investment bank. These analysts help banks price
their investment products and sell them in the marketplace. They compile data
on the bank's stocks and bonds and use quantitative analysis to project how
these securities will perform in the market. Based on this research, they make
buy and sell recommendations to the bank's clients, steering them into certain
securities from the bank's menu of products.

Even within these specialties, there are subspecialties: analysts who focus on
stocks or on fixed-income instruments. Many analysts specialize even further
within a specific sector or industry. An analyst may concentrate on energy or
technology, for example.

Investment Banking and Equity Analysts

Analysts in investment banking firms often play a role in determining whether
or not certain deals between companies, such as initial public offerings (IPOs)

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or mergers, and acquisitions (M&As), are feasible based on corporate

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fundamentals.

Analysts assess current financial conditions—relying heavily on modeling and

forecasting—to make recommendations as to whether a certain merger is
appropriate for that investment bank's client or whether a client should invest
venture capital in an enterprise.

Analysts who help make buy and sell decisions for big banks and who attempt
to identify IPO opportunities are called equity analysts. They help find
companies that present the most lucrative opportunities for ownership.

Typically, equity analysts are among the highest-paid professionals in the field
of financial analysis. This is partly a function of their employers; the big
investment banks use big salaries to lure the best talent.

Equity analysts often deal with huge sums of money. When they make a
winning prediction, the gain for the employer is often in the millions of dollars.
Equity analysts are handsomely compensated for their contributions.

Median Salary
Most financial analysts make significantly less than those in other professions in
the finance industry, particularly in New York City. However, the median annual
income for an entry-level financial analyst is significantly higher than the
median annual income for a full-time wage or salary worker in the United States
overall.

In the fourth quarter of 2023, according to the U.S. Bureau of Labor Statistics
(BLS), the average weekly income for a full-time wage or salary worker in the
U.S. was $1,145. This translates to a yearly income of about $59,540. [1]

Compare that to the median annual income for financial analysts across all
experience levels in 2022 (the latest data available) was $96,220 per year. [2]

Granted, It's not unusual for an analyst to work 80 or more hours per week.

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Financial Analyst Job Outlook

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Employment-wise, the outlook is good for the financial analyst profession.
While it's a competitive field, in 2022 there were around 376,100 total jobs in
this field, according to the latest available BLS statistics. The profession is
expected to grow about 8% in the decade between 2022-2032. [3]

The BLS notes:

Demand for financial analysts tends to grow with overall economic

activity. Financial analysts will be needed to evaluate investment
opportunities when new businesses are established or existing
businesses expand. In addition, emerging markets throughout the
world are providing new investment opportunities, which require
expertise in geographic regions where those markets are located. [3]

What to Expect on the Job

Financial analysts need to remain vigilant about gathering information on the
macroeconomic level, as well as gathering information about specific
companies and assessing their financial fundamentals via company balance
sheets.

Analysts must do a lot of reading on their own time. They tend to peruse The
Wall Street Journal, The Financial Times, and The Economist, as well as
financial websites.

Being an analyst also often involves a significant amount of travel. Some

analysts visit companies to get a first-hand look at operations on the ground
level. Analysts frequently attend conferences with colleagues who share the
same specialty.

When in the office, analysts need to be proficient with spreadsheets, relational

databases, and statistical and graphics packages. They use these tools to
develop recommendations for senior management and to produce detailed
presentations and financial reports that include forecasting, cost-benefit
analysis, and trend analysis.

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Analysts also interpret financial transactions and must verify documents for
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their compliance with government regulations. An understanding of these laws
and regulations is key for those working with the Securities and Exchange
Commission (SEC),

Opportunities for Advancement

In terms of interoffice protocol, analysts usually interact with one another as
colleagues, while also reporting to a portfolio manager or other more senior
management role.

A junior analyst may work their way up to senior analyst in three to five years.
For senior analysts who continue to look for career advancement, there is the
potential to become a portfolio manager, a partner in an investment bank, or a
senior manager in a retail bank or insurance company.

Some analysts go on to become investment advisors or financial consultants.

Skill Set for Success

The most successful junior analysts are those who are proficient in the use of
spreadsheets, databases, and PowerPoint presentations and learn other
software applications.

Most successful senior analysts have developed interpersonal relationships

with superiors and are available to mentor junior analysts.

Analysts must also develop communication and people skills by crafting written
and oral presentations that impress senior management.

What Is the Job Outlook for a Financial Analyst?

According to U.S. government estimates, employment of financial analysts is
projected to grow 8% from 2022 to 2032 (faster than the average for all
occupations), with 27,400 new job openings per year in that period.

Many of those openings are expected to result from the need to replace workers
who transfer to different occupations or retire. [3]
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What's the Difference Between a Financial Analyst and an

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Equity Research Analyst?
Financial analysts look at market trends to help with investment decisions or
examine the financial statements of companies to identify an investment's
potential.

An equity research analyst looks closely at a company's financial information,

examining, interpreting, and reporting on the data collected to come up with a
price target for a stock.

What Type of Education Do I Need to Become a Financial

Analyst?
According to the BLS, a majority of financial analysts hold a bachelor's degree in
a field related to finance, including finance and accounting, economics,
statistics, analytics, business management, or mathematics. [2]

The Bottom Line

A career as a financial analyst requires preparation and hard work. It also has
the potential to deliver not just financial rewards but the genuine satisfaction
that comes from being an integral part of the business landscape.

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