Why Choose a Finance Career?
There are plenty of reasons to choose finance as your career path. After all, finance is the engine of capitalism, allowing millions of people to start small businesses, fund new inventions and purchase their dream home. A finance career is also prestigious, well-paying, and in high demand.
Further, most finance jobs are located amid some of the most exciting, fast-paced cities in our country. New York City, Chicago, San Francisco, Boston and Atlanta are hotbeds of financial activity in the United States. Other regional cities such as Charlotte, Minneapolis, Dallas and Boca Raton also densely populated with finance companies of all types. But technology has shrunk the world, so to speak, allowing financial professionals to operate virtually anywhere.
But let’s be honest-many professionals pursue a career in finance because the pay can be very lucrative. Unlike many other industries, financial firms typically operate as ‘meritocracies’, meaning compensation is based on performance. In some financial positions, there is almost no cap on compensation. This is especially true for production-based jobs like stock broker, mutual fund wholesaler and trader. It’s also true for a commercial banker, where pay is often tied to the loan volume. Sometimes, compensation can come in very different forms, so a mediocre salary may be offset by a great benefits package. We highlight the compensation from a number of different financial firms, specifically. There are six basic forms of compensation utilized by many financial firms.1 They are:
- Short-Term Incentives (Bonuses)
- Long-Term Incentives
- Paid Expenses
Given the fact that many financial companies are publicly traded, there is also the opportunity to accumulate stock in the company. These stock awards will depend on performance and years of service. In many cases, the lion’s share of compensation comes from these stock options or grants. The great thing about equity-based compensation is the alignment of goals between the company and its financial professionals. ESO (Employee Stock Ownership) is an incentive that may be reserved for management or executives, so striving for that level becomes a priority for financial professionals.
Even if you aren’t a manager, many employees have the opportunity to buy stock in their own company at a discounted value. Companies will typically take the average share price over the last six months and then allow employees to buy the stock at that price, less an additional 10% or so.
If the company you work for is not publicly traded, don’t worry. There are many Employee Stock Ownership Plans (ESOPs) available to reward employees. This is a fantastic benefit of many smaller financial companies. It provides liquidity for a small business owner of a closely held business and provides employees a stake in the company for millions of Americans.
Stock ownership is certainly a powerful wealth building mechanism, especially if dividends are declared by the company. If you choose to reinvest the dividends, rather than take them as cash, the power of compounding can lead to incredible wealth accumulation. Albert Einstein agreed, once calling compounding the “Eighth Wonder of the World”. Going back 50 years in the stock market, dividends account for roughly 70% of stock returns. Investors typically focus on headline grabbing stock movements. Yet, capital appreciation accounts for just 30% of returns. We profile several companies that offer this type of compensation incentive, along with other unique perks.
What are Some Different Financial Careers?
There are plenty of different career paths aspiring financial professionals can pursue. They include research, corporate finance, capital markets and fraud management to name a few. We profile several different financial positions, even some financial careers you never knew existed, like factoring broker or peer-to-peer lender.
A research department contains analytical roles such as financial analyst, auditor and investment analyst. These professionals pour over cash flow statements and balance sheet data (both on and off balance sheet items) and calculate financial ratios to help make wise investment or managerial decisions. Analysts can be either on the buy-side or sell-side, depending on who gets to read their research reports. Buy-side analysts can be highly compensated if they can land at a hedge fund and make good calls. According to CNBC, entry-level analysts at hedge funds earn an incredible $335,000.2
At some firms, the term analyst is more of a rank than a job description. Often, analysts go onto become one of the most sought after careers in finance, portfolio manager, where median compensation is $118,752 according to Glassdoor but can go into the millions at a hedge fund.3 Hedge funds are institutional pools of private capital that essentially invest without constraints. If you want to work at a hedge fund and don’t have an existing network, you had better have at least a Master’s degree or CFA to have a shot.
You don’t have to work for a financial institution to have a career in finance. By joining the corporate finance division of a non-financial firm, employees will be exposed to a wide variety of financial operations. These tend to focus on more firm-specific operations such as capital budgeting and overall corporate strategy. Financial professionals in this department are primarily tasked with prioritizing strategic opportunities or projects from a capital allocation standpoint. Should the company build a new plant, return money to shareholders or buy out a pesky competitor. When people land positions in corporate finance, they tend to stay because of the benefits. But getting one of these roles may require a Master’s degree or a professional designation like the CFA (Chartered Financial Analyst).
The capital markets department essentially raise money for institutional clients. They arrange both debt and equity financing through a variety of avenues including corporate bond offerings, convertible securities and equity follow on offerings. As long as there is an appetite for risk from investors, mostly institutional investors such as pension funds and insurance companies, capital markets group will remain quite profitable.
Bonuses for capital markets staff and those in the investment banking division are tied to deal volume. Those pursuing these careers should realize that the amount of money raised for institutional clients is the key metric. This is because these positions typically charge a percentage of funds raised. While your position on the totem pole is a factor in your final compensation, ‘a rising tide lifts all boats’ so if there was a large amount of deals underwritten, it should benefit all those in the department.
Capital markets typically serve large, publicly traded companies. But how about small and mid-sized companies (SMEs) that require funding? When credit gets tight, these enterprises often get turned down by traditional banks and often must turn to alternative funding sources. These include factoring companies, merchant cash advances and private equity. There are a number of different financing positions at factoring companies, mostly in sales where the name of the game is to get a small business on the factor’s platform. Merchant cash advance companies provide short term cash to businesses in need, at outsized APRs (annual percentage rates). Private equity funds will often convert the debt obligations of their portfolio companies into an equity stake, if applicable.
There are a number of positions that put financial professionals on the front line of preventing, detecting and catching economic and financial crimes. Why financial companies? Simple-that’s where cyber-criminals and fraudsters strike because that’s where the money is. According to Britain’s Standard Chartered Bank, financial crime costs the world an astounding $2.1 trillion per year.4 And with the rapid pace of technological changes, combatting this threat is as challenging as ever.
Given the punitive damages regulators levy on firms for non-compliance, or inadequate security, keeping compliance and fraud detection departments fully staffed is a top priority. In fact, the Dodd-Frank reform makes increased risk management the law. Case in point, Banc America has said that they have an ‘unlimited budget’ when it comes to cybersecurity.5
Which Financial Career and Sector is Best for Me?
The variety of financial careers is so large that there is sure to be a position that appeals to everyone. But not every finance job is a good fit for everyone. If you are on the timid side, you probably won’t thrive in the frenetic pace of a trading desk or “working the room” as an investment banker. And if you have an outgoing, gregarious personality, a career as an accountant or actuary might not be work.
So what are good matches? Well, if you value job security, consider a career as an accountant. Forbes ranked ‘senior accountant’ and ‘cost accountant’ as the #1 and #2 most in demand finance jobs, respectively.6 The compensation for these is also substantial, with senior accountants earning between $61,000 and $85,000.7Cost accountants in a managerial role can earn between $85,000 and $135,000.8
If you are more of a risk-taker or your circumstances are a little freer, consider working for an alternative finance position. Young turks looking for the highest possible compensation are often attracted to hedge funds, private equity funds, commodity trading advisors (CTAs) or prop trading desks.
Perhaps you’re a Millennial with a knack for both technology and finance, consider the growing area of financial technology, known simply as ‘fintech’. Fintech jobs have the potential to be very disruptive for traditional banks and financial institutions. While we believe fintech is here to stay, we believe financial institutions will adapt, adopt the technology themselves, or simply purchase competitors. For example, hedge fund turned family office turned quasi-venture capital firm, Point72 Ventures has taken investment stakes in fintech startups Cloud 9 and Acorn.9
Do I Need a Masters in Finance Degree to Work in Finance?
This is one of the first things many ladder climbers and career changers consider. For certain finance jobs you will need a Masters level degree and for many others it is highly recommended. For the more academic positions including economist or accountant, a Masters will help a great deal and is often a requirement.
For example, if you don’t have an undergraduate accounting degree, or didn’t go to a Top Ten School, you won’t have much of a chance getting hired at a Big 4 accounting firm like PwC or Ernst & Young. In this case, a traditional Masters of Accountancy or online MAcc degree will be essential. Some of these MAcc programs actually prepare you for the prestigious Certified Public Accountant exam. We highlight some of these programs. This designation is important if you work for a publicly traded company because financial statements submitted to the Securities and Exchange Commission, SEC, must be filed by a CPA.
Also, for more niche financial positions such as compliance officer or risk manager a Master’s degree is a great way to not only get into the department but also get a look for a managerial role. Candidates pursuing these positions presumably didn’t have an undergraduate degree in these disciplines, so they lack the specific knowledge required to prepare professionals for this career. In this case, an advanced degree like an online MBA in Enterprise Risk Management is a great idea and would really separate the degree holder from the competition. Typical curriculum for this program includes culture management and control and the role of ERM in corporate strategy. The financial meltdown of the Great Recession showed the world just how much risk is actually embedded in some financial operations.
Also, consider an online Master’s in Financial Crime and Compliance Management degree to land a position in compliance and risk management. These are some of the most in-demand careers and, given the overbearing regulatory environment, isn’t likely to slow down anytime soon.
But for some areas, a Master’s degree may not be necessary. For example, if you are looking to get into operations, become a stock broker or trade securities you may not need a Master’s degree (but you will have to be properly licensed for these positions, the Series 7 General Representatives Exam for brokers and certain traders and the Series 99 for operations professionals).
While there are financial jobs that do not require a Master’s degree or professional designation, odds are you will earn more money with a Master’s degree compared to a bachelor’s degree only. In fact, financial professionals with a Masters in Finance degree and at least ten year’s experience enjoy median pay of $119,000, according to Payscale via Business Insider.10 This is because an advanced degree helps open the door to management positions by increasing financial intelligence and showing initiative.
Further, an article on jobsite Monster.com offered a list of the highest paying Masters degrees, compiled by professional compensation firm Payscale. ‘Masters of Finance’ ranked as the second highest paid Master’s degree, with a median pay for degree holders of $120,000.11 The report cites a few different positions that are attainable with this degree including Vice President of Finance ($170,000), Finance Director ($154,000) and Senior Financial Analyst ($83,500).12 Coming in at #4 on the list is a Master’s in Economics degree, with median reported pay with this degree of $114,000.13 Occupations for economist include Marketing Director ($150,000) and economist ($107,000).14
What are the Benefits of an Online Masters in Finance Degree?
An online Masters in Finance degree offers financial professionals a quality education at your convenience. This flexibility makes online programs an increasingly popular option for working professionals since leaving work to attend a traditional school for your Master’s degree has a serious opportunity cost for your career. You can now earn a highly respected, advanced degree from the comfort of your own home, on your own schedule. And you will not sacrifice any academic quality by choosing an online or hybrid program.
There was a time when online degrees had a stigma attached to them. But that perception is rapidly changing. People are starting to realize they can receive an online Master’s degree programs from such prestigious universities as Johns Hopkins, Georgetown and American University. Now these universities still maintain rigid admission standards but if you can get in, you can get all the benefits of the university’s brand recognition and reputation. And from a cost standpoint, you avoid the rising costs of room and board, since your main charges are for tuition and books.
The quality of the technology today make online programs feel much more like traditional programs. Many offer synchronous sessions allowing for quality interaction with faculty and classmates. Of course, there are some interactions that cannot be totally replicated in the online platform. Networking will always be done optimally in person. Luckily, there are several schools that offer a hybrid program where students can complete some course work on campus, creating relationships that can last far after the program is completed.
Many online finance programs also end with Capstone projects which allow business students to meet with local business professionals to solve real world problems. Depending on the school, the faculty members will also be members of the boards of local organizations. In these situations, they can be a great resource when it comes time to try and land a job in that particular field. Some online Masters programs also assist in lining up internships for students, and we profile schools that do so.
CFA vs MBA
Many financial professionals go on to pursue the highly-respected Chartered Financial Analyst (CFA) designation. This is one of the most popular financial designations, along with the Certified Public Accountant (CPA) certification for accountants and the Certified Financial Planner (CFP) designation for financial advisors. Unfortunately, the CFA program also has a reputation for being quite grueling, with exam pass rates often well below 50%. But some Masters in Finance programs actually have aligned their curriculum with the CFA’s Body of Knowledge in preparation for the Level I exam. We highlight which Master’s programs maximize student’s chances of passing the exam.
Many engage in the CFA vs MBA debate and compare and contrast these programs in terms of job opportunities, compensation and difficulty. There are pros and cons to each, but basically an MBA tends to provide a broader financial curriculum while the CFA program is focused primarily on investment management. Still, the earlier core courses of an MBA program somewhat mirror the earlier levels of the CFA where topics such as accounting, ethics and economics are covered. If you aren’t absolutely certain about investment management, an MBA is probably the better choice, considering the broader curriculum for business school. The reality is that by attaining both, compensation is maximized.