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Financial analyst at workWhen you need professional advice on how to manage your investments or create a financial plan, there are numerous experts who can help. Financial analysts, for example, spend their time diving into economic and stock market data to help create reports and recommendations about what to invest in. You may work with an analyst directly if the person is also an investment advisor or financial advisor. Or you may work with a financial analyst indirectly if the person is employed by the bank, wealth management firm or investment advisory firm that manages your money. 

Financial Analyst, Definition

According to the Bureau of Labor Statistics, a financial analyst is someone who provides guidance to businesses and individuals on making investment decisions.

Financial analysts are essentially information-gatherers and number-crunchers. They collect data on stocks, mutual funds and other securities by studying market movements and trends. This data is organized and analyzed to help businesses or individuals decide whether to take advantage of an investment opportunity.

Financial analysts can work in banks, securities firms, insurance companies, wealth management firms, investment advisory firms and other financial institutions. They can also work for pension funds, hedge funds or mutual funds.

A financial analyst may be referred to as a securities analyst or investment analyst. Someone who works as a portfolio manager or mutual fund manager can also be a financial analyst.

What Does a Financial Analyst Do?

Financial analysts essentially do the heavy lifting of deciding what to invest in or what not to for companies and investors.

These analysts can study macroeconomic and microeconomic trends, perform technical analysis of individual securities or use fundamental analysis to compare investment opportunities. They compile their information into a report and then make a recommendation to the company or individual they’re working for on how to proceed when it comes to buying, selling or remaining neutral on a particular investment.

Financial analysts can be classified as buy-side or sell-side, depending on which type of clientele they work with. A buy-side analyst would typically work with companies that are looking to make large investments, such as hedge funds, insurance companies or endowments. Essentially, these are organizations that are interested in “buying in” to the market.

Buy-side analysts can help with managing risk while maximizing profit potential when buying securities. A sell-side analyst, on the other hand, typically works with organizations that have investments to sell. So they make work with a financial advisor or insurance company that sells annuities, for example, to help them decide which products to offer and how to generate the best returns.

It’s not uncommon for financial analysts to specialize in a certain industry or trend when evaluating investments. For example, you may have analysts that focus exclusively on foreign markets while others specialize in studying and evaluating U.S. companies. Or you may have analysts who only focus on a certain sector, such as energy, or dedicate their efforts to studying environmental, social and governance issues.

There are also financial analysts who study ratings and risk. A ratings analyst’s job would be to determine how likely a company or government is to pay its debts. This analysis could then be used to generate bond ratings. Risk analysts work to identify the potential risk associated with a particular investment or investment strategy and opportunities to minimize losses.

What Skills Do Financial Analysts Need?

Financial data digitally displayed

In terms of who can become a financial analyst, it starts with earning a college degree in a field like accounting, economics or finance. If a financial analyst plans to sell financial products, they may need to be licensed by FINRA to do so. Financial analysts can also get more advanced degrees or obtain professional certifications such as the highly regarded Chartered Financial Analyst (CFA) certification, which is offered by the CFA Institute.

If you’re working with a fund manager or another financial professional who has an analyst background, you can typically expect the person to have these skills:

  • Analytical skills, which are used for compiling and evaluating information
  • Critical-thinking skills
  • Communication skills
  • Interpersonal skills
  • Decision-making skills
  • Attention to detail
  • Computer skills
  • Mathematical skills

Financial analysts also need to have a solid understanding of how things like fundamental and technical analysis work and how to interpret the data they’re gathering. That can mean doing things like a cost-benefit analysis for a specific investment decision or creating forecasts to try and predict outcomes. For that, financial analysts need to be adept at reading financial documents such as cash flow statements, profit and loss statements and annual reports.

Should You Work With a Financial Analyst?

Typically, financial analysts primarily work behind the scenes to help guide companies and financial institutions with investment decision-making. But it’s possible that you may encounter an investment advisor or financial advisor who also has a financial analyst background.

The chief benefit of working with a financial analyst is that they’re skilled at diving into the numbers to look at specific securities on a granular level. If you’re more of a hands-off investor then you may not understand how to read or interpret market trends or what they could mean when buying a particular security, like a stock or bond or alternative investment.

A good financial analyst who works with individual investors as a financial advisor should be able to distill this information down in a way that’s understandable. If you’re working with an advisor who uses a lot of technical jargon or offers complex reports analyzing different securities, you could feel overwhelmed when it’s time to make an investment decision.

The Bottom Line

Financial analysts at work

The work that financial analysts do is important, whether you’re working with them one-on-one or not. The reports that analysts create can influence how your investment advisor, financial planner or wealth manager guides your investment plan. So it helps to understand how this relationship works and how it could benefit you when building a portfolio with the help of a financial professional.

Tips for Investing

  • When you’re considering a financial advisor it’s wise to ask if the person has a financial analyst background or if such a person is on staff at the advisor firm. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s financial advisor matching tool can help you connect with a professional advisor in your local area in minutes. If you’re ready, get started now.
  • When comparing securities on your own, a free investment calculator can be extremely helpful. Further, a free asset allocation calculator will quickly help you assess how much of your portfolio should be in which types of securities.

 Photo credit: ©iStock.com/SDI Productions, ©iStock.com/MicroStockHub, ©iStock.com/Wavebreakmedia

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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