Careers in FinanceLesson 2

Exploring Financial Institutions and Careers

Aim: What types of rewarding careers exist

in finance?

Do Now: Identify three financial firms (ie: ones

that deal with money) you know of, as well as why you know of them.

Careers in Financial Markets

Do Now answer: Names may include our biggest banks, biggest insurance companies and biggest brokerages.

These firms have made themselves known to the general public by having retail locations and/or by advertising heavily.

Careers in Financial Markets

Careers in Financial Markets

Financial Institutions: Organizations that allow individuals, companies,

governments, etc. to make deposits, exchange

currency, take out loans, and invest in different financial instruments.

Careers in Financial Markets1. Commercial Banks

Loan Officers: Work with a

variety of clients ranging from

large businesses to individuals,

establishing relationships with people trying to borrow money.

Credit Risk Analysts: Work to price risk in order to make decisions regarding clients’

eligibility to receive loans and what rate (cost of

finance) these clients will pay.

Careers in Financial MarketsRetail Branch Management:

Responsible for all functions of a retail

bank branch including managing employees, building

relationships with customers and the

community and approving loans.

Operations Support

Management: Back-office

operations that support the bank’s

business of deposit taking and

lending.

2. Investment Banks: Financial Institutions that are major purchasers of financial instruments. Investment banks are involved in both the “buy” and “sell” side transactions in financial instruments (example: Goldman Sachs).

Careers in Financial Markets

• Salesperson: Sells financial instruments to investors (typically institutions).

Trader: Buys and sells financial instruments for their own portfolio. Their goal is to buy “low” (at an inexpensive price) and sell “high” (at a more expensive price) making a “spread” - or profit.

Research Analyst: Studies financial markets. Writes research reports used by buy-side

institutions to make investment decisions.

Operations Support Management: Settles trades – the buying and selling of financial instruments.

Careers in Financial Markets

3. Other Institutional Investors: Consist of both “buy side” and “sell side” institutions.

Careers in Financial Markets

“Buy Side” Institutions: These institutions buy financial instruments to assemble

portfolios to achieve certain objectives.

Hedge Funds: A fund comprised of a group of different investments and

strategies. Investors in a Hedge Fund must be “qualified”. That is, their

net worth must be at least $1 million not including their primary

residence.

Private Equity: A firm that manages private investments for institutions and high net worth individuals. They generally buy companies, improve their efficiency, and then sell (exit) those companies for a profit. (Example: BlackRock).

Mutual Funds: A fund financed by a pool of capital from many different investors. The mutual fund is run by a manager who makes investment decisions based on the goals set forth in the prospectus. (Example: Fidelity Mutual Funds).

Careers in Financial Markets

Pension Funds: Invest in many different financial instruments in order to generate enough capital to provide retirement benefits to its members.

(Example: TIAA CREF).

Insurance Companies: A company that collects payments and, in return, protects the insured against adverse events (i.e. accident, death, property destruction). The company invests

payments in different financial instruments in order to generate capital growth to pay the

insured if claims are made. (Example: Prudential Insurance Co.).

Careers in Financial Markets

Mutual Funds vs. Hedge Funds

A mutual fund is safer for investors because, under law, the managers cannot take very risky positions. Also, only a small amount of investor capital is required to invest in mutual funds and the funds are generally very large. A

hedge fund is less regulated. Managers are permitted to take risky positions and a great deal of capital is needed to

invest in hedge funds.

“Sell Side” Institutions Brokerage Firms (Salespeople): A firm that sells financial instruments and completes the trades for buyers and sellers. They match sellers then act as the intermediary for the transaction. They generate profits by collecting commission from trading (example: Charles Schwab).

Corporate Finance Associates: Advise companies, municipalities and governments with mergers and acquisitions, investment decisions and growth strategies. Assist companies in determining optimal financing strategies.

Financial PlannerCertified Financial Planner: Individuals who are responsible for the analysis and management of a client’s overall financial/investment portfolio. They analyze each customer's financial situation, timeline for retirement, financial goals over the long term, and then make recommendations accordingly. Investment advisors are paid a flat fee or percentage fee based on the amount of assets they manage.

The Treasurer’s Office works with Corporate Finance Associates to determine growth and financing strategies. It manages the corporation’s investment portfolio.

Treasurer4. Treasurer’s Office of a corporation.

5. Financial Service Regulation and Compliance: Many different positions exist at different regulatory “watchdogs” of the financial industry.

Regulation and Compliance

Examples: Federal Reserve, Securities & Exchange Commission (SEC), Internal Revenue Service (IRS), Financial Industry Regulatory Authority (FINRA), etc.

Requirements for these positions often include a Bachelor Degree in Business, Math or Economics. However, many firms appreciate academic diversity so an interest in the economy and the markets might enable one without the specific educational background to start a career in the financial industry.

Careers in Financial Markets

Lesson Summary1. What broad name do we give to firms that

safeguard money, provide loans and offer various investments products?

2. What does a credit risk analyst do at a commercial bank?

3. In what career does a person develop a personalized investment plan for individuals?

4. In which position does a person try to make money by buying and selling investments?

5. What types of rewarding careers exist in finance?

Web Challenge #1Challenge: The Dodd Frank Wall Street reform act has caused many changes in the finance industry. Research how its requirements are causing firms to shed certain jobs as well as which other types of jobs are being added into comply with the law.

Web Challenge #2Challenge: If you are serious about a career in the finance industry, you should know which type of college majors financial employers prefer. Research the top five majors which lead to jobs careers in finance. Which were as you expected and which surprised you?

Web Challenge #3Challenge: Because the financial industry is so large and so critical to the economy, there are numerous “watchdogs” agencies (both governmental and self-regulatory). The pay at these agencies is substantially less than in the financial institutions they monitor. Research the pay disparity. Consider what this means to you. Would you be willing to work for less money knowing that work you were doing keeps the markets safe? Why or why not?