Job description – Financial analysts

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) explains the job of financial analysts and their contributions to the investment community.

Introduction

Financial analysts serve as the backbone of the finance industry, providing critical insights and analysis to support investment decisions. Did you know that the Bureau of Labor Statistics in the US projected a 6% growth in employment of financial analysts from 2020 to 2030, faster than the average for all occupations? According to a survey by the CFA Institute (November 2021), most financial analysts believe that their role is becoming increasingly important in today’s complex financial landscape.

This article explores the multifaceted role of financial analysts, with a particular focus on their responsibilities and contributions within both the buy-side and sell-side sectors of the financial industry. Buy-side analysts work for entities that have money to invest, such as mutual funds, hedge funds, pension funds, and high-net-worth individuals. Sell-side analysts work for brokerage firms, investment banks, and other entities that sell investment services. These analysts conduct research and analysis on companies and industries to publish investment recommendations for the firm’s clients and the general investing public.

What Does a Financial Analyst Do?

Financial analysts analyze a firm’s past financial data to spot trends and assess risks, which helps them predict outcomes for business decisions, identify sale or purchase opportunities, and make investment recommendations. To that end, a financial analyst may need to work with different types of data such as company financial statements, the performance of investments such as stocks and bonds, industry research, macroeconomic data, and more, depending upon the specific role they play within the organization.

 

Buy-Side Financial Analysts: Crafting Investment Strategies

Buy-side analysts work for entities that have money to invest, such as mutual funds, hedge funds, pension funds, and high-net-worth individuals. The job of a financial analyst is important as these financial institutions manage a lot of money. For example, the global assets under management (AUM) of hedge funds amounted to approximately $3.6 trillion in 2020 (Gitnux, December 16, 2023). These analysts perform research and analysis to make direct investment decisions on behalf of their firm’s money. Their primary objective is to identify and capitalize on lucrative investment opportunities that align with their client’s objectives and risk profiles.

Role and responsibilities

Buy-side financial analysts are instrumental in evaluating and recommending alternative investment opportunities to their clients. More and more, they take into consideration the environmental, social, and governance (ESG) factors that are important in their investment decision-making process.

Examples of companies employing Buy-Side Financial Analysts

An investment manager at BlackRock specializes in infrastructure investments and identifies Brookfield Infrastructure Partners L.P. (NYSE: BIP) as a promising opportunity for long-term growth and income generation. BlackRock’s investment in Brookfield Infrastructure Partners helps diversify its clients’ portfolios and provides stable returns over time.

Sell-Side Financial Analysts: Providing Market Insights and Advisory Services

Did you know that the global investment banking revenue reached $124.5 billion in 2020, driven by strong performance in equity underwriting and mergers and acquisitions (M&A) advisory? Sell-side financial analysts work for brokerage firms, investment banks, and financial advisory companies. Their role revolves around providing research and advisory services to institutional and retail investors, as well as corporate clients.

Role and responsibilities

A survey by the Brunswick group found that institutional investors believe that the quality of sell-side research reports has improved over the past five years. Sell-side financial analysts play a crucial role in providing timely and insightful research reports to help clients make informed investment decisions.

Examples of companies employing Sell-Side Financial Analysts:

• A sell-side analyst at Goldman Sachs publishes a research report on Amazon.com Inc. (NASDAQ: AMZN), recommending a “buy” rating based on its dominant position in e-commerce and cloud computing, as well as its consistent revenue growth. This recommendation attracts significant investor interest and contributes to a surge in Amazon’s stock price.
• An equity research analyst at J.P. Morgan advises Alphabet Inc. (NASDAQ: GOOGL) on strategic options for expanding its autonomous driving technology division, conducting industry analysis and financial modeling to support the recommendations. Alphabet Inc. leverages J.P. Morgan’s expertise to develop a comprehensive growth strategy for its autonomous driving business.
• A sell-side analyst at Vanguard conducts extensive research on emerging technology companies and recommends investing in Tesla Inc. (NASDAQ: TSLA), recognizing its leadership in electric vehicles and sustainable energy solutions. This recommendation leads to a significant increase in Tesla’s stock price, generating substantial returns for Vanguard’s clients.

Financial analysts play a pivotal role in shaping investment strategies, providing market insights, and facilitating financial transactions. Whether operating on the buy-side or sell-side, these professionals leverage their analytical expertise and industry knowledge to navigate the complexities of the financial markets. By offering investment recommendations, conducting research, and providing advisory services, financial analysts contribute significantly to the pursuit of financial prosperity and wealth creation.

Skills and Qualifications

Now given the job and the daily environment they have to deal with there are certain skills a financial analyst would need to have. Soft skills such as Analytical Thinking, Communication Skills, Attention to Detail, and Time Management hard skills such as Technology Skills, Quantitative Skills, Financial Analysis, and Industry Knowledge are demanded.

When it comes to the career path of an analyst, requires them to stay updated on industry developments, regulations, and best practices. From various analyses and surveys, we could say that many financial analysts hold a bachelor’s degree in finance, accounting, economics, or a related field. Pursuing a master’s degree in finance, business administration (MBA), or a specialized finance program can provide additional knowledge and credentials.

Obtaining certifications such as the Chartered Financial Analyst (CFA) designation is common in the financial industry. The CFA program covers a broad range of topics including investment analysis, portfolio management, and ethics, and is highly regarded in the field. Apart from the theoretical knowledge gaining practical experience through internships or entry-level positions at financial institutions, investment firms, or corporate finance departments is essential for building foundational skills and industry knowledge.

• The Chartered Financial Analyst (CFA) designation is highly valued in the buy-side industry. Buy-side financial analysts need to possess strong data analysis skills to extract actionable insights from large datasets and alternative data sources. They play a crucial role in developing and implementing these customized investment strategies.
• Sell-side financial analysts need to possess strong academic credentials and technical skills to excel in their roles. They believe that soft skills such as communication and relationship-building are essential for success in their roles. Sell-side financial analysts need to effectively communicate their research findings and build rapport with clients to gain their trust and confidence.

Remuneration

According to a report by Bloomberg, the average compensation for equity research analysts at investment banks in the United States ranged from $200,000 to $600,000 in 2020, depending on their level of experience and performance. Sell-side financial analysts are well-compensated for their expertise in analyzing and recommending investment opportunities to clients.

Why should I be interested in this post?

In essence, this article provides a perspective on the job of financial analysts. For a student who would like to work in finance, it is important to know about the job of a financial analyst as it relates to both the corporate world and financial markets.

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Useful resources

Forbes Financial Analyst Job Description

Gitnux Must-Know Hedge Fund Statistics

CFA Survey of CFA Institute members on latest ESG matters

Brunswickgroup About the Brunswick Digital Investor Survey

Market consensus What is market consensus?

Faster Capital Navigating Markets: The Power of Market Analysis and Consensus Estimates

About the author

The article was written in April 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).