A college degree and good interpersonal skills are among the
most important qualifications for these workers.
Although both occupations will benefit from an increase in
investing by individuals, personal financial advisors will benefit
more.
Financial analysts and personal financial advisors who have
earned a professional designation are expected to have the best
opportunities; competition is anticipated to be keen for highly
lucrative positions in investment banking.
About 4 out of 10 personal financial advisors are self-employed.
Nature of the Work
Financial analysts and personal financial advisors provide
analysis and guidance to businesses and individuals to help
them with their investment decisions. Both types of specialists
gather financial information, analyze it, and make recommendations
to their clients. However, their job duties differ because
of the type of investment information they provide and the
clients for whom they work. Financial analysts assess
the economic performance of companies and industries for firms
and institutions with money to invest. Personal financial
advisors generally assess the financial needs of individuals,
offering them a wide range of options.
Financial analysts, also called securities analysts
and investment analysts, work for banks, insurance
companies, mutual and pension funds, securities firms, and
other businesses, helping these companies or their clients
make investment decisions. Financial analysts read company
financial statements and analyze commodity prices, sales,
costs, expenses, and tax rates in order to determine a company’s
value and to project its future earnings. They often meet
with company officials to gain a better insight into the firm’s
prospects and to determine its managerial effectiveness. Usually,
financial analysts study an entire industry, assessing current
trends in business practices, products, and industry competition.
They 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.
Financial analysts use spreadsheet and statistical software
packages to analyze financial data, spot trends, and develop
forecasts. On the basis of their results, they write reports
and make presentations, usually making recommendations to
buy or sell a particular investment or security. Senior analysts
may even be the ones who decide to buy or sell if they are
responsible for managing the company’s or client’s assets.
Other analysts use the data they find to measure the financial
risks associated with making a particular investment decision.
Financial analysts in investment banking departments of securities
or banking firms often work in teams, analyzing the future
prospects of companies that want to sell shares to the public
for the first time. They also ensure that the forms and written
materials necessary for compliance with Securities and Exchange
Commission regulations are accurate and complete. They may
make presentations to prospective investors about the merits
of investing in the new company. Financial analysts also work
in mergers and acquisitions departments, preparing analyses
on the costs and benefits of a proposed merger or takeover.
Some financial analysts, called ratings analysts,
evaluate the ability of companies or governments that issue
bonds to repay their debts. On the basis of their evaluation,
a management team assigns a rating to a company’s or government’s
bonds. Other financial analysts perform budget, cost, and
credit analysis as part of their responsibilities.
Personal financial advisors, also called financial planners
or financial consultants, use their knowledge of investments,
tax laws, and insurance to recommend financial options to
individuals in accordance with the individual’s short-term
and long-term goals. Some of the issues that planners address
are retirement and estate planning, funding for college, and
general investment options. While most planners offer advice
on a wide range of topics, some specialize in areas such as
retirement and estate planning or risk management.
An advisor’s work begins with a consultation with the client,
from whom the advisor obtains information on the client’s
finances and financial goals. The advisor then develops a
comprehensive financial plan that identifies problem areas,
makes recommendations for improvement, and selects appropriate
investments compatible with the client’s goals, attitude toward
risk, and expectation or need for a return on the investment.
Sometimes this plan is written, but more often it is in the
form of verbal advice. Financial advisors usually meet with
established clients at least once a year to update them on
potential investments and to determine whether the clients
have been through any life changes—such as marriage, disability,
or retirement—that might affect their financial goals. Financial
advisors also answer questions from clients regarding changes
in benefit plans or the consequences of a change in their
jobs or careers. A large part of the success of financial
planners depends on their ability to educate their clients
about risks and various possible scenarios so that the clients
don’t harbor unrealistic expectations.
Some advisors buy and sell financial products, such as mutual
funds or insurance, or refer clients to other companies for
products and services—for example, the preparation of taxes
or wills. A number of advisors take on the responsibility
of managing the clients’ investments for them.
Finding clients and building a customer base is one of the
most important of a financial advisor’s job, because referrals
from satisfied clients are an important source of new business.
Many advisors also contact potential clients by giving seminars
or lectures or meet clients through business and social contacts.
Working Conditions
Financial analysts and personal financial advisors usually
work indoors in safe, comfortable offices or their own homes.
Many of these workers enjoy the challenge of helping firms
or people make financial decisions. However, financial analysts
may face long hours, frequent travel to visit companies and
talk to potential investors, and the pressure of deadlines.
Much of their research must be done after office hours, because
their day is filled with telephone calls and meetings. Personal
financial advisors usually work standard business hours, but
they also schedule meetings with clients in the evenings or
on weekends. Many teach evening classes or hold seminars in
order to bring in more clients.
Training, Other Qualifications, and Advancement
A college education is required for financial analysts and
is strongly preferred for personal financial advisors. Most
companies require financial analysts to have at least a bachelor’s
degree in business administration, accounting, statistics,
or finance. Coursework in statistics, economics, and business
is required, and knowledge of accounting policies and procedures,
corporate budgeting, and financial analysis methods is recommended.
A master’s degree in business administration is desirable.
Advanced courses in options pricing or bond valuation and
knowledge of risk management also are suggested.
Employers usually do not require a specific field of study
for personal financial advisors, but a bachelor’s degree in
accounting, finance, economics, business, mathematics, or
law provides good preparation for the occupation. Courses
in investments, taxes, estate planning, and risk management
also are helpful. Programs in financial planning are becoming
more widely available in colleges and universities. Working
for a broker-dealer is a good way to gain experience that
can help individuals pass the security license exams needed
to practice financial planning. Individuals who start out
as independent financial planners may find it more difficult
to build their client base, and they often start by servicing
their family members and friends. However, many financial
planners enter the field after working in a related occupation,
such as accountant; auditor; insurance sales agent; lawyer,
or securities, commodities, and financial services sales agent.
See the Career Database for
more information on these careers.
Mathematical, computer, analytical, and problem-solving skills
are essential qualifications for financial analysts and personal
financial advisors. Good communication skills also are necessary,
because these workers must present complex financial concepts
and strategies in easy-to-understand language to clients and
other professionals. Self-confidence, maturity, and the ability
to work independently are important as well. Financial analysts
must be detail oriented, motivated to seek out obscure information,
and familiar with the workings of the economy, tax laws, and
money markets. Strong interpersonal skills and sales ability
are crucial to the success of both financial analysts and
personal financial advisors.
Although not required for financial analysts or personal
financial advisors to practice, certification can enhance
one’s professional standing and is strongly recommended by
many employers. Financial analysts may receive the Chartered
Financial Analyst (CFA) designation, sponsored by the CFA
Institute . To qualify for this designation, applicants need
a bachelor’s degree and 3 years of work experience in a related
field and must pass a series of three examinations. These
essay exams, administered once a year for 3 years, cover subjects
such as accounting, economics, securities analysis, financial
markets and instruments, corporate finance, asset valuation,
and portfolio management. Personal financial advisors may
obtain the Certified Financial Planner credential, often referred
to as CFP (R), demonstrating extensive training and competency
in financial planning.This certification, issued by
the Certified Financial Planner Board of Standards, requires
relevant experience, the completion of education requirements,
passing a comprehensive examination, and adherence to an enforceable
code of ethics. The CFP (R) exams test the candidate’s knowledge
of the financial planning process, insurance and risk management,
employee benefits planning, taxes and retirement planning,
and investment and estate planning. The exam has been revised
in recent years. Candidates are now required to have a working
knowledge of debt management, planning liability, emergency
fund reserves, and statistical modeling. It may take from
2 to 3 years of study to complete these programs.
Personal financial advisors also may obtain the Chartered
Financial Consultant (ChFC) designation,issued by
theAmerican College in Bryn Mawr, Pennsylvania, which
requires experience and the completion of an eight-course
program of study. The ChFC designation and other professional
designations have continuing education requirements.
A license is not required to work as a personal financial
advisor, but advisors who sell stocks, bonds, mutual funds,
insurance, or real estate may need licenses to perform these
additional services. Also, if legal advice is provided, a
license to practice law may be required. Financial advisors
who do not offer these additional services often refer clients
to those who are qualified to provide them.
Financial analysts may advance by becoming portfolio managers
or financial managers, directing the investment portfolios
of their companies or of clients. Personal financial advisors
who work in firms also may move into managerial positions,
but most advisors advance by accumulating clients and managing
more assets.
Employment
Financial analysts and personal financial advisors held 355,000
jobs in 2004, of which financial analysts held 197,000. Many
financial analysts work at the headquarters of large financial
companies, several of which are based in New York City. More
than 4 out of 10 financial analysts work for finance and insurance
industries, including securities and commodity brokers, banks
and credit institutions, and insurance carriers. Others worked
throughout private industry and government.
Personal financial advisors held 158,000 jobs in 2004. Much
like financial analysts, more than half work for finance and
insurance industries, including securities and commodity brokers,
banks, insurance carriers, and financial investment firms.
However, 4 out of 10 personal financial advisors are self-employed,
operating small investment advisory firms, usually in urban
areas.
Job Outlook
Overall employment of financial analysts and personal financial
advisors is expected to increase faster than average for all
occupations through 2014, resulting from increased investment
by businesses and individuals. Personal financial advisors
will benefit even more than financial analysts as baby boomers
save for retirement and as a generally better educated and
wealthier population requires investment advice. In addition,
people are living longer and must plan to finance more years
of retirement. The globalization of the securities markets
also will increase the need for analysts and advisors to help
investors make financial choices. Financial analysts and personal
financial advisors who have earned a professional designation
are expected to have the best opportunities.
Deregulation of the financial services industry is expected
to spur demand for financial analysts and personal financial
advisors. In recent years, banks, insurance companies, and
brokerage firms have been allowed to broaden their financial
services. Many firms are adding investment advice to their
list of services and are expected to increase their hiring
of personal financial advisors. Many banks are entering the
securities brokerage and investment banking fields and will
increasingly need the skills of financial analysts.
Employment of personal financial advisors is projected to
grow faster than the average for all occupations. The rapid
expansion of self-directed retirement plans, such as 401(k)
plans, is expected to continue. As the number and complexity
of investments rises, more individuals will look to financial
advisors to help manage their money.
Employment of financial analysts is expected to grow about
as fast as the average for all occupations. As the number
of mutual funds and the amount of assets invested in the funds
increase, mutual fund companies will need increased numbers
of financial analysts to recommend which financial products
the funds should buy or sell.
Financial analysts also will be needed in the investment
banking field, where they help companies raise money and work
on corporate mergers and acquisitions. However, growth in
demand for financial analysts to do company research has been,
and will continue to be, constrained by regulations that require
investment firms to separate research from investment banking.
As a result, firms have eliminated research jobs in an effort
to contain the costs of implementing these regulations.
Demand for financial analysts in investment banking fluctuates
because investment banking is sensitive to changes in the
stock market. In addition, further consolidation in the finance
industries may eliminate some financial analyst positions,
dampening overall employment growth somewhat. Competition
is expected to be keen for these highly lucrative positions,
with many more applicants than jobs.
Earnings
Median annual earnings of financial analysts were $61,910
in May 2004. The middle 50 percent earned between $47,410
and $82,730. The lowest 10 percent earned less than $37,580,
and the highest 10 percent earned more than $113,490. Median
annual earnings in the industries employing the largest numbers
of financial analysts in 2004 were as follows:
Other financial investment activities
$74,580
Securities and commodity contracts intermediation
and brokerage
67,730
Management of companies and enterprises
62,890
Insurance carriers
58,120
Depository credit intermediation
56,860
Median annual earnings of personal financial advisors were
$62,700 in May 2004. The middle 50 percent earned between
$41,860 and $108,280. Median annual earnings in the industries
employing the largest number of personal financial advisors
in 2004 were as follows:
Other financial investment activities
$78,350
Securities and commodity contracts intermediation
and brokerage
63,310
Depository credit intermediation
57,180
Agencies, brokerages, and other insurance
related activities
56,950
Many financial analysts receive a bonus in addition to their
salary, and the bonus can add substantially to their earnings.
Usually, the bonus is based on how well their predictions
compare to the actual performance of a benchmark investment.
Personal financial advisors who work for financial services
firms are generally paid a salary plus bonus. Advisors who
work for financial investment or planning firms or who are
self-employed either charge hourly fees for their services
or charge one set fee for a comprehensive plan, based on its
complexity. Advisors who manage a client’s assets may charge
a percentage of those assets. Advisors generally receive commissions
for financial products they sell, in addition to charging
a fee.
Related Occupations
Other jobs requiring expertise in finance and investment
or in the sale of financial products include accountants and
auditors; financial managers; insurance sales agents; real
estate brokers and sales agents; and securities, commodities,
and financial services sales agents. See the Career
Database for more information on these careers.
Sources of Additional Information
For information on a career in financial planning, contact:
The Financial Planning Association, 4100 E. Mississippi
Ave., Suite 400, Denver, CO 80246-3053. Internet: http://www.fpanet.org/
For information about the Certified Financial Planner (CFP)
(R) certification, contact:
Certified Financial Planner Board of Standards, Inc.,
1670 Broadway, Suite 600, Denver, CO 80202-4809. Internet:
http://www.cfp.net/become
For information about the Chartered Financial Consultant
(ChFC) designation, contact:
