Financial model audit analyst - What is the ideal background?

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Financial model audit analyst - What is the ideal background?

by Rickard Warnelid on July 20 2009

Over the last few weeks we have been recruiting to fill two positions as Analysts at Corality specialising in financial model audits. While reviewing, short listing and interviewing candidates it has become clear that the majority of candidates are from three distinct categories: I have below tried to outline typical strengths of the different background when it comes to working successfully as a financial model auditor. Clearly everyone is different and I have had to generalised a bit to arrive at the conclusions below.

Accounting / audit / finance

The most common background by far in the field of financial modeling and financial model audit is accounting, audit or finance. The strength of this background is pretty clear given the similarities in process, structure and work performed in financial audit compared to financial model audit and this is also why it is so common to see auditors moving into the field of model audits.

The shortcomings of this particular background is in my view that other backgrounds may have stronger financial mathematics and numerical skills (actuarial), and stronger technology skills including Excel coding, tools, tricks (science, computing).

Science / computing / technology / engineering

A lot of people start out studying science and then working in a technical role for a few years before getting into financial modeling (often via an MBA, CFA or similar). Once the financial skills have been absorbed the result is candidates that have a ‘complete package’ of numerical excellence and financial awareness. Sure, I would agree that I am terribly biased here given my own background of a M.Sc. in Physics and a M.Bus.. in Finance, but anyways…

The main shortcoming of this group of candidates in general is the lack of client interaction, presentation of work outputs and customer service. (again, I have been guilty of all of the above when starting out in finance)

Actuarial studies

Actuarial studies give students a good mix of financial knowledge and ability to solve complex problems. These skills give them a great starting platform for a successful career in financial modeling and financial model audits. Actuarial students often have a very strong technical Excel background which certainly helps when starting out in financial modelling.

The shortcomings are not too dissimilar to the science category and for similar reasons. Students opting for actuarial studies tend to be more on the geeky side of life given their interest in mathematics etc. Trust me, I have a genuinely geeky background and know one when I see one.

A combination of actuarial studies, an outgoing personality and a couple of years in a role where complex problems are mixed with client interaction and written presentations generally result in very strong candidates for a financial modeling career.

Programmers - Good financial model audit material?

I would encourage more programmers to look into the financial model audit sector, in particular those who have been involved in structured software testing where the concepts of ‘release version’, bug control, bug reporting etc. These concepts are related to programming as well as model audits and in my view programmers have a lot of the core skills required to do a good job in financial modelling. Sure, these skills would have to be coupled with studies in finance to be able to make sense of the analysis, but this shouldn’t cause too much of a problem.

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COMMENTS

Hi Ferry, Good to hear

Submitted by Rickard Wärnelid (not verified) on Tue, 28/07/2009 - 10:41.

Hi Ferry, Good to hear from you! I have found that people with Quant Skills are not really attracted to financial modelling of the type that we see at Corality. Obviously quants have all the foundation skills necessary for the job but they tend to trigger on ‘mathematical model’ rather than ‘financial models’ as the latter is ‘too simple’. The truth it that the complexity lies at another level – the complexity of a typical cashflow model in project finance or corporate finance is in the transaction or corporate underpinning the calculations. In a typical quant model the complexity is in the statistical properties of the distributions of the underlying parameter. Another reason for quants not getting into the cashflow modelling area is that they tend to get ‘filtered out’ earlier in their career. Very few people develop quant skills simply through education and I see it more like a profession that a background. Economics.. hm.. I am not quite sure why we are not seeing more people with econometrics background in the are of financial modelling that we operate in. For economics I think the reason is simply that people who like economics tend to be ‘big picture’ people who struggle to stay focused on detailed questions like what is required in a cell-by-cell review in a financial model audit. Another reason may be that in my experience the mathematical challenges of economics is fairly limited compared to the actuarial and science. My definition of financial modelling? Big topic! I really don’t think there is one single definition of financial modelling as it can appropriately be used to describe a very wide range of skills and projects. In my current role at Corality a financial model is a ‘periodic cashflow forecasting model’. In the past financial modelling have meant other things – weather derivative models for Wales, VaR models for pipeline leakage, portfolio simulation model for duration of fixed income instruments and of course project finance models for credit analysis.

Rickard, do you consider

Submitted by Ferry Firmansyah (not verified) on Sun, 26/07/2009 - 18:05.

Rickard, do you consider those with quants finance skill in the same category as actuarial studies? How about those with economics / econometrics background? In my view they would have a strong numerical skills as well. Furthermore, let's take a step back. What do you define as financial modelling?