Financial Risk Manager (FRM) Breakdown

Financial Risk Manager Program

What Does FRM Mean?

FRM or Financial Risk Manager is a professional credential granted by the Global Association of Risk Professionals (GARP).

The GARP FRM accreditation is worldwide acknowledged as the leading qualification for financial risk professionals working in financial markets. To get the FRM certification, applicants must pass two tough tests as well as work for two years in the area of risk management.

FRMs have a specific understanding of risk assessment and often work for big banks, insurance companies, accounting firms, regulatory agencies, and asset management organizations.

Important Tips:

  • The Global Association of Risk Professionals has recognized Financial Risk Managers (FRM) (GARP).
  • FRMs are experts in risk assessment for big banks, insurance companies, accountancy firms, regulatory agencies, and asset management corporations.
  • Passing a two-part test and completing two years of work experience in financial risk management are prerequisites for FRM certification.
  • Earning the FRM certification provides professional recognition (FRM is the worldwide standard in the sector), increases career opportunities, commands a higher salary, and helps you become a better overall risk manager.
  • The CFA is a more difficult qualification to get overall, while the FRM is a more specialized certification.

Defining Financial Risk Managers (FRMs)

An FRM detects dangers to an organization’s assets, earning capacity, or success. Financial risk managers (FRMs) may work in financial services, banking, loan origination, trading, or marketing. Many of them specialize in topics such as credit or market risk.

FRMs assess risk by examining financial markets and the global environment in order to forecast changes or trends. It is also the FRM’s responsibility to devise methods to mitigate the consequences of such hazards.

Vital: The Global Association of Risk Professionals requires financial risk managers (FRMs) to be certified (GARP).

The FRM (Financial Risk Manager) Program

The FRM exam examines how risk management tools and strategies are used in the investment management process.

Candidates for the FRM certification must pass a thorough two-part test and have two years of professional experience in financial risk management.

Professionals with the FRM credential are eligible to engage in optional continuing professional development. The FRM program adheres to the key strategic risk management disciplines of market risk, credit risk, operational risk, and investment management. The test, which is accepted in over 90 countries, is meant to assess a financial risk manager’s capacity to manage risk in a global setting.

The questions are relevant to real-world job experiences. Candidates must comprehend risk management principles and practices as they relate to the day-to-day tasks of a risk manager.

Part 1 of the FRM test consists of 100 questions covering the following four subjects (in descending order of weight):

  • Foundations of risk management (20%)
  • Quantitative analysis (20%)
  • Financial markets and products (30%)
  • Valuation and risk models (30%)

Part 2 of the test consists of 80 questions (weighted as follows) from the following topics:

  • Market risk measurement and management (20%)
  • Credit risk measurement and management (20%)
  • Operational risk and resiliency (20%)
  • Liquidity and treasury risk measurement and management (15%)
  • Risk management and investment management (15%)
  • Current issues in financial markets (10%)

$134,180

According to the US Bureau of Labor Statistics, the median annual income of financial managers and FRMs is in 2020.

Financial Risk Managers’ Industry Prospects (FRMs)

According to the US Bureau of Labor Statistics, the median annual salary for financial managers, including FRMs, was $127,990 per year.

From 2018 to 2028, employment of FRMs is predicted to expand at a substantially faster rate than the average for all professions, at 16 percent. According to the Bureau, “key financial management responsibilities like risk management and cash management are projected to be in high demand over the next decade.”

Obviously, the great majority of FRMs work in the financial services business. However, there is a significant need for effective risk management teams across all sectors of the economy, from healthcare and engineering to technology and natural resources.

According to GARP, the following are the top ten firms that employ the most FRMs:

  1. ICBC
  2. Bank of China
  3. HSBC
  4. Agricultural Bank of China
  5. Citigroup
  6. KPMG
  7. Deutsche Bank
  8. Credit Suisse
  9. UBS
  10. PwC

FRM vs. CFA

The Chartered Financial Analyst (CFA) credential is one of the world’s most prestigious financial qualifications. Whereas FRM is regarded as the “gold standard” of financial risk managers, the CFA is regarded similarly among financial analysts.

Because both the CFA and the FRM strive to certify people in the financial business, they are often contrasted.

The primary distinction between the two is that FRM is a more specialized qualification than CFA Charter. The CFA exam covers a broad variety of subjects largely linked to investment management, such as financial analysis, corporate finance, stocks, bonds, derivatives, and portfolio management.

The FRM, on the other hand, is mainly concerned with controlling exposure to a wide range of hazards, including operational risk, credit risk, market risk, and liquidity risk.

The FRM and CFA have various prerequisites as well.

To get your FRM certification, you must first:

  • Part 1 and Part 2 of the FRM examinations must be passed.
  • Have two years of professional financial risk management experience.

To get your CFA Charter, you must first:

  • Have a bachelor’s degree (or be in the last year of your bachelor’s program).
  • Pass the CFA examinations at Levels 1, 2, and 3.
  • Join the CFA Institute.
  • Have at least 4,000 hours of experience in an investment-related job.

Positives of the FRM Designation

Earning the FRM certification has various benefits.

First and foremost, there is the program’s reputation. It is often considered as the most prestigious accreditation in the risk management business. As a result, it is a significant indicator of talent and expertise in the industry. In other words, the FRM carries significant weight with employers and colleagues.

Given how quickly financial markets change, the need for risk management expertise is anticipated to increase over time.

The obvious educational gain is the second advantage. As previously stated, the FRM certification equips professionals with a comprehensive grasp of risk management. In practice, this entails understanding how to predict, react to, and adjust to significant risks.

FRM Frequently Asked Questions

FRM FAQ

Is CFA Better or FRM?

That is mostly determined by your job route. In general, FRMs are intended for risk-focused managing jobs (i.e., credit risk manager, regulatory risk manager, operational risk manager, etc.). CFA Charterholders, on the other hand, are largely investment management professionals (i.e., investment analysts, portfolio managers, financial advisers, etc.).

Is FRM Harder Than CFA?

FRM examinations are demanding, though not as difficult as CFA exams.

Historical pass rates for FRM Part 1 are typically in the 40-to-50 percent range. They vary between 50 and 60 percent for Part 2.

For the CFA tests, historical pass percentages for Level 1 and Level 2 have been in the region of 40% and 50%, respectively. Level 3 pass rates are typically in the 50 percent range. The combination of lower pass rates and one extra test makes the CFA more difficult than the FRM.

How Much Does the FRM Cost?

First-time FRM applicants must pay a $400 one-time enrollment fee.

Standard registration costs $750 for Part 1 and another $750 for Part 2. However, if you register early, you may enjoy reduced pricing of $550 for Part 1 and $550 for Part 2.

The Verdict

FRM is the most generally recognized professional certification for risk managers and is widely accepted as the worldwide standard for financial risk. The present need for experienced financial risk managers is considerable and is expected to rise more in the future.

While the CFA is often seen as more prestigious and difficult to get, the FRM has a significant benefit in its extremely focused emphasis on risk. The FRM is unrivaled for professionals wishing to distinguish themselves, advance their careers, and earn higher remuneration in the risk management area.

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Mambwe Abebe