Hey, welcome to the most insightful article on Financial Advisor vs Financial Analyst.
At the end of this article, we guarantee you’ll have a clear picture of who a Financial Advisor and a Financial Analyst are, the similarities and differences between these two financial professionals.
We’ll take a deep dive into:
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Introduction to Financial Advisor vs Financial Analyst
The many designations in the financial advisory industry can be confusing.
Therefore, we won’t blame you one bit if you are stuck at what sets a financial advisor apart from a financial analyst.
So, to clear the confusion, we will break down the two professions for you in this Financial Advisor vs Financial Analyst review.
An Overview of Financial Advisors
The term financial advisor refers to many financial professionals.
Insurance agents, financial planners, investment advisors, stockbrokers, and wealth managers, among many other designations, are referred to as financial advisors.
Given how general the term is, it follows that financial advisors have a wide range of tasks.
Despite that, the path to becoming a financial advisor is straightforward as specialization is further along the career ladder.
Having said that, here’s everything about what sets a financial advisor apart.
Education Requirement
Many financial advisors have a bachelor’s degree in business administration and finance-related courses.
Since the job revolves around helping people with finance management, majors in finance, business, economics, and statistics are desirable.
Important to note is that one can get started in the financial advisory industry without a bachelor’s degree.
However, a bachelor’s degree plays a major role where continuous education and promotions are concerned.
More than a college degree, Financial Industry Regulatory Authority (FINRA) requires financial advisors to have a license to sell securities.
The most common license in the industry is the series 7 license, which many have confirmed is by far the hardest exam among FINRA licensing exams.
The license allows financial advisors to sell and buy stocks, bonds, futures, and options.
Ideally, an advisor with a series 7 license can sell all securities except for commodities.
There’s also the series 6 license that many advisors usually start with.
With the license, an advisor can sell mutual funds and variable annuities.
Important to keep in mind is that to take series 6 and 7 exams; one must be sponsored by a FINRA member firm.
This implies that once done with a degree program.
A financial advisor should look for an internship to gain hands-on experience and hopefully get a job afterward.
Depending on the advisor’s job, performance, and the brokerage firm’s policy, their employer will enroll them for the FINRA licenses exam.
More than that, financial advisors who want to charge fee-only are required to have a series 65 license.
Fee-only advisors are held to fiduciary standards.
They are required by law to always put their clients’ interests first.
Beyond the licenses, there is a wide range of designations for financial advisors.
On top of the list is a certified financial planner (CFP) administered by the certified financial planner board of standards.
CFP is the gold standard in the financial advisory industry.
Still, there are many certifications, including but not limited to chartered financial analyst, chartered financial consultant, and certified insurance counselor, among others.
The certification an advisor chooses depends on their career path.
Interestingly, a financial advisor’s education doesn’t stop there.
An advisor can choose to pursue a master’s degree to further their career.
Roles and Responsibilities
According to the U.S. Bureau of Labor Statistics (BLS), almost half of financial advisors work in securities, commodity contracts, and other financial investment-related firms.
Advisors can also be found in insurance companies, Registered Investment Advisors (RIA) firms, banks, and credit businesses.
A quarter of financial advisors are self-employed.
Financial advisors have different responsibilities, depending on where they work.
Despite that, they generally examine clients’ personal finance, i.e., income, spending, savings, tax status, and debt.
They then give clients suggestions on the best ways to manage, save or invest finances to help reach their financial goals.
Advisors also help clients with retirement planning by recommending the right insurance products and investment strategies to help them grow their wealth and better prepare for retirement.
Moreover, financial advisors educate their clients on a wide range of topics, including budgeting, insurance, tax law, savings, and money management.
Furthermore, they offer tax and estate planning services.
To do their job effectively, financial advisors discuss with their clients their financial goals.
They then take them through their financial services before recommending investment strategies that may work for the client.
Every so often, an advisor would review their client’s account and re-evaluate their financial plan.
When advisors are not busy helping their clients make sound financial decisions, they are out there, marketing their services to their target market.
Salary
According to BLS, personal financial advisors’ median income is $88,330.
The highest ten percent earn $208,000 per year, while the bottom ten percent take home $44,100.
Payscale puts the average salary of advisors at $60,350.
Their base income is between $39,000 and $111,000 per year.
Impressive, right!
But that’s not all.
A personal financial advisor has unlimited earning potential.
Apart from the base income, the amount an advisor earns can increase significantly since they sell securities.
Why is that?
Financial advisors earn a commission from the investment products they sell.
If an insurance agent signs up a client for a life insurance product, they’ll earn a commission from the policy as long as the insurance holder pays their premiums.
The same goes for advisors selling mutual funds, annuities, and other securities.
The commission an advisor gets varies depending on the product sold and the advisory firm policy.
On the flip side, there are also fee-only advisors who are only paid for the services they offer.
Fee-only advisors can charge hourly, a flat rate, or an investment management fee, which is a percentage of the value of assets under management.
Career Outlook
The future of financial advisors is looking bright.
According to BLS, the industry is projected to grow by 5% in the next decade, which is slower than the national average, but none the less it’s a positive outlook.
The bureau estimates that they’ll be 12,600 job openings every year during this period.
The growth in the industry is associated with the huge percentage of baby boomers expected to retire during this period.
As the life expectancy increases, this lot is more likely to seek the guidance of financial advisors so that they don’t outlive their retirement savings.
Even more, the same age group will retire from their financial advisory jobs, creating room for new advisors.
All factors considered, there’re enough opportunities for anyone considering joining the profession.
What Sets a Financial Analyst Apart
Financial analysts spend hours analyzing data and identifying investment opportunities.
These professionals are experts in financial analysis.
They research market trends, analyze financial statements and prepare and file tax returns.
Analysts are busy individuals, working long hours.
In fact, their working hours increase as they progress in their career path, unlike financial advisors.
Apart from working in the office, analysts also travel to meet up with company directors or investors.
With that brief overview, let’s dig deeper to find out about what it takes to be a financial analyst, their job outlook, and more about what they do.
Education Requirement
Chartered Financial Analyst (CFA) or simply financial analyst is the gold standard in the investment industry.
They are specialists who have to meet specific requirements outlined by the CFA Institute to get the charter.
To register for the program, one must have a bachelor’s degree or be in the final year of their college education.
The preferred degree programs include finance, business, maths, and statistics.
An advisor is eligible for the program if they have 4,000 hours of work experience or 4,000 hours of work experience plus a bachelor’s degree.
Other requirements include having an international travel passport and living in the country where one is enrolling in the CFA program.
The program constitutes three levels of exams (I, II, III) which a candidate must pass to be awarded the charter.
The exams are as challenging as they come.
According to the CFA Institute, candidates take an average of 300 hours to prepare for a single exam.
Their statistics show that only 43% of the candidates pass the exams the first time.
Forty-five percent of the candidates pass the second time, and a whopping 56% make it to the pass mark on the third trial.
The coursework for the three levels of exams covers a wide range of topics, including portfolio management, economics, asset evaluation, investment tools, fixed income, among others.
Each level of the exams focuses on a specific topic of investment management.
Once an advisor passes the exams, the next step is to meet the experience requirement.
CFA Institute requires charter holders to have 4 years of experience which can be acquired before, during, and after the program is done.
With these requirements met, the next thing is to submit 2-3 reference letters to the institute.
The reference is to showcase an advisor’s professional experience, and why they need the charter.
These references should be from financial professionals or supervisors the advisor has worked with.
If an advisor can get a reference from a chartered financial analyst, even better.
They are more likely to be approved sooner.
With all the prerequisites met, one can apply for the CFA certification.
CFA Institute takes up to ten working days to review the application and give feedback.
Suppose one is applying for affiliate membership.
The review can take up to a month.
Once approved, that’s it.
An advisor becomes a CFA charter holder.
Roles and Responsibilities
So, with such a thorough program, what do CFAs do?
Unlike financial advisors who offer financial advice and financial planning services by examining the client’s financial needs and goals, CFAs’ financial advice is pegged to in-depth analysis of the financial data of a specific industry and the business outlook.
From this analysis, CFAs can make predictions about an industry, a sector, or a business.
Their predictions help individuals and businesses make investment decisions, estate plans, and financial plans based on facts.
CFAs analyze the trends in the market to identify the different investment strategies that will meet a business’s financial situation at that particular time.
Many companies depend on financial analysts to decide when to buy or sell stocks.
Financial analysts not only help companies tap into investment opportunities but also determine whether projects like marketing have a return on investment.
CFAs are experts in risk analysis, wealth management, financial planning, trading, auditing, accounting, and credit analysis.
Away from the technical stuff, financial analysts write financial reports.
They meet up with clients to discuss business projections and analyze financial reports.
Salary
According to the U.S. Bureau of Labor Statistics, financial analysts’ median salary is $83,660, which translates to $40.22 per hour.
Payscale places the average salary of financial analysts at $62,108.
Financial analysts mostly bank on salary.
There are few commissions, bonuses, or profit-sharing.
Career Outlook
BLS projects that the demand for financial analysts will go up by 6% in the next ten years.
The Bureau goes on to say that during this period, the profession will have 31,300 job openings every year.
As the demand for analysts grows, so is the competition.
Because of the competition, there are high chances that companies that require financial analysis services, such as insurance companies or mutual fund firms, will focus more on analysts’ experience and education qualifications.
In the early years of their career, analysts work in teams, reporting to senior-level analysts such as portfolio managers.
Junior analysts hoping to climb the career ladder can reach the position of a senior financial analyst within three to five years of hard work.
From the senior analyst position, they can become a portfolio manager, a wealth manager, a senior manager, or a partner with an investment bank.
Analysts can also take a different path and become an investment advisor or a consultant.
Another crucial point to note is that analysts are divided into two:
Buy-side analyst
Many analysts fall into this category.
These are financial analysts who analyze trends and make predictions to help their employer or a third-party company make informed investment decisions.
While their forecasts often project what’s expected in the market, it’s solely the employer’s or client’s decision on where and when to invest.
Despite that, their input usually plays a major role in the investment decisions a firm makes.
Buy-side analysts tend to work long hours, travel a lot, and earn more compared to sell-side analysts.
Sell-side analyst
Sell-side analysts work with companies or as part of departments tasked with selling investment vehicles such as stocks, bonds, insurance, real estate in the case of income properties or other securities.
Sell-side analysts analyze and compare securities in specific industries.
They then write a report, giving recommendations on whether the firm should sell, buy, or hold on to their stocks, bonds, or other securities.
Besides that, they track the performance of securities in the market to help companies adjust their investment portfolios.
Apart from the two sides of the practice, financial analysts from both sides of the divide can further specialize in fixed income instruments or stocks.
Further, some analysts focus on specific industries, say mining, technology, automobile, or even energy.
Conclusion
From the foregoing discussion, it’s clear that financial advisor and financial analyst are two very different professions.
They have different educational qualifications and requirements to get a license or a certification.
Additionally, their job description is different.
The only similarity, though, both are in the financial industry.
Moreover, one can start as a financial advisor and become a financial analyst along their career path.
With that being said, we hope that the difference between financial advisors and financial analysts is now clear as day.
