Most people realise that maths plays a big part in finance and banking. In fact, around 20% of maths graduates enter the financial services sector. The majority of people will understand that maths is a useful skill for accountants, however in reality maths is used in a huge variety of ways in the finance sector, and accountancy only represents some of the jobs on offer. Even within accountancy there are enormous variations in what you could do, ranging from being a self employed accountant who works with small businesses to a forensic accountant who is investigating fraudulent activity.
What is in a job title?
One particular challenge for undergraduates is understanding some of the job titles which are found within the finance sector. Firstly, maths won’t usually be mentioned in the job title and secondly it might describe a job you have never heard of before. Despite this, many jobs in finance are perfectly suited to maths graduates. This is why it is worth doing your research and making sure that you attend careers fairs and career presentations at your university.
Below we have listed some of the areas that maths might be used inside a bank or other financial institution. Hopefully it will help you understand that accountancy is only one part of the finance picture, and that accountancy itself is a very broad term, representing a hugely diverse range of activities.
Understanding risk is very important to banks. Banks want to make sure they haven’t lent too much money to people who can’t pay it back, and ultimately a bank needs to be able to remain solvent, even in the face of a potential future financial crisis.
Teams will work on quantifying risk using mathematical models, and those who work in this kind of role are often called ‘quants’. They might be working to understand credit risk, liquidity or market risk and operations risk. One team will also look at economic stress testing of the bank's balance sheet – could the bank survive a serious shock to the economy? Another group might be looking at the risk-reward trade off on who to accept for a loan; and another section could be generating fraud detection algorithms which analyse spending patterns in order to detect money laundering activity.
Operations / Customer Banking
In this department, some of the teams will use Operational Research to help the bank make important business decisions, such as whether to open or close new branches. Other teams will use mathematical modelling to help the bank to be more effective at marketing and improve customer retention. For example, they will analyse customer behaviour and build models which can be used by behavioural economists to design products, and advertising and marketing campaigns.
Staff working in a high street branch of a bank are often incentivised to sell products via a system of rewards. Teams in the head office will analyse these reward structures, checking that they are working and also that staff are not incentivised to sell the wrong products to the wrong customers, thereby avoiding compensation claims.
Products and Finance
In the products section of a bank, teams will use maths to perform effective product pricing, as well as looking at profitability and forecasting demand. In a finance department management accountants will work to perform calculations such as profit and loss forecasting, net present value calculations and so forth.
This department is data and programming based but is underpinned with the language of mathematics. This means that someone who has both programming and mathematics skills will be in high demand. Example projects could include producing algorithms for predicting income and spending patterns of customers and optimising finance within banks.
Some people specialise in providing financial advice and investment management advice for individuals, business owners and families. This might include retirement planning, estate planning, life and income insurance, and mortgage planning.
Insurance is a huge industry within the financial sector. There are the standard insurance products which we all use such as home and contents insurance, as well as specialist insurance which deals with the aviation or marine sectors, or risks such as terrorism. Teams will analyse and price risk as well as setting policy terms and conditions.
There is a lot of legislation surrounding the financial sector, which needs to be adhered to. Some people will become experts in areas such as compliance, data security, financial fraud prevention, client asset legislation or pensions legislation. This could be as a specialist in a company, as a consultant or by working for a body such as the FCA (Financial Conduct Authority).
There are lots of different types of stockbrokers. You might be advising individuals or institutions on where to invest money, with many stockbrokers taking full charge of investment portfolios, rather than consulting with clients on a daily basis. This type of role can be very fast paced as the markets change. Having a strong mathematical background is important as you will have to absorb large amounts of financial information and have a good understanding of the figures involved.
This can be a popular choice for maths graduates as actuaries work in all the above environments and more, including firms providing only specialist actuarial services. An actuary evaluates, manages and advises on financial risks, using statistical theory to assess the probability of an event occurring and its possible financial consequences. Actuaries often work in banking, corporate finance, mergers and acquisitions, investment management, general insurance plus healthcare, insurance product development and pensions scheme management.
Many jobs within the financial sector involve studying for professional qualifications. This might seem like a burden after you have spent three or four years studying for a degree. However, this type of learning is very different from studying at university, as a lot of the knowledge will be directly relevant to the job. Many companies also offer paid time off for studying.
These qualifications can be really useful, not only because they will help you command a higher salary, but also because they could help you move jobs more easily in the future. For example if someone is a chartered management accountant in a big bank, they could make a transition to working in the charity sector or set up their own business in the future. The qualifications will give you a professional standing which will be really helpful throughout your career.
Finance isn’t just about traditional financial products such as mortgages, bank accounts and insurance. Working in finance is about understanding the real world, and making sense of it from a logical and financial perspective. Here are some examples of projects which might be looked at either by consultants working in the financial sector or by specialists working within a company.
- Creating and building models to predict which university students would drop out of university.
- Developing predictive models of how many coffees/teas/croissants/sandwiches will be sold by any shop by virtue of its location and prevailing weather.
- Selecting salesmen by predicting which traits will ultimately lead to superior performance.
- Building simulation models for Formula 1 cars which identify optimum strategies for when tyres should be changed – most Formula 1 teams will run over 1 million simulations during the course of a 2 hour race.
- Using physiological data to optimise what Formula 1 drivers eat, when they should sleep, when they need to fly to their next race and how to optimise their performance for the race.
- Working out the optimum level of stock by store to optimise how much stock is delivered and maintained by a store.
- Building predictive models of behaviour to work out when a trader is either about to make a judgement error or commit fraud.
- Work out the optimum number of police, nurses, paramedics and doctors that need to be available on different days of the week, and at different times of day to ensure that adequate staff are available to deal with peak demands.
- Car insurance – taking data from customers and telemetric systems to work out how safe or otherwise a driver is and then charging them an appropriate premium. Identifying when drivers should take breaks and for how long.
- Optimising the delivery route for a maintenance engineer or delivery driver, deciding which is quickest and uses the least amount of fuel.
- Working out whether a roulette table has a bias and whether that could be used by clients to beat the casino. Ensuring that the numbers in the National Lottery are entirely random or whether some bias has crept in.
When you apply for a particular company, you should try and get a feel for the types of projects which they are involved with. Make sure you read their website, and talk to staff face to face at careers fairs.
Many of these special projects might come under the umbrella of what is known as ‘Operational Research’ (OR). Some people will study a specialist masters degree or undergraduate degree in OR, whereas others will work on this type of project after a background of working in the financial or consultancy sectors.
Why choose the financial sector?
As a maths graduate there is a lot of choice when it comes to deciding on which career to pursue. What are some of the benefits to working in the financial sector?
- It can provide a stimulating and interesting work environment, with a lot of intellectual challenge.
- It allows you to gain professional qualifications which will benefit you for your whole career.
- It can offer the opportunity to live in different cities, and the chance to travel abroad if that is what you want.
- There is a lot of choice about your work setting – you could be working inside the headquarters of a large bank, or inside a small company or charity.
- Careers in this sector can be well paid.
Many undergraduates apply for internships, which allow them to find out if they are suited to a career in the financial sector. It is really worth doing your homework on where you want to be, as there are so many different types of roles to choose from. Many graduate schemes give you a chance to experience different departments within a company, allowing people to find out which area of the company they are most suited to.
This article was prepared with help from members of the IMA who work in the finance sector.