Financial analyst
A financial analyst is a professional,[1] undertaking financial analysis for external or internal clients as a core feature of the job.[2][3][4] The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, or ratings analyst.[5][6] The job title is a broad one:[7][8][9][10] in banking, and industry more generally, various other analyst-roles cover financial management and (credit) risk management, as opposed to focusing on investments and valuation; these are also discussed in this article.
Role
Financial analysts can work in a variety of industries. A large proportion of them are employed by
Financial analysts invariably use
Analysts specializing in advanced
Securities firms
In a stock
Typically, at the end of the assessment, an analyst would provide a rating recommending or investment action: to buy, sell, or hold the security. Senior analysts may actually make the decision to buy or sell for the company or client if they are the ones responsible for managing the assets. Other, "junior" analysts use the data to model and measure the financial risks associated with making a particular investment decision. See Securities research § Career path.
Usually, financial analysts study a specific industry—called "sector specialists"—assessing current trends in business practices, products, and industry competition.[6] Among the industries with the most analyst coverage are biotechnology, financial services, energy, mining and resources, and computer hardware, software and services. Analysts must keep abreast of new regulations or policies that may affect the industry, as well as monitor the economy to determine its effect on earnings. As equity analysts divide securities by distinct sectors, companies which fall outside or across multiple sectors are sometimes neglected; the impact on returns (and on "earnings management") here is debated.[14][15]
Analysts also specialize in fixed income. Similar to equity analysts, fixed income analysts
Analysts are generally divided into 'sell-side' and 'buy-side'. The buy-side is sometimes considered more prestigious, professional, and scholarly, while the sell-side may be higher-paid and more like a sales and marketing role. It is common to begin careers on the sell-side at large banks then move to the buy-side at a fund.
- A sell-side analyst's work is not used by its employer to invest directly, rather it is sold either for money or for other benefits by the employer to buy-side organizations. Sell-side research is often used as 'soft money' rather than sold directly, for example provided to preferred clients in return for business. Writing reports or notes expressing opinions is always a part of "sell-side" (brokerage) analyst job and is often not required for "buy-side" (investment firms) analysts. It is sometimes used to promote the companies being researched when the sell-side has some other interest in them, as a form of marketing, which can lead to conflicts of interest.
- A buy-side analyst, such as a fund manager, works for a company which buys and holds stocks itself, on the analyst's recommendation. As they gain experience, analysts often move from buy-side research, concerning individual securities and sectors, into portfolio management itself, selecting the mix of investments for a company's portfolio. They may also become fund managers and manage large investment portfolios for individual investors.
Typically, analysts use
Analyst performance is ranked by a range of services such as StarMine owned by Thomson Reuters or Institutional Investor magazine. Research by Numis found that small companies with the most analyst coverage outperformed peers by 2.5 per cent — while those with low coverage underperformed by 0.7%.[16] See Neglected firm effect.
Investment Banking
Financial analysts in the
Many IB analysts work in
At more senior levels,
Investment banks, and large trading houses, often employ an
Middle office
Within banking, there are other non-quant analyst roles (not necessarily titled "financial analyst"), mainly within the "middle office"; these are generally linked, at least by dotted line, to both the Finance and Risk Management areas.
- Corporate Treasury is responsible for an investment bank's funding, capital structure management, and liquidity risk monitoring; see Bank § Capital and risk. It is then (co)responsible for the bank's funds transfer pricing(FTP) framework, allowing for comparable financial performance evaluation among business units
- decomposing these into their risk factors, and ensuring that traders' positions are reflected at their market values; the tools here are often built by a separate quant team, possibly front office, but maintained by Product Control.
- Credit Risk monitors the bank's debt-clients on an ongoing basis, as risk capital and risk adjusted returns on these clients, and reporting re concentration risk and risk appetite.
These areas, together with the various dedicated Risk Groups, allow the Finance department to advise senior management regarding the firm's global risk exposure and the profitability and structure of the firm's various businesses; see Financial risk management § Banking.
A comptroller (or financial controller) is a senior position, responsible for these analyses and internal control more generally, usually reporting to the bank's chief financial officer, as well as copying the chief risk officer.
Corporate and other
As outlined, the job title is a broad one, and analyst-roles also include financial management and (credit) risk management.
Financial planning and analysis
Financial analysts within corporates[3][20][21] provide inputs into all elements of the firm's financial management.[22][8][11]
- The short term focus is on working capital management, and includes tasks such as profitability analysis, cost analysis, variance analysis, and cash flow forecasting (often overlapping treasury management).
- Medium term elements are scenario analysis (sometimes re corporate strategy),[23] and balance sheet optimization .[12] The latter, extends to involvement with dividend policy, and capital structure; relatedly, forecasts here also feed into group ALM.
- Analysts are also involved with long term "debt capital marketsteam, "DCM", responsible for securing and managing long-term funding.
- Three lines of defence.
Management of these deliverables sits with the
Credit analysts
There are several analyst roles related to
Financial analysts employed in
In retail banking, credit analysts build models to determine an applicant's creditworthiness, assign an initial credit score, and monitor this and the loan on the basis of an ongoing "behavioral" score. In this and the latter role, impairment- and provision-modelling are a prominent deliverable (see IFRS 9); the probability of default (PD), exposure at default (EAD) and loss given default (LGD) statistics or models are (often) provided by a separate (but dedicated) credit-quant team.
Accounting analysts
Some financial analysts specialize as
Qualification
General
In general,
With seniority, often, analysts are expected to earn an
More specific qualifications may be required additionally:[8]
- In (senior) financial management roles, a professional accounting certification – the CPA, CA, CMA, or CIMA – is often a prerequisite; this, given the overlap with tax and financial reporting.[25]
- Risk managers increasingly require the
- Credit analysts in technical-roles may require these also (or at a minimum, specified math-credits);[27] in commercial-lending roles, an industry certification, such as the CBA from the NACM[28] may be specified.
- In treasury management roles, analysts often hold the ACT or CTP credential.[8]
Securities and Investment banking
In securities and IB roles,[5] it is lately preferred that, similarly, even to enter, analysts earn a Master of Finance or the CFA designation—in Europe, the CIIA also—with the MBA still common at senior levels.
Often, there are also regulatory requirements. For example, in the United States, sell-side or Wall Street research analysts must register with the Financial Industry Regulatory Authority (FINRA). In addition to passing the General Securities Representative Exam (Series 7), these candidates must pass the Research Analyst Examination (Series 86/87) in order to publish research for the purpose of selling or promoting publicly traded securities. For other jurisdictions, see List of securities examinations.
For sector specialists—with approximately five years industry experience—less weight is placed on finance qualifications, as a relevant advanced degree or qualification in the field is often necessary.
Many large teams will also include a
See also
- Quantitative analyst
- Risk analyst
- Securities research
- Stock valuation
- Structurer
Notes
- ^ Marshall D. Ketchum (1967). "Is Financial Analysis a Profession?". Financial Analysts Journal. Vol. 23, No. 6 (Nov. - Dec., 1967)
- ^ See generally: Leon Wansleben (2012) 'Financial Analysts' In: K. Knorr Cetina & A. Preda (eds.), Handbook of the Sociology of Finance, Oxford: Oxford UP, pp. 250–271
- ^ ISBN 9781951693541.
- ^ Princeton Review
- ^ a b c Financial Analysts, Bureau of Labor Statistics
- ^ a b Financial Analysts, collegegrad.com
- Rasmussen College
- ^ a b c d e Financial Managers, collegegrad.com
- ^ a b Financial Analyst job description guide, Robert Half
- ^ Financial Specialists, Bureau of Labor Statistics
- ^ a b Financial Managers, Bureau of Labor Statistics
- ^ a b Budget Analysts, Bureau of Labor Statistics
- ^ a b Credit Analysts, Bureau of Labor Statistics
- S2CID 143734005.
- ^ Laura Lindsey, Simona Mola (2013).Analyst Competition and Monitoring: Earnings Management in Neglected Firms, DERA Working Paper 2013-04
- ^ Walker, Owen (2018-02-03). "Brokers and Managers Grapple with Mifid 'Inducement' Rule". Financial Times.
- Wall Street Journal
- ICAEW, April 2005 (revised January 2011 and September 2020)
- ^ "Economic Analyst", investopedia.com
- ^ a b Financial Analyst Job Description, Corporate Finance Institute
- ^ a b "Financial Planning and Analysis (FP&A) Professional". CareerNavigator.AccaGlobal.com. Association of Chartered Certified Accountants. Retrieved 2023-07-07.
- ^ Association for Financial Professionals
- ISBN 978-0-07-058031-2. Retrieved 12 November 2011. §39 "Corporate Planning Models". See also, §294 "Simulation Model".
- usnews.com, Feb. 9, 2015.
- ^ Top Executives, collegegrad.com
- ^ The Rise of the Chief Risk Officer, Institutional Investor (March 2017).
- ^ C. Morah (2021). Analyzing a Career in Credit Analysis, investopedia.com
- ^ "How Do I Become a Credit Analyst?". Retrieved 2016-07-07.
- ^ a b Equity Research Recruiting: The Definitive Guide, Luis Miguel Ochoa
- ^ Career Paths for Actuaries
- ^ "Inside the World of the Mining Analyst". Investec.com.
- ^ Biotech Equity Research, Brian DeChesare
- ^ See e.g. "Career Paths" as discussed by SAICA
Further reading
- Lehman bust highlights analyst "group-think disease", Elinor Comlay, reuters.com, Sep 10, 2009
- Financial Analysts, US Bureau of Labor Statistics
- ^ "Quantitative Analyst: Career Path and Qualifications". Investopedia. Retrieved 2023-11-26.