Financial analysts and personal financial advisors
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  • 1. Visit our website to download or view last season’s OOQ. You’ll find online the same informative articles, data, and career tips you’ve come to expect from our print version— plus links to past articles (from spring 1999), general information, and other Bureau of Labor Statistics and U.S. Department of Labor resources. Click your way to career information, today! 24 Occupational Outlook Quarterly q Summer 2000
  • 2. Financial analysts and personal financial advisors by Hall Dillon T hese are exciting times for investors—and for those helping them with their investment decisions. With record numbers of people investing in the stock market, financial analysts and personal financial advisors are busy. They are the money mas- ters who provide investment analysis and guidance to businesses and individuals. Financial analysts research and assess companies’ financial condition and prepare reports recommending investment in a company’s stocks or bonds. Personal financial advisors help people achieve financial goals through management of their financial resources; they offer advice on many types Hall Dillon is an economist in the Office of Employment Projections, BLS, (202) 691-5704. Occupational Outlook Quarterly q Summer 2000 Occupational Outlook Quarterly q Summer 2000 25
  • 3. talk with management about company prospects. The analysts then organize the infor- mation they’ve gathered and write reports for their firm. A report presents their analysis of companies’ prospects and their recommendation for the firm’s bro- kers or customers, whether it be to buy, hold, or sell stocks. More experienced fi- nancial analysts contact companies to make investment deals. Financial analysts also analyze stock offerings—both new, called initial public offerings (IPO’s), and existing ones—for companies trying to raise funds for busi- ness expansion or to pay off debt. Ana- lysts usually work as part of a team to help prepare registration statements, de- tailed reports about a company’s financial operations. These statements must be One part of financial analysts’ job is to evaluate a company’s financial stability. filed with and approved by the Securities and Exchange Commission before a com- of finance, including investment selec- Financial analysts. Financial analysts pany can sell stock to the public. tion, portfolio management, and retire- perform a variety of duties, including Other analysts work on mergers and ment planning. studying and reporting on businesses and acquisitions, helping to set up deals in Both financial analysts and advisors which one company buys another. These gather information, analyze investments, deals, too, require financial analysts to write and make investment recommendations. Financial analysts and advisors a report about the current and projected However, their job duties differ because value of the company to be purchased. gather information, analyze of the types of services they provide. This Some financial analysts, called ratings article describes the occupations of finan- investments, and make invest- analysts, evaluate companies’ financial cial analyst and personal financial advi- soundness. Based on this evaluation, a ment recommendations. But sor, including what these workers do, management team assigns a rating to com- what their employment outlook is, how their job duties differ because of panies’ financial and corporate bonds. As a much they earn, and how they train to en- result, ratings analysts must be experts the types of services they ter these careers. on particular stocks—and their informa- provide. tion and advice must be timely, because Nature of the work other investment professionals depend Although both financial analysts and per- stock offerings, arranging mergers and ac- on the analyses in making investment sonal financial advisors make recommen- quisitions, evaluating a company’s finan- decisions. dations, they work with investment infor- cial soundness, and making presentations. Financial analysts spend a lot of time mation in different ways. For financial In conducting research about compa- processing numbers, often using a com- analysts working in firms, the focus is on nies, financial analysts gather annual and puter. They may use a computer to help gathering and analyzing information other financial reports. They must learn forecast a company’s future earnings, for about companies or stock; for personal fi- about each company’s history, manage- example, or to analyze balance sheets nancial advisors helping individuals, it is ment, products, markets, financing, past that compare companies’ earnings with on presenting information about invest- earnings, and future earnings potential. expenses. Computer programs also iden- ment options. Analysts also may make site visits to tify undervalued securities—stocks that 26 Occupational Outlook Quarterly q Summer 2000
  • 4. may be worth more than their current market value. Many persons designated as financial analysts have additional responsibilities, including budget, cost, and credit analy- sis. Financial analysts also may give pre- sentations touting the merits of new com- panies whose shares are being sold to managers of mutual funds. Some analysts are industry specialists for one or a few industries; those who study a large number of industries are known as generalists. Analysts also may specialize in a type of investment, such as bonds, foreign currency trading, or port- folio management. The size or character of the firm at which they work usually de- termines whether analysts are specialists or generalists. Personal financial advisors. Personal fi- Personal financial advisors provide individualized investment guidance based on clients’ nancial advisors provide investment guid- financial needs and resources. ance, using their knowledge of tax and in- vestment strategies involving securities, planning—is often triggered by life gests a plan suited to the client’s re- insurance, pension plans, and real estate. changes such as marriage, disability, or sources, financial objectives, and atti- Their advice depends on each client’s fi- retirement. tudes toward investment risk. Finally, the nancial needs and resources. Finding clients and building a cus- advisor presents the plan to the client, An advisor’s work with clients begins tomer base is one of the most important collaborates with him or her to ensure that with a consultation. At this meeting, the parts of a financial advisor’s job. Many it meets his or her goals, and makes revi- advisor helps clients to analyze their fi- advisors contact potential clients by giv- sions, if necessary. nances and financial goals. After gather- ing seminars or lectures or meeting cli- In addition to developing comprehen- ing this and other financial information, ents through business and social contacts. sive plans, financial planners offer advice the advisor helps clients select invest- Periodically, financial advisors must meet on financial questions or concerns. ments based on their goals, including ex- with established clients to evaluate their Among these are the financial conse- pectations or needs for a return on the in- investment strategy and performance, quences of changing careers or receiving vestment. For example, individuals taking into account changing economic an employee benefits package, an early investing for retirement would consider conditions, family income, and financial retirement package, or a lump-sum pay- tax-sheltered, long-term investments, needs. ment from a pension plan. Advisors also while those with short-term goals—such Sometimes, financial advisors develop may buy and sell financial products, such as having money available for a wedding a comprehensive financial plan for indi- as mutual funds and insurance, or refer or for a downpayment on a home—would viduals. Most of these plans involve sev- clients to other companies for products be interested in a more conservative ap- eral steps. First, the advisor interviews a and services such as preparation of taxes proach to provide returns for several years. client and obtains a statement of the or wills. Dennis Gurtz, a financial advisor in client’s assets and liabilities (property and Personal financial advisors often have Bethesda, Maryland, says there is no such debts). The advisor then reviews the other titles, such as financial planner and thing as a typical client in a typical situa- client’s financial information, identifying financial consultant. Some choose to spe- tion. And, he says, demand for financial problems and developing recommenda- cialize in one area, such as asset manage- planning services—including life insur- tions for improvement. After discussing ment, retirement, or risk management. In ance, college savings plans, or estate options with the client, the advisor sug- most small or self-owned firms, advisors Occupational Outlook Quarterly q Summer 2000 27
  • 5. are usually generalists who offer advice personal financial advisors is expected to and advisors because they enjoy the chal- on a wide range of financial products and grow rapidly. Investment funds should lenges of the work and the satisfaction of services. grow along with the economy, personal helping firms or people make financial incomes, savings for retirement plans, decisions. They also like interacting with Employment and outlook and inherited wealth. Large numbers of other people. Financial analysts held nearly 45,000 “baby boomers,” people born from 1946 jobs in 1998. The Bureau of Labor Statis- to 1964, will fuel investment during their tics (BLS) currently has no data on em- peak savings years and with retirement- People are drawn to these ployment of personal financial advisors; related investments. In addition, people occupations because they enjoy however, according to the College of Fi- are living longer and must plan to finance nancial Planning, there were 32,000 li- more years of retirement. As these factors helping firms or people make censed certified financial planners in 1998. increase demand for investments, de- financial decisions. Most financial analysts work for broker- mand for the services of financial ana- age firms, investment banks, and invest- lysts and personal financial advisors will ment advisory firms that publish investment grow as well. However, there are some disadvan- recommendations. A small number of large tages to working in these occupations. firms have offices in New York, which has Benefits and drawbacks The investment field is competitive and the highest concentration of brokerage Financial analysts earned an average of high-pressured. No fees or commissions firms in the Nation. Insurance companies $54,000 a year in 1998, according to earned often means no money earned for also hire analysts for advice about investing BLS. Based on limited information from personal living expenses, and errors of the money they collect as premiums from other sources, starting salaries for finan- judgment about investment options can policyholders. Some analysts work for large cial analysts with a bachelor’s degree result in huge losses—in investment, commercial banks and make investment ranged from $25,000 to $35,000 in 1999. earnings, or even a job. Long, irregular recommendations to institutional clients Starting salaries for people with a hours, sometimes including weekends, and individuals. master’s degree in business administra- are common. For example, financial ad- A large number of personal financial tion range from $30,000 to $70,000. Fi- visors work irregular hours visiting cli- advisors are self-employed. Many work nancial analysts who work for investment ents; teaching classes, traveling away for financial planning firms across the banks may start at $30,000 a year, with from home, or giving seminars in the country. These firms are often small, em- bonuses raising that to $50,000 by the evenings; and socializing on weekends end of the second year. to meet clients. BLS has no earnings data for personal Employment of financial analysts financial advisors, but other sources show Qualifications, training, and and personal financial advisors their earnings vary widely. Income ranges certification from about $20,000 for beginners to over Financial analysts and personal financial is expected to grow rapidly. $100,000 for advisors with experience. advisors have some skills in common but Most financial advisors receive commis- have different educational requirements. ploying 2 to 15 people, and most are lo- sions on the sale of insurance products or Both may have professional certification, cated in urban areas. Some large firms securities, in addition to assessing a fee although it is not required. prefer candidates with specialized train- charged by the hour or by the complexity Qualifications. The job duties involved ing in law or accounting; other employers of the plan. Earnings for some financial in both financial analysis and advising re- prefer to hire people with experience sell- advisors are completely fee-based. quire mathematical, problemsolving, ing financial products and services for a Good earnings and opportunity for ad- computer, and analytical skills. Financial commission. A smaller but growing num- vancement are not the only things that at- analysts and advisors must also have ex- ber of advisors work for corporations, tract people to these occupations. Finan- cellent communication skills to present banks, mutual fund companies, colleges cial analysts and personal financial complex financial concepts and strate- and universities, credit counseling organi- advisors usually work indoors in safe and gies in easy-to-understand language, zations, and brokerage firms. comfortable environments. People are both orally and in writing. Self-confi- Employment of financial analysts and also drawn to become financial analysts dence, maturity, and the ability to work 28 Occupational Outlook Quarterly q Summer 2000
  • 6. Good communication and interpersonal skills are essential for financial analysts and advisors. independently are important as well. have good interpersonal and communica- dence and an ability to handle client re- Financial analysts need in-depth tions skills and a strong desire to succeed; jection are also important. knowledge of accounting principles and considerable sales experience often is Training. College-level knowledge is financial analysis because their work is important to both financial analysts and highly technical. They also must have a personal financial advisors, but financial broad perspective of financial and busi- The job duties involved in analysts have stricter educational require- ness markets and knowledge of invest- financial analysis and advising ments. ment analysis, financial modeling, and Most companies require financial ana- company and industry trends, along with require mathematical, lysts to have at least a bachelor’s degree market judgment and a sense of market problemsolving, computer, in business administration, accounting, timing. Analysts should be detail- and statistics, or finance. Coursework in sta- customer-oriented. and analytical skills. tistics, economics, and business is re- For financial advisors, many employ- quired, and knowledge of accounting ers consider interpersonal skills and sales preferred. One of an advisor’s most valu- policies and procedures, corporate bud- ability more important than academic able skills is the ability to ask good ques- geting, and financial analysis methods training. Employers seek applicants who tions and listen to the answers. Self-confi- is recommended. A master of business Occupational Outlook Quarterly q Summer 2000 29
  • 7. administration degree is desirable. Ad- relevant experience, completion of educa- P.O. Box 3668 vanced courses in options pricing or bond tion requirements, passage of an exami- 560 Ray C. Hunt Drive valuation and knowledge of risk manage- nation, and adherence to a code of ethics. Charlottesville, VA 22903-0668 ment are also suggested. The chartered consultant designation re- 1 (800) 247-8132 Personal financial advisors have no quires experience and completion of a 10- (804) 951-5499 formal educational requirements. But be- course study program. Both require con- http://www.aimr.org cause financial advisors must understand tinuing education. And although use of For general information about per- economic theory, conditions, and trends, sonal financial advisors, contact: college is recommended. Suggested ma- There are no certification or The Financial Planning Association jors include business administration with Attention: Career Development Coordi- a concentration in financial planning or licensure requirements for nator liberal arts, with courses such as account- either financial analysts or 3801 E. Florida Ave., #708 ing, economics, marketing, and human Denver, CO 80210 behavior. personal financial advisors. 1 (800) 322-4237 Financial analysts and advisors can However, professional designa- http://www.fpanet.org find these courses and programs in col- For information about the Certified Fi- leges and universities nationwide. Stu- tion is encouraged. nancial Planner designation or to request dents may also receive training in finan- a financial planning resource kit, contact: cial planning through independent study the occupational title is not regulated, fi- The Certified Financial Planner Board of programs, including those administered nancial advisors may need licenses for Standards by the College for Financial Planning some services—such as providing legal 1700 Broadway, Suite 2100 near Denver and the American College in advice or selling stocks and bonds, insur- Denver, CO 80290-2101 Bryn Mawr, Pennsylvania. (See the addi- ance, or real estate. 1 (888) CFP-MARK (237-6275) tional sources of information at the end of (303) 830-7500 this article for contact details.) Related occupations http://www.cfp-board.org Certification and licensure. There are no Financial analysts must thoroughly ana- For information about financial plan- certification or licensure requirements for lyze one or more areas of finance. Other ning study programs, contact: either financial analysts or personal fi- occupations requiring that skill include The College for Financial Planning nancial advisors. However, professional budget analyst, credit analyst, financial 6161 South Syracuse Way designation is encouraged. manager, loan officer, portfolio manager, Greenwood Village, CO 80111-4707 Financial analysts who successfully and pension consultant. 1 (800) 237-1990 complete a series of three examinations In addition to personal financial advi- (303) 220-1200 receive the title of Chartered Financial sor, occupations that provide financial http://www.fp.edu Analyst. The essay exams, administered advice to individuals include accountant, For information about a financial plan- by the Association for Investment Man- insurance sales agent, lawyer, loan coun- ning study program and the Chartered Fi- agement and Research, cover subjects selor, and securities, commodities, and nancial Consultant designation, contact: such as accounting, economics, and secu- financial services sales representative. The American College rities. Applicants may take only one exam 270 South Bryn Mawr Ave. each year, in sequence, so the program Additional sources of information Bryn Mawr, PA 19010-2196 takes a minimum of 3 years to complete. For general information about financial 1 (888) AMERCOL (263-7265) Personal financial advisors may pur- analysts and the Chartered Financial Ana- (610) 526-1490 sue a Certified Financial Planner or Char- lyst designation, contact: http://www.amercoll.edu tered Financial Consultant designation. Association for Investment Management The certified planner designation requires and Research 30 Occupational Outlook Quarterly q Summer 2000