Financial analysts collect and analyze financial data to assist companies in making business decisions. Financial analysis can refer to a variety of functions performed by financial analysts. Financial analysts may analyze market trends to make an investment decision, while others will examine companies' financial statements and determine their investment potential.
Research analysts are typically those who perform investigative analyses. That can include finding and analyzing financial data and interpreting it. They also report on this information. Analysts can perform a variety of roles, such as equity analysis to assist in stock investments, market research when launching new products, and rating bonds and debt instruments. We'll examine the difference between a research and financial analyst, potential job opportunities, and salary.
What Is a Financial Analyst?
Financial analysts analyze financial data to assist companies in making business decisions. Their analysis can be used to guide the investment decisions of businesses. Financial analysts also research microeconomic and macroeconomic conditions, along with the fundamentals of companies, to make predictions regarding businesses, industries, and sectors.
Financial analysts often suggest a specific course of action based on a business's performance and future outlook. Analysts must keep up with the latest developments within their field of expertise and prepare financial models that can predict economic trends for various factors.
Financial analysts do not all analyze stock and bond markets or assist their employers in making investments. A company may hire an analyst who will use quantitative data to determine the effectiveness of different marketing strategies regarding their cost. Financial analysts are often employed by businesses that use the franchise system to track individual franchises and groups of franchises in a particular geographic area. Analysts determine the strength and weaknesses of a franchise and forecast profit and losses.
There are Many Types of Financial Analysts
The financial analysis encompasses a wide range of career options and job titles. Analysts who are employed by:
- Investment houses that manage their own money (buy-side firms).
- Sell-side firms
- Investment Banks
Other data-driven businesses that employ financial analysts include local and regional banks, insurance firms, brokerages for real estate investments, and others. Financial analysts can add value to any business where spending decisions are made frequently.
Buy-Side Analysts
Most financial analysts are on the "buy side". Their employers rely on them to decide how they spend money. That could be investing in securities and stocks for an internal fund, purchasing income properties in the case of real estate firms, or allocating their marketing budget. Analysts may work for third parties that provide financial analyses to their clients rather than for an employer. Financial analysts are in high demand. An entire industry has been built around them.
Financial analysts services on the buy side rarely get to decide how clients or employers spend their money. The forecasts and trends they provide are extremely valuable in guiding the decision-making process. The demand for buy-side analysts is expected to increase as global financial markets continue to evolve rapidly and the regulatory environment continues its constant evolution.
Sell-Side Analysts
Analysts at a sell-side firm evaluate and compare securities within a particular sector or industry. Based on this analysis, they write reports that include specific recommendations such as: "buy", "sell", "strong buy", "strong sell", or "hold". The analysts also monitor the stock holdings of a portfolio to decide when and if it is time for the fund's investment in the particular stock to be liquidated. These research analysts' recommendations are highly valued in the investment industry and by those working at firms on the buy side.
Sell-side analysts are among the highest-paid and most respected financial analysts. They help the banks to price and market their investment products. The analysts compile information on the stocks and bonds of the bank and then use quantitative analyses to predict how the securities will do in the marketplace. They make recommendations based on their research to clients of the bank, guiding them towards certain products from the menu.
Within these subspecialties, some analysts focus on either stocks or fixed-income instruments. Analysts can also further specialize within specific industries or sectors. For example, an analyst might focus on technology or energy.
Investment Banking and Equity Analysts
Investment banking analysts often determine whether certain transactions between companies, such as mergers and acquisitions (M&A), are possible based on the company's fundamentals. The analysts use a combination of current economic conditions, modelling and forecasting to make their recommendations on whether or not the client's investment bank should pursue a merger or invest in venture capital.
Equity analysts assist in the buying and selling decisions of big banks and try to find promising IPOs. They focus primarily on the equity market and help identify companies with lucrative ownership opportunities. Equity analysts tend to be among the best-paid financial analysts. It is partially due to their employer, the large investment banks. They offer high salaries to attract top talent.
Equity analysts deal with large sums of cash. If they are successful, their employer can make millions. Equity analysts receive handsome compensation.
The Benefits of a Financial Analyst
- Financial research can provide real insight into what drives a business's performance and therefore have fantastic opportunities within the industry.
- Financial analysts can be involved in various jobs and have many opportunities to interact with people from management and finance.
- The learning curve is steep, and they grow faster than other employees.
- Financial Analysts can expect a positive employment growth of up to 16 % from 2012-2022.
- Financial Analysts can be employed in many different industries as demand has grown. They can work in any industry they choose.
- The salaries of Financial Analysts are higher, and they can earn as much as 16% more than those who do not have certification. Financial services offer a variety of financial jobs with six-figure salaries.
- The job security for financial analysts is very high, as they can demonstrate their expertise in capital management and liquidity functions.
- Financial Analysts can stand out from the crowd in a competitive job market. The Financial Analyst profession can increase marketability.
- The Globally Demanded Financial Analyst Designation can help boost your credibility.
- Your Financial analyst skills, knowledge and experience, will improve your performance on the job.
- Most Financial Analysts are based in large metropolises across the nation. The majority of Financial Analysts also work regular hours.
- Financial analysts can access sensitive and critical financial data and use that information to generate reports and make decisions. Therefore, they are regarded as an authority within the industry and receive a lot of respect.
The Median Salary is not Mediocre
Financial analysts generally make less money than other professionals in the financial industry. That is especially true in New York City. The median income of an entry-level analyst in the United States is higher than that for full-time wage and salary workers. According to the U.S. Bureau of Labor Statistics, a full-time worker's weekly average wage and salary in 2021 was $1010. That equates to an annual income of $52,520.3 for a full-time wage or salary worker in the U.S. who works 40 hours per week.
In 2021, the median income of financial analysts at all experience levels was $81,410 (or $39,14 an hour). Financial analysts, therefore, start much more well-paid than average workers. Financial analysts working for Wall Street giants often earn much more than the average worker, even in their first year.
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What Is a Research Analyst?
Research analysts produce investigative reports about securities and assets for internal use or clients. This function is also known as a securities analyst or investment analyst. Research analysts are responsible for examining, finding, or revising facts, theories, or principles to be used by financial institutions or clients. An analyst's report involves the review of publicly available records on securities or companies, often concluding with "buy", "sell," and "hold".
The research analyst may have to take an exam or register with an SRO if they work for a financial institution such as a bank or securities company controlled by a Financial Industry Regulatory Authority member. The research analyst's role and responsibilities encompass a wide range of tasks that transform raw data into valuable insights for business.
Research analyst roles are characterized by the following:
- Research analysts look for historical data in various databases, including those of their own systems, like financial, accounting, and sales systems. Typically, data at this stage is in a raw format. To ensure the information is meaningful, research analysts validate and examine the accuracy of data.
- After collecting data, analysts will use statistical, mathematical and analytic models to uncover patterns which may indicate business opportunities. The data could reveal a fundamental flaw in how a business interacts with customers. That can lead to negative experiences. The data helps research analysts develop solutions to improve how the company engages customers and increases sales.
- Research analyst roles include compiling data and information to assist managers in recognizing the value of the data. Researchers prepare reports, presentations and other communications to help managers understand the business value of data.
- Interpret data. Research analysts explain the value of data in meetings or conference calls. They also demonstrate their findings and what they have learned.
Research analysts also design strategies and methods to collect, manage and store data. In addition, they help implement analytical tools that are a major driving force for the industry of data analytics and business intelligence. IDC estimates that the industry is worth $189 billion in 2019 and will continue to grow at double-digit rates through 2022.
The selection of tools is usually based on which technology best suits the company's requirements. Popular open-source software tools include BIRT. Research analysts are often required to collaborate closely with technology vendors and other stakeholders to determine the best tool. Working with data protection, management, and governance experts is another important aspect of this job.
What are The Basics of Being a Research Analyst?
The two main groups of research analysts are "sell-side analysts" and "buy-side analysts". An investment company usually employs a buy-side research analyst (brokerage firm). They recommend securities to money managers in the funds they work for. Research from a sell-side (investment firms) analyst is usually sold to the buying side. The sell-side analyst may also provide free research to their clients to gain business. Companies often use this research to market themselves.
A buy-side researcher usually works with institutional investors, such as pension or mutual funds. Research analysts on the buy side are usually more prestigious, professional and academic than those working for sell-side firms. Sell-side jobs in research are sometimes compared to those in marketing, and they can pay more.
Various businesses, including asset management firms, investment banks and insurance companies, can employ researchers. They may also work for hedge funds, pension funds, brokerages, or other companies that need to analyze data to identify trends, decide on an asset valuation, take investment decisions, or predict the future of a business or asset. Glassdoor reports that the average salary of a research analyst ranges from $40,000 to $84,000.
What are The Benefits of Being a Research Analyst?
- A Career in Demand: Since every company wants to gain an advantage over its competitors and succeed in the market, they constantly need Research Analysts as their role is vital to an organization's success. Your career as a Research Analyst will be more demanding in the future.
- Salary: You may earn a higher or even more than you expected. Higher education requirements may lead to higher salaries than those for entry-level roles.
- Multiple Opportunities: A degree as Research Analyst does not bind you to a specific role as Research Analyst. You can also get the opportunity to take on other roles within an organization, such as market analyst or financial analyst.
- It Will Be an Exciting Job to Work as a Research Analyst: Research different aspects such as finance, the customer and the market. This role will allow you not to be restricted to a specific area of research.
- Meeting Career Requirements: Many Research career options require either a Bachelor's or Master's Degree. A degree can help you get the perfect position or role in your organization. These roles require a certain level of education as the person must have specialized knowledge.
Financial Analyst and Research Analyst
In the United States, financial firms do not clearly define either position. Financial analysts can be researchers or investors who gather and organize data on the market, while other financial analysts prepare specific investment proposals with institutional clients. Some research analysts may be glorified marketers, while others apply political or socioeconomic insights and would probably qualify as management consultants.
You can narrow down the difference between financial and research analysts. Financial analysts are generally focused on the analysis of investments and market performances. They rely on understanding economic and business principles to create their reports and make recommendations. They are experts behind the scenes. Financial analysts have a more prescriptive approach than research analysts. They focus on mathematical models rather than broad economic principles to provide objective answers to historical data.
Financial analysts analyze and collect data, but they do so within a context based on a deductive prior understanding of how markets are supposed to function. They are systemic in their thinking and subjective, especially at higher levels. The research analyst is usually operations-oriented. Research analysts can determine the best way to maximize their output by calculating a set of inputs. Research analysts who work in securities are likely to make recommendations based on predetermined criteria.
Read More: Behavioral Finance Research Overview
Work Duties
Financial analysts are responsible for performing analyses of financial data. This data can be used to compare their company's financial performance, a single external firm or two or more firms. Based on their results, financial analysts can create forecasts and models to predict future performance better. Financial analysts can also create reports using their models to share the information with other decision-makers within the organization.
Research analysts use a mixture of historical data, trends in the market and independent research to determine key data pieces to be used in their analyses. This information may be organized and interpreted by the research analyst. The research analyst can then predict or identify trends within current industries or markets. Research analysts are likely to pass on the findings of their analysis to other members within an organization to encourage more informed behavior.
Work Environment
Both work in a corporate setting. Financial analysts are more likely to work for a finance-focused company. Still, they can also be employed in corporate positions as part of the finance departments at non-financial companies. Research analyst career options are more diverse and less specialized. They also offer an even distribution of work opportunities when looking for employment.
Salary and Job Outlook
Both jobs offer positive career prospects. According to research, a financial analyst earns an average of $67,782 annually. According to the Statistics, financial analysts will grow 6% between 2020 and 2030. That is average when compared with other professions.
The average annual salary for a research analyst is $59,899. The BLS estimates that the financial analyst industry will grow 22 per cent between 2020 and 2030, despite the slightly lower salary. The BLS projects that this industry will grow at a rate of 22% between 2020 and 2030.
You Can Also Learn More About
The skills applicable to a research analyst or a financial analyst can be used in another area. Professionals in either field must have skills such as analysis, time management and detail-oriented. Although many skills overlap between the two fields, their emphasis is different.
Financial analysts place a high value on economics and mathematics. It allows more accurate financial estimates. While the same skills are required for research analysts, they give more importance to industrial knowledge and research capabilities, allowing them to find essential data for their analysis.
Educational Requirements
It's crucial to select a major focusing on financial applications for a future career in financial analysis. Finance, accounting and economics are the most popular majors for aspiring financial analysts. The formal education these fields offer allows students to use financial principles in their analysis to produce more accurate forecasts. Financial analysts can also be certified as Chartered Financial Analysts (CFA) and Master of Business Administration (MBA).
You can choose your major more freely if you want to be a research analyst. Most research analysts who want to specialize in a particular field choose a major related to the industry they wish to enter. It will give you specific information about the industry you want to work in, and your higher education experience can improve your research skills. Research analysts may also seek credentials such as the Professional Researcher Certification or Certified Research Expert.
Advice on Choosing Between The Career of a Research Analyst or a Financial Analyst
These tips can help you choose the best career for you:
Consider your Passion
Choosing a job that matches your passion when choosing a profession may be advantageous. If you're passionate about your field, you will find it easier to stay motivated, leading to better performance at work and improved career prospects. Working in an area you love can also improve your quality of life and increase your satisfaction at work.
Test Your Abilities
It's crucial to know your strengths and weaknesses before choosing a profession. Choosing a profession that doesn't match your talents is undoubtedly possible. However, the work needed to improve those skills is comparable to selecting a more natural career. You can progress more rapidly by focusing on your strengths.
Make a List of Pros and Cons
A pros and cons list will allow for a more direct comparison between the two options. You can create an honest and thorough assessment by evaluating the positives and downsides. You can then decide which option is more attractive for you regarding your career.
Delayed Decision
Not rushing into a decision is essential if you are still unsure. You can choose to enroll in an undeclared major or open one when you enrol in the first semester. You can complete your general credit requirements and try out some of the classes in financial and research analyst plans. You can use these classes to decide what you like.
Working-Life Balance Special Considerations
In any field, finding a good work-life equilibrium can be challenging. But the financial sector has a bad reputation for making employees stay late at work and sacrifice family time. That is especially true of those on Wall Street. According to a 2021 study, financial analysts reported working 98-105 hours a week on average. Analysts in market research work the same hours or even less.
They are not as challenging (and pay less) than private equity or investment banking. Analysts are usually entitled to 20 days or more of paid vacation per year and at least 1 day on the weekends and holidays. The work hours increase as an analyst gets closer to New York, London, or Tokyo. Analysts provide support to investment bankers, high-level finance professionals and others.
Financial analysts may have a more incredible opportunity to progress within the world of finance, even though the growth rates for positions as research analysts appear to be faster. The two roles require the ability to analyze and interpret data and trends. They also both require a solid understanding of finance and math.
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The Bottom Line
Preparation and dedication are required to become a successful financial analyst. The career can also bring financial rewards and the satisfaction of being a part of a business. The main advantages of working as a financial analyst are having the ability to work with sensitive and vital data and having access to the senior management at the company.
The main benefits of being a Financial Analyst are having access to senior management and leadership at the company. The main benefits of a Financial analysts company include access to information and decision-making and the authority to make recommendations for improving the business. Other benefits include a high salary range for Financial Analysts and the opportunity to receive cash bonuses through stock-based compensation.
