Investments

Stock brokers sell securities to the brokerage firm’s clients.  The brokers are expected to find and sign up new clients, match various securities to clients’ needs, and develop an effective sales presentation for various securities.  (Hence, a stock broker is said to work on the "sell side" of the street, as opposed to a money manager or portfolio manager who buys securities and is said to work on the "buy side" of the street.)  The broker’s income is earned primarily through commissions generated by the sale. Although this sounds like a rather insecure way to make a living, it can actually be quite lucrative – the average stock broker (with a few years experience) in America earns about $100,000 per year.  However, there is a very wide variation around this number, with many earning far less and many earning far more.

Level of Skills Needed by a Stock Broker

Securities analysts research companies’ prospects by becoming experts in a particular industry.  For example, a brokerage firm may employ securities analysts who are experts on the health care industry, the forest products industry, the banking industry, the computer industry, etc.  Each of these analysts:

  interview company officials,
  investigate the characteristics of the industry,
  estimate sales and earnings for the companies, and
  estimate the rates of return that can be earned by investing in
    the companies.

The income for an experienced securities analyst can easily surpass $100,000 per year. Part of the analyst’s income (usually about 1/3) comes from a bonus, based upon the quality of the analyst’s recommendations and the amount of revenues that an analyst helps to generate.

Level of Skills Needed by a Securities Analyst

A portfolio manager selects and manages investments that meet the goals of the firm’s clients.  These managers interview clients, measure their tolerance for risk, then select securities with the desired level of risk and a high expected rate of return.   Portfolio managers may choose from a wide variety of investment styles, including value investing, growth-stock investing, quantitative modeling, and market timing.

You should not expect to become a portfolio manager immediately upon graduation from college.   Many portfolio managers start out as security analysts, bank trust officers, etc. until they gain considerable experience in managing money.   Then they move into a portfolio management position after having acquired the necessary judgment and expertise.

The average portfolio manager in America earns about $200,000 per year.

Level of Skills Needed by a Portfolio Manager

Level of Skills Needed by an Investment Counselor

Wealthy individuals receive advice from a variety of advisors: tax advisor (often an accountant), insurance representative, stockbroker, attorney, and others.  Someone needs to coordinate all of these recommendations to make sure that they mesh well and meet the needs of the client.  Up steps the financial planner.  A financial planner has a very broad education, crossing all of the areas of personal finance: insurance, taxes, investments, estate planning, etc.  Although not a specialist in any of the areas, the financial planner is a generalist whose main function is one of coordination.

Financial planners typically fall into one of two groups: fee-only planners and commission-based planners.  A fee-only planner does not sell any products – he or she charges a one-time fee for analyzing the needs of the client and finding the best products to meet those needs (insurance policies, securities, etc.).  A smaller annual fee is charged in future years to monitor the client’s assets and to ensure that they continue to move the client toward his or her financial goals.  A commission-based planner may not charge a fee for the analysis but expects the client to implement the financial planner’s recommendations by buying the products from the planner.  In this case, the planner will be licensed to sell securities, insurance, and other financial products.

A very rough guide to a financial planner’s income:  If a financial planner has all the clients that he or she can handle, the planner will typically earn from 75% - 100% as much as the average client's income.  The average financial planner's gross earnings are $67,000 per year.

Level of Skills Needed by a Financial Planner

An investment bank is not a bank at all, at least not in the way that we normally think of a bank.  Investment bankers assist companies in raising money by helping them to bring their securities to market and to sell them.  They are also experts at valuation and provide consulting advice to companies on acquisitions, mergers, and a variety of subjects.   Investment banking is a very intensive, pressurized business and very performance oriented - but it is also very lucrative.  Because of the high income that investment bankers command, the industry can afford to be very picky about whom they choose to work for them.  Only those people with sterling credentials in graduate school and some relevant work experience are invited to enter the industry.

Investment bankers' incomes vary widely but easily reach six figures, sometimes seven.

Level of Skills Needed by an Investment Banker