Securities, Commodities, and Other Investments
- Nature of the Industry
- Working Conditions
- Occupations In The Industry
- Training and Advancement
- Sources of Additional Information
- Most workers in this industry hold associate or bachelor’s degrees.
- Employment is expected to grow as a result of increasing investment in securities and commodities, along with a growing need for investment advice.
- The high earnings of successful securities sales agents and investment bankers will result in keen competition for these positions.
The securities, commodities, and other investments industry comprises a diverse group of companies and organizations that manage the issuance, purchase, and sale of financial instruments. These instruments—often called securities—are contracts which give their owner the right to an asset or the right to purchase an asset in the future. Companies sell these financial instruments to raise money from investors to finance new business operations or to improve or expand existing ones. Investors purchase these instruments with the goal of earning money by earning dividends, interest, executing the agreement, or selling the security at a higher price.
Goods and services. The securities industry is made up of a variety of firms and organizations that structure investments, bring together buyers and sellers of securities and commodities, manage investments, and offer financial advice. The products provided by the industry are called securities. The most basic types of security are stocks and bonds, which provide capital to finance corporations. Stocks entitle their holders to partial ownership of a company, whereas bonds are a form of debt that a company pays back with interest. Investors purchase stocks and bonds in order to earn money in the form of dividends or interest, or to sell the issues to other investors at a higher price.
Another type of security is called a derivative, which is a contract to purchase an asset at a specified future date. There are two basic types of derivatives: options and futures. An investor who holds an option has a contractual right to purchase an asset at a set price on a specified date, but is not required to do so. A futures contract is an agreement to purchase an asset at a set price and date with no option to decline. Commodities, for example, corn, wheat, and pork bellies, are often bought and sold in this way, and are among the best-known derivatives. Other goods sold on the derivatives market include foreign currencies, precious metals, oil and natural gas, and electricity. Buyers purchase derivatives with the hope that the price of the asset involved will be higher than the agreed price when the contract matures.
Mutual funds and exchange traded funds (ETFs) are also common investments. In both cases, the issuing firm owns a large portfolio of other securities which, on average, are expected to increase in value. In the case of mutual funds, this portfolio is typically managed by a team of financial analysts who determine which stocks to buy and sell; however, some mutual funds are not actively managed and are instead designed to track a benchmark index, such as the Standard and Poor’s 500 or Dow Jones Industrial Average. Exchange traded funds are almost always designed to replicate a stock index. ETFs can be traded like stocks, unlike mutual funds. Because both of these types of securities require management, the companies who issue them charge a fee. Investors are willing to pay this fee because mutual funds and ETFs have a lower level of risk than other securities.
Besides selling securities, segments of the securities industry also sell advisory services. Investment banks, for example, help companies to plan stock or bond issues and sell them to investors. Securities and commodities exchanges, on the other hand, provide forums for buyers and sellers to trade securities. Private banks and investment advisories help individual investors to determine how to invest their money.
Industry organization. The securities industry is organized by the types of products and services they produce. Investment banks help corporations to finance their operations by underwriting—or purchasing and reselling—new stock and bond issues. They also provide advisory services to companies who are issuing securities or undergoing a merger or acquisition. The typical investment bank has several departments, each of which specializes in a specific part of the process. Corporate finance specializes in structuring stock and bond issues. They are often involved in initial public offerings (IPOs) of the stock of companies that are selling to the public for the first time. Mergers and acquisitions departments help companies plan and manage the purchase of other companies. Sales and trading departments work together to sell underwritten securities to investors. Research and quantitative analytics departments specialize in studying company financial reports to help the bank and its customers make informed decisions about stock purchases.
Securities and commodities exchanges offer a central location where buyers and sellers of securities meet to trade securities and commodities. All of the major exchanges have been at least partially computerized, but the trading floors are still very active. While a small number of workers at the exchanges are actually employed by the exchanges themselves, most of the people who work there are actually employed by other firms. These include investment banking and brokerage firms, as well as specialist firms that manage the sale of securities for listed companies.
Brokerage firms trade securities for those who cannot directly trade on exchanges. Investors place their buy and sell orders by telephone, online, or through a broker. Since most brokerage firms are fairly large, many orders are filled by other buyers and sellers who use the same brokerage. If the stock or commodity is sold on an exchange, the firm may send the order electronically to the company’s floor broker at the exchange. The floor broker then posts the order and executes the trade by finding a seller or buyer who offers the best price for the client. Alternatively, the broker can access an electronic market that lists the prices for which dealers in that particular security are willing to buy or sell it. If the broker finds an acceptable price, then a purchase or sale is made. Firms can also buy and sell securities and commodities on electronic communications networks (ECNs), which are powerful computer systems that automatically list, match, and execute trades, eliminating the floor broker.
Brokerage firms are usually classified as full-service or discount. Investors who do not have time to research investments on their own will likely rely on full-service brokers to help them construct investment portfolios, manage their investments, and make recommendations regarding which investments to buy. Full-service brokers have access to a wide range of reports and analyses developed by financial analysts who research companies and recommend investments to people with different financial needs. People who prefer to select their own investments often use discount or online brokerages and pay lower fees and commission charges. Discount firms, also known as wire houses, usually do not offer advice about specific securities, although they may still provide access to reports. Most brokerage firms now have call centers staffed with both licensed sales agents and customer service representatives who take orders and answer questions at all hours of the day.
Investment advisory firms are also included in this industry. Much like full-service brokerages, these firms provide advice to their investors on how to best manage their investments. However, they also provide advice on other matters, such as life insurance, estate planning and tax preparation. In exchange, advisors act as brokers and receive fees and commissions for investments and insurance purchases. They may also charge fees for consultations.
Portfolio management firms, such as mutual funds, hedge funds, and private banks manage a pool of money for investors in exchange for fees. This frees individual investors from having to manage their own portfolios and puts their money in the hands of experienced professionals. In a mutual fund, this pool of money comes from investors who purchase shares of the mutual fund. Hedge funds are similar, although their shares are only available to certain experienced investors—called accredited investors—as they are considered very risky. In private banks, the pool of money comes from a wealthy individual. Portfolio management companies have teams of financial analysts who determine which securities should be bought and sold.
Recent developments. The securities industry is continuously changing because of improvements in technology, regulatory changes, the globalization of the marketplace, and demographics. The Internet and private high-speed networks have dramatically altered the way in which securities and commodities are bought and sold, almost completely automating the transaction process. At the same time, the number of financial services being offered is rising as firms look for new ways to attract the business of an increasingly wealthy and investment-savvy public.
New technology has greatly changed the way securities are traded. The growth of online trading in particular has produced a number of online trading firms. In order to compete, many full-service brokerage firms offer online trading to their customers. This explosion in technology is changing the nature of many of the jobs and the mix of people employed by securities firms. Some companies are more likely to resemble information technology companies than securities firms, with most of the employees working in computer-related occupations. Across the industry, computer professionals account for a greater proportion of the workforce. Moreover, with so much business now being conducted online and through call centers, traditional sales agents are spending less time processing orders and more time seeking out new clients and offering detailed advice.
Regulatory changes also are a major development for the industry. The Securities and Exchange Commission (SEC) and major stock exchanges have instituted accounting and corporate reforms to increase public confidence in investment markets, but they have meant more paperwork and compliance issues for securities firms. These new rules address conflicts-of-interest raised by Federal, State, and industry investigations of companies that later failed, or whose stock declined dramatically in value, costing investors billions of dollars. The SEC now requires corporate chief executive officers to certify the reliability of their companies’ financial reports. All of these new regulations have meant more paperwork and compliance issues for securities firms. On the other hand, the recent merger of the New York Stock Exchange Regulation with the National Association of Securities Dealers should ease some of the licensing and regulations burden for firms.
Hours. Long working hours, including evenings and weekends, are common in the securities industry. About 1 in 4 employees worked 50 or more hours per week in 2006. Even when not working, professionals in the industry must keep abreast of events that may affect the markets in which they specialize. Opportunities for part-time work are limited—only about 9 percent worked part time, compared to 15 percent of workers in all industries combined.
Hours vary greatly among the different parts of the industry. Investment banks, for instance, are known for requiring extremely long hours from their entry-level workers. Portfolio management companies also require long hours for their workers. In contrast, workers in many brokerages work standard 40 hour workweeks or less. Workers in jobs that are closely attached to the market do most of their work while the major exchanges are open between 9:30 am and 4 pm, but this is changing as after hours and international trading are becoming more important.
Work environment. Most workers in the securities industry enjoy comfortable office environments. Investment banks are known for their exceptionally long hours and the stressful work environment. They are often under great pressure to meet deadlines and generate new business. This is often balanced, however, by large salaries. Some jobs require extensive travel, especially in corporate finance and mergers and acquisitions departments. Most investment banks strongly emphasize teamwork, and as such they often promote socialization among staff members. Because customer relationships are so important, investment bankers often get to take their clients to exclusive restaurants, sporting events, and other exclusive places
Brokerage jobs vary greatly depending on the type of brokerage. Those working in full-service brokerages tend to have comfortable office environments where they meet with clients and make sales calls. They may travel for training, conventions, or to meet with important clients.
During the day, sales agents spend most of their time on the phone soliciting business or with customers. They may spend time after hours and during lunch meeting with top clients. Sales agents at brokerage and mutual fund companies increasingly work in call centers, opening accounts for individuals, entering trades, and providing advice over the phone on different investment products. This is almost exclusively true in discount brokerages. Although many simply respond to inquiries and do not actively solicit customers, others may be required to contact potential clients. Call centers also employ customer service representatives, who answer questions for current clients about their accounts and make any needed changes or transfers. All workers in call centers must maintain a professional and courteous attitude, work well under pressure, and be able to speak for long periods of time. Many call centers operate 24 hours a day, 7 days a week, and employees may be required to work evenings and weekends.
Traders, whether on the floor of an investment bank, brokerage firm, or at the exchanges, work in very loud and stressful environments. They not only take orders from clients and try to get the best price for them, but also must constantly keep an eye on market activity and stay in touch with other traders and brokers to know what prices are being offered. Trading jobs are very stressful because a mistake could potentially cost the firm or the client thousands or even millions of dollars.
Personal financial advisors work in professional office environments. Most work between 40 and 50 hours per week, but many accommodate clients by visiting them at their homes in the evenings or on weekends. Office and administrative support workers usually work a 40-hour week, but overtime may be necessary during times of heavy trading.
Portfolio management companies, like investment banks, are often very high-stress, high pressure places to work. As with most parts of the securities industry, timing is critical and opportunities can be missed quickly. Compensation and job security are tied directly to performance.Employment
The securities, commodities, and other investments industry employed 816,000 wage and salary workers in 2006. With their extensive networks of retail sales representatives located in branch offices throughout the country, the large nationally known brokerage companies have the greatest share of jobs in the industry (table 1) where they operate the majority of establishments. About three-fourths of the establishments in the industry employ fewer than 5 workers. However, many of the industry’s jobs are in the headquarters of major firms. About 1 in 4 workers in the securities industry is located in the New York metropolitan area.
Contracts intermediation and brokerage
Investment banking and securities dealing
Commodity contracts brokerage
Commodity contracts dealing
Security and commodity exchanges
Other financial investment activities
All other financial investment activities
Securities industry employees are concentrated in a variety of financial and sales occupations that analyze and sell financial instruments. Other employees support these roles, mainly as clerks, administrative support workers, and computer specialists (table 2).
Sales and related occupations. Workers in sales and related occupations account for 1 in 5 wage and salary jobs in this industry. These include investment bankers, sales agents, traders, exchange workers, stock brokers, and investment advisors, among others.
Investment bankers are among the most prestigious workers in the industry. Those in corporate finance work directly with companies who are issuing stock or bonds to help them structure those offerings. This includes everything from determining the value of the company to deciding how many shares should be released. Workers in mergers and acquisitions assist firms plan mergers with other companies. This includes analysis of which target companies to consider, how to fund acquisitions, and how to structure the resulting company’s stock. Those in sales departments call investors to offer stocks and bonds that the bank has underwritten, while traders execute the transactions.
A very small number of people work directly on the floor of stock and commodities exchanges. Floor brokers execute trades as directed by their firms’ trading departments. Independent brokers represent themselves, rather than a firm, and are often on hand to perform trades when floor brokers are too busy. Specialists, or market makers, are the auctioneers who work as a bridge between buyers and sellers. Each stock listed on the exchange has one of these workers on hand to assure fair trading. They also provide liquidity by buying stock when demand is low or selling stock when demand is too high.
Brokers are the people who sell stocks to individuals. They take buy and sell orders from customers and execute those trades through their firms’ trading departments. This position can vary greatly depending on the type of brokerage. In a discount brokerage or wire house, brokers may work in a call center environment, where they answer calls as they come in. In full-service brokerages, another type of broker often called an investment advisor is more typical. Investment advisors go beyond just buying and selling to give advice to their customers. They may also meet with their clients in person to discuss their needs and desire to avoid risk.
Office and administrative support occupations. Keeping track of transactions and paperwork constitutes a large portion of the work in this industry, which is why its largest major occupational group is office and administrative support workers. Brokerage clerks, the largest occupation in this category, handle much of the day-to-day operations within a brokerage firm. A type of brokerage clerk, called a sales assistant, takes calls from brokers’ clients, writes up order tickets and enters them into the computer. They also handle the paperwork for new accounts, inform clients of stock prices, and perform other tasks as needed. Most sales assistants obtain licenses to sell securities, allowing them to call brokers’ clients with recommendations from the broker regarding specific investments.
Because more clients are choosing to trade without the use of sales agents or brokers, customer service representatives now play a larger role in securities firms. While some may have licenses to sell securities or other financial products, most are not in the business of sales or offering advice, but rather they mainly take questions from current customers. Customer service representatives usually work in central call centers, where they handle account transfers, redemptions, and address changes; answer tax questions; and help clients navigate the Web, among other services.
Management, business, and financial occupations. This category includes a wide range of jobs that require expertise in finance and investment policy, including accountants and auditors, who prepare the firms’ financial statements, and general and operations managers, who manage the businesses. The largest occupations in this area, however, are financial analystspersonal financial advisors. and
Financial analysts generally work in the research departments of securities firms. They are especially common in investment banks and portfolio management firms, but also may work in brokerages. They review financial statements of companies, evaluate economic and market trends, and make recommendations concerning the potential profits from investments in specific companies. Financial analysts examine company financial reports, such as balance sheets and income statements, to determine fair market value. Those in large firms usually specialize in a certain industry sector, such as transportation; in a product type, such as bonds; or in a region, such as Latin America.
Personal financial advisors, also called financial planners, provide advice to both individuals and businesses on a broad range of financial subjects, such as investments, retirement planning, tax management, estate planning, and employee benefits. They may take a comprehensive approach to the client’s financial needs or specialize in a particular area, such as retirement planning. Advisors also may buy and sell financial products on behalf of their clients, such as stocks, bonds, mutual funds, and insurance. Private bankers and wealth managers are personal financial advisors who work with wealthy clients. These specialists may take a very active role in their clients’ finances, authorizing payments and trades, and writing checks on behalf of the client’s account.
Financial managers are employed throughout the industry. They prepare financial documents for the regulatory authorities and direct firms’ investment policies. In many departments, managers act as senior advisors and oversee teams of junior analysts or brokers while continuing to be actively involved in working out deals with clients.
The increasingly computerized environment in this industry also requires the expertise of computer software engineers, computer programmers, and other computer specialists to develop and operate the communications networks that provide online trading.
|Occupation||Employment, 2006||Percent |
Management, business, and financial occupations
General and operations managers
Marketing and sales managers
Computer and information systems managers
Compliance officers, except agriculture, construction, health and safety, and transportation
Human resources, training, and labor relations specialists
Accountants and auditors
Personal financial advisors
Professional and related occupations
Computer software engineers
Computer support specialists
Computer systems analysts
Network and computer systems administrators
Market research analysts
Sales and related occupations
Securities, commodities, and financial services sales agents
Office and administrative support occupations
First-line supervisors/managers of office and administrative support workers
Bookkeeping, accounting, and auditing clerks
Customer service representatives
Receptionists and information clerks
Executive secretaries and administrative assistants
Secretaries, except legal, medical, and executive
Office clerks, general
Note: Columns may not add to totals due to omission of occupations with small employment
The securities, commodities, and other investments industry has one of the most highly educated and skilled workforces of any industry. About 2 out of 3 workers have bachelors’ or higher degrees. The requirements for entry are high—even brokerage clerks often have college degrees. The most successful workers at all levels have an aptitude for working with numbers and a keen interest in investing.
Licensure. Many people in the industry must be licensed by the Financial Industry Regulatory Authority (FINRA) before they can legally sell securities or recommend specific investments. To be licensed, brokers and assistants must pass an examination that tests their knowledge of investments. Various licenses are available for different investment products. The most common is the Series 7 license, which allows agents to act as registered representatives of a firm. The Series 63 and 66 licenses, which allow their holders to legally give financial advice, are also very common.
Investment banking and securities dealing. Investment bankers are expected to have very strong educational backgrounds, including courses in finance, accounting, and economics. A competitive candidate will combine strong quantitative skills with good interpersonal skills and the ability to work in teams. Success in a competitive internship can also be very helpful.
Most investment banks have a standardized system of advancement. Recent college graduates start out as analysts. Assignments to these positions usually last 2 to 3 years and involve a great deal of training. Analysts do the routine work of the investment bank, and generally spend much of their time working in teams. Those who succeed are promoted to similar jobs at the associate level, where they have more responsibilities and may even act as team leaders. Recent business school graduates often start at the associate level.
Successful associates are generally promoted to the title of vice president. At this stage, employees are much more trusted by the investment bank, and begin to spend more of their time dealing directly with customers. Top vice presidents may become directors or executive directors after a few years. Because there are fewer of these, many vice presidents move to different firms to get to this level. At the very top of the structure is the managing director, a highly coveted and well paid position, with a great deal of authority.
Securities brokerage and Investment advice. There are many paths of entry into brokerages. Many professionals in this industry begin their careers as sales assistants. Others transfer from sales or financial careers in a different industry. This path is often more successful, as people who have had other careers generally know more people and can find clients quickly. A third group enters directly into a broker training program. The Series 7 and 63 or 66 licenses are required for most brokers. Generally new workers are given a fair amount of training, which helps them to better understand the various products, as well as to learn how to properly execute trades and analyze financial statements.
For securities, commodities, and financial services sales agent jobs, a college education is increasingly important, although not essential, because it helps the sales agent to understand economic conditions and trends. The overwhelming majority of entrants to this occupation are college graduates but many employers consider personal qualities and skills, such as self-motivation and the ability to handle rejection, to be more important than academic training.
Brokers earn a significant portion of their salaries through commissions and many successful brokers build and maintain a large client base. The larger and wealthier the client base, the more money the broker earns. On the other hand, many brokers opt to open their own branches of securities firms or become personal financial advisors. While this generally carries more risks, it can also be very lucrative.
Although there are no specific licensure requirements for personal financial advisors, most must be knowledgeable about economic trends, finance, budgeting, and accounting. Therefore, a college education is important. Personal financial advisors must possess excellent communication and interpersonal skills to be able to explain complicated issues to their clients. Many advisors entering the field earn a Certified Financial Planner credential. To receive this designation, a person must pass an exam on insurance, investments, tax planning, employee benefits, and retirement and estate planning. They also must have 3 years of experience in a related field and an accredited college degree and must agree to abide by the rules and regulations issued by the Board of Standards. Like brokers, personal financial advisors advance by increasing their client base or opening branch offices.
Portfolio management. Entry-level portfolio management positions are filled by college graduates, most of whom have majored in business administration, marketing, economics, accounting, industrial relations, or finance. Analysts usually start with a training program that helps them to understand the complexities of securities analysis. After this training period, they join a team which specializes in a specific product, industry, or region. Successful analysts are given more responsibilities and greater influence. They may be put in charge of more important specialties, or become team leaders. Those who are not successful may be asked to leave the firm. Top analysts are often promoted to portfolio manager or fund manager and take on responsibility for the mix of products in the portfolio and have ultimate say in its composition.
Those working as financial analysts are encouraged to obtain the Chartered Financial Analyst (CFA) designation sponsored by the CFA Institute. To qualify, applicants must have at least 4 years of applicable experience and pass a series of 3 rigorous essay exams requiring an extensive knowledge of many fields, including accounting, economics, and security valuation, risk management, and portfolio management..
The securities, commodities, and other investments industry should experience employment growth between 2006 and 2016, but competition for jobs in the industry will be quite keen.
Employment change. Wage and salary employment in the securities, commodities, and other investments industry is projected to rise 46 percent from 2006 to 2016, compared to the 11 percent increase across all industries. Employment growth will be driven by increasing levels of investment in securities and commodities in the global marketplace, as well as the growing need for investment advice.
Over the projections decade, the baby boom generation will move from their peak saving years to their first years of retirement. More retirement savings will be managed by the retirees themselves because most companies have moved from defined benefit plans—such as traditional pensions—to defined contribution plans—such as 401(k) programs and Roth IRAs. This will continue to boost the stock and bond markets, as well as mutual funds and investment advisory as retirees look for reliable investments.
Another factor contributing to projected employment growth is the globalization of securities and commodities markets—the extension of traditional exchange and trading boundaries into new markets in foreign countries. Recent developments, from the rapid growth of Asian economies to the recent merger of the New York Stock Exchange and Euronext, will continue to make Americans more eager to invest abroad and at the same time encourage investors in other nations to purchase U.S securities.
Online trading will grow and reduce the need for direct contact with actual brokers, but the number of investment advisors is nevertheless expected to increase as many people remain willing to pay for the guidance that a full-service representative can offer. Employment of personal financial advisors is also expected to increase rapidly. As the complexity of financial planning grows, individuals will continue to look to experts to help them manage their money.
Financial analyst positions are also expected to grow modestly. Globalization and the growth of developing countries will provide a multitude of investment opportunities, and financial analysts with knowledge of foreign accounting standards and economies will be needed to examine these investments. Furthermore, the growth of mutual funds, hedge funds, and other large-scale investments will continue to create jobs in this occupation.
Advances in telecommunications and computer technology will continue to shape the industry as companies look for faster and more secure ways to perform tasks. Computer programmers and information systems managers will continue to have important roles in this industry as trading and the recordkeeping that supports trading become more automated, while the jobs of brokerage clerks will become less clerical and have more high-level tasks. More clerks will be licensed and expected to work more independently.
Compliance is a rising concern for companies, as various scandals have rocked the industry over the past several years. While the merger of NASD with NYSE Regulation creating FINRA should provide some relief for companies, the amount of oversight from both private regulators and the Securities and Exchange Commission (SEC) continues to increase. This will continue to lead to greater employment of lawyers and compliance specialists, as well as recordkeeping clerks.
Job prospects. Despite continued growth in the securities industry, keen competition is expected for most jobs. This will be especially true for jobs in the upper echelons of the industry that have extremely high earnings. Jobs in investment banks, exchanges, and fund management companies will be especially difficult to enter. Positions at regional securities firms and brokerages will be somewhat more accessible.
Prospects will be best for graduates from 4-year degree programs from nationally recognized universities and colleges. Companies value a background in accounting, finance, and economics. Successful completion of a recognized internship program may also be very helpful to beginners. Earning a Master’s of Business Administration degree or one of the professional certifications recognized in the industry are important assets for advancement.
Industry earnings. In May 2006, the average weekly earnings of nonsupervisory workers in the industry were $1055 compared with $568 in all industries combined. Median earnings for the largest occupations in the securities, commodities, and other investments industry in May 2006 are shown in table 3.
|Occupation||Securities, commodities, and other investments||All industries|
Securities, commodities, and financial services sales agents
Personal financial advisors
Accountants and auditors
Executive secretaries and administrative assistants
Customer service representatives
Secretaries, except legal, medical, and executive
Office clerks, general
Earnings of many securities industry employees—especially those working in sales positions—depend on commissions from the sale or purchase of securities. Commissions are likely to be lower during recessionary periods or when there is a slump in market activity. Earnings can also be based on the amount of assets that a broker or portfolio manager has under his or her management, with the broker or portfolio manager receiving a small percentage of the value of the assets.
In other positions, a large part of annual earnings are paid in the form of an annual bonus based on the success of the firm or the individual’s team. This is particularly common in investment banks and portfolio management companies. Profit sharing and stock options are also common.
Benefits and union membership. Most workers in the industry receive substantial benefits packages, including health insurance, retirement programs, and reimbursement of expenses associated with company travel or entertainment of clients. Additionally, top employees often receive perks, such as opportunities to eat at expensive restaurants and attend sporting events. Those who travel receive frequent flyer miles and hotel points which can be redeemed for personal use. Most of these opportunities come as a result of the need to connect with clients and make sales, however many workers consider them to be a significant benefit of the job.
Union membership is very low in this industry, and does not affect the salaries or benefits of workers.