Careers within Finance

There are many different careers in finance. Careers-in-Finance.com is a very informative website you can check out to better understand the different careers in finance.

When we first wrote this section, Careers-in-Finance included seven finance tracks. These included the following:

  1. Commercial banking

  2. Corporate finance

  3. Financial planning

  4. Insurance

  5. Investment banking

  6. Money (asset) management

  7. Real estate

Later, the website added two more tracks: (1) hedge funds and (2) private equity. These additions make sense, as the website tracks careers in finance, and these two careers had become increasingly popular at the top MBA and finance programs in the preceding years. Prior to about 1997, most top-flight finance program graduates would aim for Wall Street to join the world of investment bankers. The dot-com bubble changed that, with many top graduates catching the new technology bug and hoping for the mega-tech cash-outs of high-tech firms. When the tech bubble broke in March 2000, most of these dot-com jobs dried up. In the 2000s, we experienced several other bubbles—including hedge funds, private equity, and real estate. During these periods, graduates wanted to get rich quick through these three very (potentially) lucrative fields—especially hedge funds and private equity.

Below, we discuss the nine career tracks outlined by Careers-in-Finance.

Commercial Banking

Careers-in-Finance includes consumer banks as part of commercial banking. The possible careers at consumer and commercial banks are very similar, with the main difference being the clientele of the bank.

Perhaps the lowest entry-level job in the banking sector is that of a teller. A teller is the employee we interact with when we go to a bank’s drive-through window or step up to the bank’s front desk. Typically, the qualifications for teller are not that rigorous. Tellers are often hired without a four-year college degree.

A step or two above tellers are credit analysts. Credit analysts determine whether loans should be extended to loan-seeking potential bank clients. For example, when you apply for an auto loan to buy your dream car upon graduating from college, a credit analyst will examine your file to determine if you should receive the loan.

Often at commercial banks, a large part of a credit analyst’s responsibility is to find clients and extend loans to them. For example, we have had several students go to work for Comerica Bank in California after graduating. Approximately half of their job at Comerica is to find clients in need of loans, and the other half is crunching numbers to see if those loans should be granted. This type of job takes both number and people skills. The ability to play a round of golf or have a social lunch with a potential client is critical in the effort to recruit firms to apply for loans. After the potential client has submitted an application, a very careful numerical analysis must be performed to make sure the client is a justifiable risk for the bank to take on. This type of career path takes a certain personality. You cannot be very shy in this line of work. You have to be outgoing enough to drum up business.

Many banking professionals desire to move into management, whether it is managing a local branch or moving up to the corporate level. In the banking sector, executives have typically moved up through the ranks of the bank; it is not unusual for high-ranking executives to have started as tellers many years before. If your goal is to become a banking executive, you should seek classes in financial analysis and financial institutions. Most business schools offer a class specifically designed for bank management.

Corporate Finance

Most people who specialize in corporate finance desire to work in a corporate setting. Examples of those with careers in corporate finance are graduates who go to work for Google, Adobe, Facebook, Dell, Microsoft, or Ford. Within a firm, financial analysts can have any number of responsibilities. Some responsibilities include the investing and financing decisions discussed earlier as well as cash management, tax strategies, and financial policy implementation. The highest-ranking officer in corporate finance is typically the chief financial officer (CFO) of a company. The CFO is responsible for all of the financial decisions made by the firm. He or she serves as the right-hand person of the chief executive officer (CEO) in all money matters.

Financial Planning

Professional financial planners work with individuals to help them achieve their financial goals. Financial planners often help clients create budgets to live on. They also help direct the investments of their clients. It is typical for financial planners to help with tax planning by setting up trusts, estates, and wills. With today’s one-stop financial shopping, financial planners can be found anywhere from your local bank branch all the way up to the largest investment banks in the world that offer financial planning services. (Don’t count on the huge investment banks helping you, though, unless you’re worth at least seven digits.) Often, companies hire or outsource financial planning as a benefit to their employees. For example, our university has several professional planners who will work with university employees free of charge.

If you decide to pursue a career in financial planning, it is often important to qualify for the professional designation of certified financial planner (CFP). Wiley, Kaplan, and others provide CFP exam reviews. Even for one of your authors, who had a PhD in finance and over 20 years experience as a finance professor, an exam review program and many hours were needed to become a CFP professional. To find out more about the CFP designation, check out the CFP Board website.

The topics covered in the CFP exam and the percentage of exam questions falling under each of those topics are as follows:

General Financial Planning Principles 17%
Investment Planning 17%
Retirement Savings and Income Planning 17%
Risk Management and Insurance Planning 12%
Tax Planning 12%
Estate Planning 12%
Professional Conduct and Regulation 7%
Education Planning 6%

Hedge Funds

You may ask, “Why would someone want to be a hedge fund manager?” According to Careers-in-Finance, “The compensation for working in a hedge fund can be unusually high. It is not uncommon to see a person in their late 20s or early 30s pull down $5 million a year or more in one of the right positions at the big funds.” Pulling down $5 million a year is a good enough reason for many aspiring hedge fund managers.

So what do hedge fund managers do? Think of a traditional mutual fund—the two are fairly similar. In a mutual fund, the managers buy stocks or bonds with investor money. The managers attempt to find undervalued, or growth, stocks (or bonds) so that they can buy low and sell high. Hedge fund managers have a similar goal—earn a strong return for their investors. However, hedge fund managers are not restricted to long (buy) positions only. Hedge fund managers can also short (sell) stocks and bonds and can buy and sell financial derivatives (stock options, for example). Hedge fund management is almost always very quantitative. Hedge funds typically recruit math geeks and computer nerds—you know the type—who then make $5 million a year.

When the economy and stock market went down in 2009 and 2010, many hedge funds went out of business. The bad news is that now there aren’t as many hedge funds around to hire graduating college students. The good news is that the survival of the fittest has made it so most of the bad hedge funds failed and the quality firms survived.

Insurance

There are several different branches of insurance. Because we all have to insure our cars, we’re pretty familiar with property and casualty auto insurance. When we think of consumer insurance, we think of life insurance or property insurance. Along with consumer insurance, the area of corporate insurance rounds out the insurance discipline. Corporate insurance, also known as risk management, involves helping firms protect themselves from unforeseen risks. In many universities, the business school has a department known as the RMI department. RMI stands for risk management and insurance.

Former students of ours have gone on to work for Aon, a large insurance company that specializes in providing insurance plans for other large companies. In the corporate insurance career path, professionals use their financial analytical skills constantly. These companies often offer reinsurance, which is insurance for those providing insurance to others.

On the consumer side, entrepreneurial-minded graduates can make their own way in insurance. With many baby boomers retiring from the insurance field, more and more opportunities are available for careers in insurance. For example, one of our friends, Big R, bought an Allstate branch from a retiring insurance agent several years ago. Big R hired the former branch owner to stay with the company for six months until the clients were comfortable with Big R. Once the transition was made from the former owner to Big R, the former owner fully retired. Big R has now done this twice (once by himself and once with a partner). He is doing very well for himself. As an insurance book owner, Big R is his own boss. He is responsible for client contact. Allstate has also requested that all of its owners pass the CFP exam. As such, Big R is working on the credit hours and studying for the exam (a several-year adventure). Allstate is moving strongly into the financial planning arena. They now offer brokerage services and financial planning services along with their traditional insurance services. Other insurance companies are also moving in the same direction. Having a major in finance is becoming more and more important for those who desire to become leaders in insurance.

Investment Banking

Because of the historical financial meltdown of 2008, stand-alone investment banks, like the big-named Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley, have been dissolved, bought out, or converted to traditional banks. With the demise of traditional investment banks, it is important to know that the functions performed by these investment banks are still required by the financial markets. As such, in this section we describe the functions of investment bankers (I-bankers).

Most students studying business have heard of I-bankers’ extremely long hours—most I-bankers work 80–100 hours a week. With these long hours, I-bankers also command huge salaries and bonuses. I-bankers have six primary roles:

  1. Company and industry analysis

  2. Mergers and acquisitions

  3. Raising capital via corporate offerings

  4. Sales and trading

  5. Private client services

  6. Back office support

These responsibilities are not the only jobs the I-bankers have, but they are the main ones. (I-banks also have brokerage wings, for example, consisting of employees who work primarily in sales.)

Company and Industry Analysis

Company and industry analysts perform research on either individual firms or on entire industries. These analysts publish their research in reports and typically give a rating for each firm they study. Recommendations generally include strong buys, buys, holds, sells, and strong sells. Analysts also forecast target earnings for the firms they study. Analysts in this area must have a strong understanding of both accounting and finance. They effectively produce extremely thorough fundamental analyses of each company they study. In addition to individual firms, some analysts cover entire industries, such as energy, software, or automotive.

Mergers and Acquisitions

I-bankers who specialize in mergers and acquisitions help firms consummate deals in which two or more firms merge as one. These I-bankers must be able to value assets and firms and communicate clearly to each participant in the transaction. The ability to negotiate successfully and operate well under pressure is essential.

Raising Capital via Corporate Offerings

The third role of I-bankers, raising capital via new issues, includes helping firms conduct initial and seasoned offerings of private or public debt or equity (private placements, initial public offerings, and seasoned equity offerings). I-bankers help firms desiring to issue stock or bonds to write the offering prospectus. The offering prospectus must be registered with the U.S. government through the Securities and Exchange Commission (SEC). The document consists of an extremely thorough description of the firm, including risk factors, growth potential, and historical financial statements.

Sales and Trading

The fourth role, sales and trading, represents the securities division of the I-bank world. Here, equities, fixed income, and other securities are bought and sold for institutional and retail clients.

Private Client Services

The fifth role, private client services, involves working with institutional investors, such as mutual funds, pension funds, and hedge funds (i.e., prime brokerage); in other words, high-net-worth individuals and corporations. Professionals in the private client services area give financial advice and execute trades to build portfolios for their clients.

Back Office Support

The final role of I-bankers, back office support, deals with legal compliance, regulatory reports, collateral management, human resource management, and security trustees.1

Money (Asset) Management

Asset managers make a living investing other people’s money (OPM), typically as fund managers. Examples of funds include mutual funds, pension funds, and insurance funds. Asset managers can invest in stocks, bonds, real estate, or any other type of asset for that matter. A professional designation that is very valuable in the asset manager field is the chartered financial analyst (CFA) designation. The series of examinations one must pass to qualify for this designation is extremely rigorous, with typically only 35% or so of the candidates passing. After passing the exams, candidates must obtain relevant work experience. Many funds and investment banks require their analysts to become CFA charterholders. (Side note: two of your humble book authors hold the CFA charter.)

Private Equity

Private equity (PE) is a general term that includes angel financing, venture capitalists (VCs), and takeover firms. The Careers-in-Finance website talks mostly about buyout firms and leveraged buyouts (LBOs) when referencing private equity. Similar to hedge funds, PE offers the potential of very high compensation. Analysts who work in PE spend most of their time determining which deals to fund and then monitoring their portfolio firms. Angel investors and VCs typically invest in start-up or new firms that hope to grow quickly and then have a harvest. A harvest event is typically an initial public offering (IPO) or a buyout (acquisition). PE buyout firms invest in entire companies, typically taking on large amounts of debt to buy floundering firms and then turning them around for a profit.

Real Estate

When most people think of careers in real estate, they think of real estate salespeople working for Coldwell Banker or a similar firm. Most university real estate finance programs do not train students for such a track. Real estate finance is more concerned with investing in and managing real property.

A great resource for students interested in real estate careers is the Vault Career Guide to Real Estate. The Vault Guide lists the following career areas within real estate:

  1. Residential real estate agents or brokers

  2. Commercial real estate brokerage: tenant representation

  3. Commercial real estate brokerage: leasing agent

  4. Investment sales broker

  5. Mortgage-backed securities rating agencies

  6. Real estate appraisal

  7. Property management

  8. Real estate advisory

  9. Real estate investment banking

  10. Development

Having worked with our university’s construction management department in the College of Engineering, we would also add construction management to the list of real estate careers. Traditionally, construction management has been a successful major in that a high percentage of students find employment upon graduation. If you have interest in real estate, we encourage you to download the Vault Guide and learn more about the various job opportunities.

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