How Do You Become a Financial Analyst?

Financial Analysts Comparison
Click to see comparisons of Sell-Side vs Buy-Side Analysts

Anyone who wonders how to become a financial analyst should know that they must earn an accredited degree and obtain the right credentials. Depending on their industry and work duties, financial analysts may also need to be licensed by the state or appropriate governing agency. Once an individual becomes a financial analyst, they can choose an area of job specialization. Below is an overview of what it takes to become a financial analyst as well as general information on licensure, career duties, and employment outlook.

What Does a Financial Analyst Do?

Financial analysts study business and economic trends, evaluate current and past financial data and make investment recommendations based on their evaluations and findings. For example, they may compile data from a variety of sources to identify historical trends and irregularities. They must know how to assemble and interpret mountains of raw data. Their analysis commonly focuses on the performance of investments like stocks and bonds. They also evaluate the financial stability of a company, prepare written reports and meet with company heads to discuss the financial status of the company and make strategic recommendations. A financial analyst may work in banks, mutual funds, insurance companies, pension funds, and similar businesses.

Because financial analysts spend a lot of time with clients, they should possess good communication skills. This means that they must clearly, effectively and persuasively communicate in writing and face-to-face. On any given day, they may be asked to clarify relevant laws, confusing regulations and complex statistics. It’s also beneficial to be detail-oriented and have good analytical and decision-making skills. Financial analysts must be able to identify budgetary, operational and organizational issues in order to present alternatives, logical recommendations, and fact-based conclusions. These could be in the forms of qualitative models, quantitative narrative or budgetary policies.

A financial analyst who works for a city or county government may use financial forecasts and accounting models to analyze and present a long list of documentation. This includes debt, staffing, fiscal year, procurement and asset replacement costs. These financial analysts may be in charge of cash flow, rate studies, capital projects, expenditure review or budget implementation. The fiscal, grant, funding and legislative reports and correspondence they prepare will be presented to executives. Financial analysts who work in government will need to be familiar with performance ordinances, compliance statutes, binding agreements and memorandums of understanding. They must also conduct analysis to identify issues and opportunities, then recommend improvements.

A student who is eager to become a financial analyst quickly should consider gaining a few years of experience through entry-level employment. Possible job titles include junior analyst, financial planner, associate advisor, fiscal coordinator, and budget analyst trainee. These inexperienced workers will perform a variety of random duties like tracking fees, updating rate models and revising interagency agreements. They are usually tasked with projects related to financial performance and accounting management. As such, they may type up new guidelines, email stakeholders about deadlines or elicit consensus on a new report format. Entry-level financial analysts should be able to handle multiple priorities as well as interact effectively across the organization to achieve goals and meet deadlines.

What are the Education Requirements to Become a Financial Analyst?

To become a financial analyst requires completing at least a bachelor’s degree program in business management, finance, economics, accounting statistics or mathematics. Although some employers may prefer to hire financial analysts who have a master’s degree, many are hired with only bachelor’s degrees. A degree in finance is the golden standard because it teaches students how to perform financial analysis using quantitative concepts and qualitative techniques. Students learn how to examine and interpret investment risk, financial ratios, accounting theories, and regulatory principles. Students master how to professionally communicate through technical writing and public speaking.

Bachelor’s Degree Options for Future Financial Analysts

A bachelor’s degree in finance will introduce students to personal financial management skills for budgeting income and planning for security. They will learn about wealth creation, credit sources, protecting assets and federal income tax issues. A Principles of Finance class will explore both managerial and corporate finance. Students will learn about the financial institutions, regulatory agencies and industry standards that rule the banking and investment worlds. A finance student may choose to take a class in entrepreneurial finance to learn the theories and tools needed to start and grow a successful business venture. Students may challenge themselves to study financial auditing so they will know the underlying accounting concepts and investigation processes.

A bachelor’s degree in accounting and economics are the other two most popular degree choices for future financial analysts. An accounting degree is an excellent choice because it includes classes in managerial accounting.  Managerial accounting is used for financial planning and decision-making, as well as performance evaluation, which is accomplished through cost classification and cost-volume-profit analysis. Another core course is Financial Reporting because it includes discussions of ethical issues, global issues, and regulatory frameworks. One core skill that must be mastered is the ability to objectively analyze the content of financial statements. One key class that will benefit future clients is Federal Income Taxation because it covers tax preparation, retirement annuities, and capital gains and losses.

Master’s Degrees for Financial Analysts

Due to the fact that many certifications require coursework above a bachelor’s degree, it is highly recommended that financial analysts earn a master’s degree. For those interested in leadership, a business administration degree (MBA) specializing in finance is a great choice. This degree surveys the various disciplines within the business and finance worlds to expose learners to diversity, globalization and management issues. Finance MBA students will learn the importance of the finance sector within the complex economy. A business communication course will help the student master the foundations of listening, speaking and writing. This is especially important in the business world that needs professionals who are sensitive to cross-culture communication.

The U.S. News and World Report ranks the following schools as having the top five finance MBA programs:

  1. The University of Pennsylvania (The Wharton School) – The University of Pennsylvania (Philadelphia, PA) offers both an MBA in Finance and an MBA major in quantitative finance.
  2. The University of Chicago (The Booth School of Business) – The University of Chicago (Chicago, IL) offers a full-time MBA with concentrations in finance or analytic finance.
  3. New York University (The Leonard N. Stern School of Business) – New York University (New York, NY) offers an MS in Mathematics in Finance/MBA dual degree. A part-time MBA is also available with a specialization in finance, corporate finance, financial instruments and markets, financial systems and analytics, FinTech, and quantitative finance.
  4. Columbia University (The Columbia Business School) – (New York, NY) – Columbia University offers a Master of Science in Financial Economics that is comprised of Ph.D. and MBA courses offered at Columbia Business School.
  5. Massachusetts Institute of Technology (The Sloan School of Management) – Massachusetts Institute of Technology offers an MBA  finance track that awards MBA graduates with a certificate in finance in addition to their degree.

Tech-savvy finance professionals may want to specialize their graduate degree in either finance information systems or management information systems. Either way, students will learn about standard personal productivity programs, such as MS Office and Abode, as well as accounting software, such as Sage, Quicken, MS Money and Quickbooks. An MIS analysis course explains the tools and techniques for the design and construction of business systems. This will help future financial analysts analyze the problems of an existing financial information system and improve them. Studying database management systems will enable graduates to develop object-oriented design through standard programs such as Oracle and MS Access.

Some financial analysts want to supervise staff and run departments, so a graduate degree specialization in financial management will help them achieve their career goals. Traditional managers focus on the basics of planning, improving and controlling organizations. Today’s managers must understand the nuts and bolts of technology, operations, and industry practices. For example, a financial analyst who works for a manufacturing conglomerate will need to understand the principles and techniques of production related to quality, supply and inventory management. A financial analyst who supervises staff will need to have studied human resource management so they can interview, train, schedule, evaluate and discipline personnel.

Financial analysts often choose a specific area of interest or a certain product, region or industry. One analyst might work in the Middle East while another could choose to work in the field of information technology. Financial analysts may work as buy-side analysts or sell-side analysts, which would affect what courses they might take. Once the financial analyst obtains the degree, the next step is obtaining some work experience in this field.

Certification/Licensure for Financial Analysts

Some financial analysts work in a capacity where they sell financial products. In this situation, the financial analyst will be required to be certified by the Financial Industry Regulatory Authority. The CFA Institute also offers certifications for financial analysts. Financial analysts who choose areas of specialty can also obtain certifications in those fields of specialty. In many cases, the analyst must have a certain amount of work experience to be eligible to apply for certification.

Corporate reform, client expectations, and higher government oversight means that organizations need finance professionals who have advanced skills and technical expertise. Financial analysts who work in a capacity where they sell financial products or deal with global business may be required to be certified by bodies like the CFA Institute, the Financial Industry Regulatory Authority and the Institute of Management Accountants. Financial analysts who choose areas of specialty can obtain certifications in those fields of specialty. In most cases, the analyst must have taken specific college classes and a certain amount of work experience to be eligible to apply for certification.

One of the most common credentials is the CFA Institute’s Certified Financial Analyst exam. The CFA Institute’s self-study curriculum reinforces the fundamentals of risk analysis, portfolio management and investment administration. There are three assessment levels that verify the candidate’s ability to apply objective logic for all types of investment decisions. The candidates must sequentially pass each assessment level and fulfill other program requirements before earning their next credential. The first exam level has questions regarding topics like economics, corporate finance, financial reporting, quantitative methods, and professional standards.

Before you ask yourself how to become a financial analyst, first try to answer this sample Certified Financial Analyst exam question. Here is an ethical dilemma: a financial researcher previously worked for an investment fund management firm and has a strong professional relationship with the managers. The financial researcher provides these managers with draft copies of research before providing their current clients with the finalized copies. Is this a violation of the Code of Ethics and Standards of Professional Conduct? The answer is yes because they have preferentially provided investment recommendations to specific clients while disadvantaging the rest.

There are many certification alternatives for finance professionals who don’t want to limited themselves to just performing analysis work every day. For example, the Certified Public Accountant (CPA) credential is very popular for anyone wanting to do financial generalist duties. These individuals must pass the Uniform CPA Examination and obtain a CPA license from their state’s Board of Accountancy. Every state has its own education and experience requirements. The exam is taken in authorized testing centers through a computer-based format. A sample question about economics may ask about perfectly competitive financial markets, which involves heterogeneous products and significant barriers to entry.

Resource: How Long Does It Take To Become a CPA?

The Institute of Management Accountants offers globally recognized credentials for financial professionals. The Certified Financial Services Auditor (CFSA) exam is for those who prove their knowledge of the best auditing principles and practices in the financial industry. The exam comes in three options: banking, securities, and insurance. Candidates must meet educational requirements and have two years of auditing employment experience. Alternatively, the Certified Management Accountant (CMA) is for professionals who must deal with both corporate performance and financial strategy. The first part of the exam covers technical aspects, such as international finance, and the second part measures critical thinking and decision-making skills.

There are many more alternative certifications available. The Institute of Internal Auditors (The IIA) offers the Certified Government Auditing Professional (CGAP) for those auditors who work in the public sector. The Certified Fraud Examiner (CFE) credential is offered through the Association of Certified Fraud Examiners (ACFE). It focuses on fraud detection, prevention, and deterrence. The AICPA issues the Certified Information Technology Professional (CITP) to those who possess the technical acumen to achieve business solutions. The exam is exclusive to CPAs who have 200 hours of technical education and 2,000 hours of business technology experience.

Career Outlook and Wage Potential for Financial Analysts

The good news is that the employment outlook and career prospects for financial analysts are both good. As the economy continues to grow, financial analysts will continue to be called upon to provide their professional services. These financial geniuses are expected to see an employment growth of 11 percent during the 2016-2026 decade, according to the Bureau of Labor Statistics. The average annual wage for financial analysts ranges from $51,780 to $165,580 and the average wage is $99,430, according to a 2017 report by the BLS. The U.S. News & World Report ranks financial analysts 15th among best business jobs; 16th among best STEM jobs; and 74th among 100 best jobs.

Financial analysts often choose a specific area of interest or a certain product, region or industry. One analyst might work in the Middle East while another could choose to work in the IT field. Financial analysts may work as buy-side analysts or sell-side analysts, which would affect what courses and degrees they pursue. Buy-side analysts work for financial advisory firms and mutual fund companies handling trusts, securities, and hedge funds. Their strategic recommendations are confidential, but sell-side analysts create, promote and sell traded securities to the public. These special financial analysts must obtain the CFA certification to perform their work.

The industry that will experience the greatest growth in the need for financial analysts from 2018-2028 is electronic shopping and mail-order houses.  The BLS projects a 48.7 percent increase in employment for financial analysts in this field, followed closely by home healthcare services.  The smallest projected growth will occur in fields like plastics and rubber products manufacturing; radio and television broadcasting; food manufacturing; and fabricated metal product manufacturing, to name but a few. All of these will only experience marginal growth with regard to the need for financial analysts.  Not surprisingly, some of the industries that are projected to experience the greatest decrease in employment need for financial analysts are newspaper publishers; pulp, paper, and paperboard mills; printing and related support activities; and paper manufacturing.

Students who love math and excel at number-crunching are the ideal choices for financial analysts. Making recommendations that can help others save and make money can be challenging, but can also be rewarding when the results are positive. Once the financial analyst obtains their desired degree, the question of how do you become a financial analyst will be resolved through obtaining credentials and some work experience in this field.

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