Financial Engineering Career Path

Financial engineers’ practice is regulated by the International Association of Financial Engineers, founded in 1992 (Glasserman, 2004). The first curriculum approved to prepare financial engineers was the Polytechnic Institute of New York University. IAFE and PINYU regulate and prepare, respectively professionals to derive pricing, perform financial regulation, manage portfolio, manage financial risks, leverage mathematical, programming, and engineering formulas and methods in financial theories, and assess market trends to develop data-backed models (Kosowski & Neftci, 2015). Companies employ these professionals to improve the quality of their current investment products.

            To achieve that, financial engineers use their financial markets and theories knowledge to develop simulations that predict market behavior. While predictions are never 100% accurate, they have a potential of reducing risks in the financial markets. Basically, financial engineers use previous market trends and performances to make future investment predictions. Working in financial risk management, these professionals use computer simulations to develop profitable investment plans for corporations as well as individuals (Lépinay, 2011). Companies with high net worth leverage the expertise of financial engineers to develop stable investment plans.

General Career Path

            As soon as one becomes a freshman in college, their first responsibility is to begin shaping their financial engineering career. Thus, the first career path begins from college freshman where the student begins by taking financial engineering courses. This is augmented by applying for internship positions and part-time jobs with financial institutions. It is imperative to state that challenges exist along the way, but there are more advantages than disadvantages. The newbie gets to have a feel of the financial trading and investment atmosphere by working with established and upcoming financial engineers in the field. More so, it is important to rotate in various departments to have a glimpse of how other departments operate in relation to financial engineering. Kosowski & Neftci (2015), advise that this is the right time for students to consult with their professors regarding consulting projects. That way, a financial engineering student has the change to select an area to focus on in qualitative analysis (Kosowski & Neftci, 2015).

            During graduate studies, it is vital that a student becomes a member of professional databases and bodies. For instance, by joining the International Association for Quantitative Finance, a financial engineering student has access to not only peer-reviewed journals, but also networking events to bolster their professional network. According to Patterson (2010), the modern labor market is more about who you know than what you know, and forming lasting professional networks can enable a student to grasp that coveted interview. Moreover, with the appropriate working record, there is a possibility to be retained by the company upon college completion.

General Education Experience

            To become a financial engineer, one must complete at least a four-year Bachelor of Science degree course, or a Master’s in Science of Financial Engineering. Apparently, some MBA programs offer specializations in either computational finance or quantitative analysis; Patterson (2010), advices on selecting academic degrees approved by the IAQF. Generally, financial engineering coursework comprises of Applied Mathematics, Mathematics, Theoretical Physics, Electrical Engineering, Mechanical Engineering, Computer Engineering, Computer Science, and Operations Research. With these qualifications, a financial engineering student is geared towards quantitative responsibilities, such as delivering risk models, model validation, risk management, library control, trading directly, and programming.

Patterson  (2010), further points that aspiring quants go ahead to major in finance, statistics, economics, computer science, mathematics, or engineering at accredited higher learning institutions. Seemingly, the most financial engineers do not hold PhDs because most employers prefer hiring professionals with a graduate degree (Beder & Marshall, 2011), and thus, going for a PhD can be detrimental. However, a Master’s degree in Electrical Engineering and Computer Engineering, which inculcate strong programming skills and data handling in students are highly recommended.

Besides financial knowledge, sufficient computer programming skills is highly recommended. Knowledge in programming, such as Java and Scala is encouraged than SAS, S+, MATLAB, or RAD, besides other statistical packages, which are less advanced (Duffy, 2013). Programming skills are vital for developing simulating financial models for learning market behavior. Financial engineers expect these simulations to generate results as accurately as possible. Accordingly, some aspiring quants complete the Chartered Financial Analyst program by successfully undergoing the rigorous three-step testing process (Patterson, 2010). Others go for a Certificate in Investment Performance Management credential, whereas candidates with at least 10 years experience can receive a Chartered Financial Engineer designation offered by FINRA.

Average Salary

            The average salary for a financial engineer is 88,995 U.S. dollars (Kosowski & Neftci, 2015). According to Kosowski & Neftci (2015), the annual salary ranges between 85,000 and 145,000 U.S. dollars depending on education qualification, work experience, and more so, the industry an individual works in. However, the beginning salary for quants is around 53,589 U.S. dollars per year on average (Patterson, 2010). Kosowski & Neftci (2015), note that it is common for large hedge funds and investing firms to pay more than 250,000 U.S. dollars annual salaries to financial engineers with senior responsibilities.

            The aforementioned average is equivalent to a mean hourly wage of 42.79 or monthly salary of 7,416 U.S. dollars. Moreover, financial engineers receive bonuses that range from 2,035 to 23,000 U.S. dollars per annum, with profit sharing approximately 10,000 U.S. dollars. Overall, the annual compensation of a financial engineer is around 113,995 U.S. dollars on average.

Career Outlook

            Seemingly, financial engineering is an emerging profession with exponential growth. With the emerging market trends restrained by economic problems, financial institutions are hiring high-level mathematics analysts conversant with implementing statistical and quantitative analysis to resolve those problems (Kosowski & Neftci, 2015). Kosowski & Neftci (2015), elaborate that the field has a higher employment growth than the average global employment growth by 14 percent. By 2024, at least 32,300 new financial engineering jobs will be available (Kosowski & Neftci, 2015).

It is however imperative to state that on Wall Street, entry-level financial engineering jobs are hard to get by. As a matter of fact, the biggest competition comes from foreign students and professionals who have extensive backgrounds in the field. Nevertheless, there are openings in consulting firms, hedge funds, investment banks, brokerages, regulatory agencies, and government agencies (Beder & Marshall, 2011).

Bio of someone in the profession

            Ian Quinn is a financial engineer at First Derivatives, a New York city-based technology provider. Mr. Quinn graduated with a Bachelor of Science in Finance at Wake Forest University. He worked as a Corporate Finance intern at the University of Sydney. His main responsibilities included reviewing funding and capital planning projects, and organizing purchased and leased asset data. He also interned as an Entry Financial Analyst at Acxiom. He has done finance courses, including Applied Quantitative Analysis for Finance, Management Information System. With these education and work experience, Mr. Quinn was able to secure a Finance Engineer position at First Derivatives, where he assists in establishing firm streaming analytics, operational intelligence, and in-memory computing.

Pros and Cons

            Landing a job in the field of financial engineering has its advantages and disadvantages. For one thing, earning that position makes one a lucky star because it is highly competitive. At the end of the year, financial engineers part with above average salaries, augmented with lucrative perks, bonuses, and investment plans. In terms of skill utilization, mathematics geniuses relish applying mathematical formulas to establish new ways of assessing market data. Lawler & Thye (2009), point that there is an overwhelming high sense of fulfillment and self-actualization when a young professional (financial engineer in this case) is able to educate senior, established investors on better methods and approaches for buying, selling, and trading. Beyond their suits are brains that crunch huge financial figures, and their job has a bright future.

            On the other hand, the field is highly stressful. Especially for the meek and anxious, financial engineering can lead to mental health issues. According to Lawler & Thye (2009), mental health problems are associated with low employee productivity. In such cases, a financial engineer risks losing their job as a result of poor work performance. Job stability in the field is also wanting. When a professional, especially quants, make bad investment performance for a company, they risk being fired (Patterson, 2010). Moreover, it is tasking to handle large sums of money.

References

Beder, T. S., & Marshall, C. M. (2011). Financial Engineering: The Evolution of a Profession. New York, NY, USA : John Wiley & Sons.

Duffy, D. J. (2013). Introduction to C++ for Financial Engineers: An Object-Oriented Approach. New York, NY: John Wiley & Sons.

Glasserman, P. (2004). Monte Carlo methods in financial engineering. New York: Springer.

Kosowski, R., & Neftci, S. N. (2015). Principles of financial engineering. Amsterdam : Academic Press.

Lawler, E. J., & Thye, S. R. (2009). Social psychology of the workplace. Bingley: Emerald Group Publishing Limited.

Lépinay, V. A. (2011). Codes of finance: Engineering derivatives in a global bank. Princeton [N.J.: Princeton University Press.

Patterson, S. (2010). The quants: How a small band of math wizards took over Wall St. and nearly destroyed it. New York: Crown.