If you’re looking for a career with plenty of earning potential and the complexity to challenge you mentally, financial analyst may fit the bill. In settings like an investment bank, financial analysts analyze data to understand financial risk and make investment recommendations that help their employer or corporate clients grow their wealth. Required skills for a financial analyst career include interpreting financial statements, using statistical analysis and financial modeling software programs and developing a strong understanding of financial risk and investment types for the purpose of making data-informed recommendations about managing money.
If you want to become a financial analyst, you’re going to need a college education. A bachelor’s degree in finance or a finance-related major is the minimum level of education needed for a financial analyst career.
What Do Financial Analysts Do?
At its simplest, the financial analyst career is exactly what it sounds like: the analyzing of financial data, or data pertaining to the management of money and wealth. Financial analysts spend their working days trying to predict future economic conditions so that they can recommend or select the investment opportunities that are statistically likely to demonstrate the best financial performance.
Naturally, financial analysts need excellent analytical skills and math skills to assess market trends and calculate financial forecasts that investment firms, funds and individual investors can use to make informed decisions about investment choices. Financial analysts tend to possess excellent computer skills – required for running statistical analysis and financial modeling software – and strong decision-making skills, as well. Not all of the important skills for a financial analyst career are technical in nature. The best financial analysts also have strong communication skills that help them when preparing written reports of their analyses or discussing their recommendations with company leaders, stakeholders and clients.
Financial analysts often are responsible for making investment decisions on their own based on the financial reports their analyses produce. Some financial analysts sell financial products themselves, while others only identify whether to buy and sell different products.
Where do Financial Analysts Work?
Investment houses, real estate investment brokerages, pension funds, local and regional banks and other companies working in the financial industry are just a few of the possible fields where a financial analyst may find job opportunities. Employment in financial analyst positions is more varied than you might expect.
The securities, commodity contracts and financial investments industry is, predictably, the largest industry of employment for financial analysts – but this industry still only accounts for about 18 percent of the workforce, according to the United States Bureau of Labor Statistics (BLS).
The next largest industry of employment, credit intermediation, employs 14% of the financial analyst field. Financial analysts in the professional, scientific and technical services industry make up 11% of the occupation, as do those working for the management of companies and enterprises industry. Another 7% of financial analysts work for insurance carriers.
All told, the top five largest employment industries for financial analysts make up just 61% of the occupation – less than two-thirds of the workforce. This figure shows that many financial analysts work in industries outside of the ones you would most expect. Surprisingly, companies in the information services industry, the water and sewage systems industry, the petroleum and coal products manufacturing industry and the pipeline transportation of crude oil industry also employ financial analysts.
Financial Analyst Salary and Job Outlook
Perhaps even more surprisingly, these unexpected industries are some of the industries that pay the most when they hire financial analysts, according to the BLS. The mean annual salary for financial analysts working in “other information services” was $126,240 in 2021. Financial analysts earn an average salary of $124,320 working in the water, sewage and other systems industry. Financial analysts in the petroleum and coal products manufacturing industry reported a mean salary of $122,070, and those in the pipeline transportation of crude oil industry earned an average yearly salary of $121,210.
The overall median annual salary that the BLS reports for financial analysts in 2021 was $81,410, with the securities, commodity contracts and financial investments industry paying a median salary of $100,790. That said, financial analysis is one career field where a master’s degree can make a big difference in earning potential. Historically, the BLS has reported that holding a master’s degree has provided securities, commodities and financial services sales agents a with a wage premium of as much as 89%, putting the median annual salary for this role well into the six-figure range once an advanced degree becomes part of the equation.
What can students who are pursuing a career as a financial analyst today expect in terms of the job market? The BLS reported the financial analyst job outlook as being on par with the average job growth rate expected across all occupations between 2020 and 2030. Under the 6% rate of job growth currently predicted for financial analysts, the occupation would grow by 31,300 job openings by 2030, rising from 492,100 to 523,400 American workers.
For just about any financial analyst position, you’re going to need a solid understanding of the different types of investment opportunities and financial markets. Everyone has heard of stocks and bonds, but someone working in a financial analyst career must know all about the more obscure types of investments, including securities, derivatives and money market instruments.
Success in investing takes more than a basic knowledge of what these types of investments are. It’s critical that financial analysts understand how these investment markets perform under different conditions. Otherwise, they will have a hard time predicting economic trends and selecting the investment types and timing that make for the best financial returns.
Types of Financial Analysts
The term “finance analyst” may sound pretty specific, but in fact, it can refer to any of the roles in the finance sector that revolves around work in data analysis. This is a surprisingly broad occupation that can encompass careers that focus on risk management, portfolio management, investment decisions and more.
Some of the distinct jobs that make up the financial analyst occupation, according to the Bureau of Labor Statistics, include fund manager, portfolio manager, investment analyst, financial risk analyst, securities analyst and ratings analyst.
Pooled funds from multiple individuals allow for more investment opportunities. Fund managers are financial analysts who exclusively manage pooled funds, deciding based on market conditions whether to buy or sell stocks to achieve the best returns for their investors. A fund manager may oversee the investments of a hedge fund or a mutual fund.
A hedge fund is a private investment that typically deals in liquid assets, often with the use of complex – and sometimes riskier – investment strategies. Mutual fund companies, on the other hand, offer opportunities for continuous investments to the public.
Because the money in these funds is pooled from a large number of investors, they are very large funds. For example, the largest mutual fund as of March 2022, BlackRock, was worth more than $10 trillion, according to Statista. The second-largest mutual fund, Vanguard, had a value of $8.1 trillion and the third-largest fund, Charles Schwab, was worth more than $7.98 trillion.
Hedge funds and mutual funds are far from the only financial collections of wealth and investments that need to be professionally managed to achieve the best returns. Portfolio managers are responsible for the investments made on behalf of their company, rather than a group of investors pooling their money together. Portfolio managers often work for banks, wealth management firms, insurance companies and foundations, among other types of companies.
Managing companies’ investment portfolios means choosing the right types of investments – and the optimal combination of different types of investments – to achieve the desired goals based on stakeholders’ level of risk tolerance. In selecting the investments to make, portfolio managers take responsibility for the performance of the company’s investments.
Although there’s no foolproof way for even the most experienced financial analyst to predict every up and down of the market, portfolio managers should use methodological analysis of quantitative data to make investment decisions – not hunches or gut instinct. Financial analysts who work in portfolio management roles should also be prepared to explain those decisions to company leaders and stakeholders.
The main focus of an investment analyst is to evaluate information that has to do with investment programs and how assets are allocated or with the valuation of a business’s financial data.
Financial Risk Analyst
All financial analysts deal with financial risk to some extent, but financial risk analysts, or financial specialists, focus specifically on the financial risks that could turn investments from profitable, giving investors an excellent return, to financially disastrous. A financial risk analyst may also suggest methods for mitigating or minimizing risk.
As the name suggests, securities analysts are financial analysts who focus on securities markets specifically.
What most concerns a type of financial analyst called a ratings analyst is whether a business – or government – has the resources to pay its debts.
Buy-Side Analysts and Sell-Side Analysts
There are two other categories of financial analyst roles you need to know: buy-side and sell-side.
Buy-side financial analysts, otherwise known as simply buy-side analysts, are financial analysts who put together informed strategies for investing a company’s money based on their analyses of financial data. A sell-side analyst, on the other hand, provides advice – in the form of their analyses and their interpretations of the data – to the agents who sell types of investments like stocks and bonds.
The Path to Becoming a Financial Analyst
Becoming a financial analyst is a process. Earning a bachelor’s degree is your first step toward the career path. Once you graduate, you can start working in your first entry-level financial analyst position, such as junior analyst.
As they gain on-the-job experience, financial analysts can start taking on more extensive responsibilities and seeking out higher-level analyst roles. The most experienced financial analysts can find lucrative roles as senior analysts. For a senior analyst, the national average salary reported by Salary.com in 2022 was $92,976.
The field of finance is constantly evolving, with emerging markets presenting new investment opportunities, laws and government regulations changing and, of course, business news and economic trends constantly in flux. If you want to become a financial analyst, you should know that you’re signing up for a career in which you can never stop learning about the latest market trends or industry developments.
The Best Degrees for Careers in Financial Analysis
A bachelor’s degree is the best level of degree for future financial analysts to pursue on the path to starting this career. Earning a bachelor’s degree is sufficient to not only qualify you for entry-level financial analysts’ jobs, like junior analysts, but also allow you to move up in your career as you acquire more work experience.
Having a master’s degree can also help you become a financial analyst – opening new doors and boosting your earning potential beyond what you would find with only a bachelor’s degree – but you could also have a full, successful professional life as a financial analyst even if you never go to graduate school.
Some of the best majors for becoming a financial analyst include finance, business, economics, statistics, math and accounting.
If you know that financial analysis is what you want to do after college, majoring in finance is the most direct route to your intended career. Finance is a business discipline focused on managing money. Analysis of quantitative data is an important part of the field of finance, which makes it one of the most math-heavy business disciplines.
When you major in finance, you will learn how to manage portfolios, financial markets and institutions and – perhaps most importantly – risk.
Courses you should expect to take as a finance major include an overview of the different types of investments, principles and practices of financial management, financial economics and the formation and structuring of corporate financial policy. A finance student might pursue more advanced coursework in certain types of financial instruments and investments, including stocks, bonds, securities, derivatives, options and futures. Other potential topics of study include global finance, financial market regulation, real estate finance and financial planning.
Although finance is a discipline within the business field, it deals with a lot of mathematics and statistical concepts and methods. In the course of your finance degree, you should expect to study probability and statistics, randomness in mathematics and statistics, linear methods and applied linear algebra, applications of optimization models and applications of stochastic models, which are mathematical models used to forecast investment outcomes. Additionally, students usually take some basic coursework in related areas of business, such as managerial accounting and economics.
You don’t have to major in finance specifically to become a financial analyst. Some financial analysts come from an academic background in business more generally. A business administration major provides aspiring financial professionals with a broader foundation in core business subjects, ranging from strategic management to accounting and human resources to marketing – and, yes, finance.
Core courses in a Bachelor of Business Administration (BBA) or Bachelor of Science (BS) in business administration program typically include business law, business management, organizational behavior, the principles of finance, financial and management accounting, marketing principles, economics and business statistics and analytics.
Majoring in business administration with a concentration in finance may offer students the best of both worlds. Your broad business foundation helps give you plenty of context regarding how the role of a financial analyst fits into the larger field of business. Your finance concentration coursework equips you with more extensive knowledge of and technical skills in finance, which will help you succeed in your future career as a financial analyst. Some of the classes you might take when you choose a finance concentration with a business administration bachelor’s degree program include valuation, capital markets, strategic equity finance, financial technology, the finance of corporate buyouts and acquisitions, investment management, financial derivatives and more.
The financial performance of investments is tied to economic trends, but this isn’t the only reason it makes sense to study economics when you want to become a financial analyst. Economics is the study of the distribution of wealth and other resources, including how people choose to use those resources. There is a considerable amount of quantitative data analysis in economics, as there is in the work of a financial analyst.
Statistics and Math Majors
At the end of the day, analyzing financial markets and investment opportunities means performing mathematical and statistical calculations to make meaningful insights from raw data. Statistics and mathematics are excellent majors if you want to work in any sort of data analyst role, including financial analyst, because these subjects of study equip you with the mathematical and analytical skills needed to run and interpret complex statistical analyses.
Accounting and finance are two separate fields of business, but they go hand in hand. If you have strong math skills, a background in accounting and a willingness to delve deeper into analyzing financial markets and trends, you may end up becoming a financial analyst. Accounting majors will take classes in all types of accounting, including financial accounting, managerial accounting, accounting information systems and auditing.
Master’s Degree Options for Financial Analysts
You don’t need to go to graduate school to become a financial analyst, but earning a master’s degree certainly won’t hurt in this field. After all, the massive 89% wage premium that accompanies a master’s degree is a compelling reason to advance your education if you work in securities, commodities or financial services sales.
Most financial analysts who choose to go to graduate school will pursue one of two degrees: a Master of Business Administration (MBA) or a master’s in finance degree. An MBA is a graduate degree with a broader focus, although the option to choose a concentration – including in a subject like finance – allows students to develop a depth of specialized knowledge, as well. A master’s in finance degree is more narrowly focused on advanced and specialized areas of finance.
MBA graduates are somewhat more likely to move into leadership roles and administration roles related to finance, while graduates from a master’s in finance program may develop the advanced skills needed to work as senior analysts.
Licenses and Certifications for the Finance Industry
Future financial analysts should know that having voluntary certification – or, for some roles, a mandatory license – can help them pursue their careers.
Finance Analyst Licensing Under the Financial Industry Regulatory Authority
If you want to perform certain job duties in the course of your work in the investment industry – namely, selling financial products – then you need to attain licensure from the Financial Industry Regulatory Authority (FINRA).
Chartered Financial Analyst (CFA)
One way to set yourself apart once you become a financial analyst is to attain the Chartered Financial Analyst credential offered by the CFA Institute. In addition to meeting education and experience requirements and being able to secure letters of reference, you must pass the three CFA Exams to qualify for the Chartered Financial Analyst credential.