The finance and insurance industries collectively accounted for $1.2 trillion, or 7.6 percent, of U.S. GDP in 2012, according to the Bureau of Economic Analysis. Insurance companies and investment managers represent major employers in these sectors of the economy. Whereas actuaries typically work at insurance companies evaluating and controlling risks, Certified Financial Analysts (CFAs) typically work with investment managers, growing their investors' assets. While both professions involve financial analysis that attracts the numerically inclined, the responsibilities and career paths differ significantly.
The Work of an Actuary
Actuaries are often employed by insurance companies, but they may also work as consultants, financial planners or advisors to multinational corporations. According to the Society of Actuaries, 48 percent of actuaries worked at insurance companies, 33 percent at consulting firms and 19 percent in other fields, as of April 2013. One of the main functions of actuaries is to evaluate the likelihood of negative future events. In the insurance industry, actuaries determine how much to charge for different products such as auto, life and homeowner's insurance. An actuary may quote you a monthly car insurance premium based on an analysis of your car model, driving history, education, income and age.
The Work of a CFA
CFAs are often found in the investment industry, in asset management firms such as Fidelity or state retirement funds such as the California Public Employees' Retirement System. According to the CFA Institute, 22 percent of CFAs work as portfolio managers and 14 percent as research analysts -- professions associated with the investment management industry. CFAs may also pursue other professions such as general management, risk management, investment banking, consulting and financial planning. For example, a CFA might be responsible for developing an asset allocation strategy among equities, fixed income and other asset classes for a university endowment or selecting individual securities for investment.
One of the major differences between an actuary and a CFA is the nature of their work. Actuaries focus on risk management whereas CFAs focus on making wise investment decisions, of which risk is a factor but not the full scope of their analysis. As a portfolio manager or research analyst at an investment firm, for example, a CFA may focus on picking investments that offer the highest growth potential. In contrast, an actuary at an insurance company won't evaluate upside opportunities but instead seek to mitigate and accurately price risk for customers.
Both actuaries and CFAs are committed to quantitative analysis and financial modeling. For example, an actuary may need to model the probabilities of different catastrophic events not unlike a portfolio manager who may need to model the future progression of the U.S. economy. Both actuaries and CFAs must also pass certain tests in order to receive their designations. In order to become chartered (certified) as a CFA, one must pass three levels of examinations, a process that requires several years. Similarly, actuaries must pass a preliminary exam that tests knowledge in different areas, such as probability, finance and modeling.
Choosing between the two careers depends largely on your skills and interests. A person who is comfortable with probability mathematics and enjoys helping organizations cope with risk may prefer to become an actuary. Alternatively, someone who is comfortable with financial analysis but enjoys helping investors achieve positive investment returns may be more suited to a career as a portfolio manager or research analyst.
Giulio Rocca's background is in investment banking and management consulting, including advising Fortune 500 companies on mergers and acquisitions and corporate strategy. He also founded GradSchoolHeaven.com, an online resource for graduate school applicants. He holds a Bachelor of Science in economics from the University of Pennsylvania, a Master of Arts in English from the University of Hawaii at Manoa, and a Master of Business Administration from Harvard University.