Definition of financial risk manager (FRM)


What is a financial risk manager (FRM)?

The Financial Risk Manager (FRM) is a professional designation issued by the Global Association of Risk Professionals (GARP).

The GARP FRM accreditation is recognized worldwide as the premier certification for financial risk professionals operating in financial markets. To obtain the FRM certification, candidates must pass two rigorous exams and also work two years in the field of risk management.

FRMs possess specialized knowledge in risk assessment and typically work for major banks, insurance companies, accounting firms, regulatory agencies, and asset management firms.

Key takeaways

  • Financial Risk Managers (FRMs) are accredited by the Global Association of Risk Professionals (GARP).
  • FRMs specialize in assessing the risk of major banks, insurance companies, accounting firms, regulatory agencies, and asset management firms.
  • The FRM certification requires passing a two-part exam and completing two years of work experience in financial risk management.
  • The benefits of earning FRM certification include professional recognition (FRM is the global standard in the field), boosting job prospects, earning higher earnings, and becoming a better overall risk manager.
  • The CFA is a more difficult designation to acquire in general, but FRM is a more specialized certification.

Understanding Financial Risk Managers (FRM)

An FRM identifies threats to an organization’s assets, earning ability, or success. FRMs may work in financial services, banking, loan origination, negotiation, or marketing. Many specialize in areas such as credit or market risk.

FRMs determine risk by analyzing financial markets and the global environment to predict changes or trends. It is also the role of the FRM to develop strategies to counteract the effects of potential risks.

Financial risk managers (FRMs) must be accredited by the Global Association of Risk Professionals (GARP).

The financial risk management (FRM) program

The FRM exam covers the application of risk management tools and techniques to the investment management process.

To receive the FRM designation, candidates must successfully complete a comprehensive two-part exam and complete two years of work experience in financial risk management.

Professionals holding the FRM designation can participate in optional continuing professional development. The FRM program follows the main strategic disciplines of risk management: market risk, credit risk, operational risk and investment management. The exam is recognized in more than 90 countries and is designed to measure the ability of a financial risk manager to manage risk in a global environment.

The questions are practical and related to real-world work experiences. Candidates are expected to understand risk management concepts and approaches that would apply to the daily activities of a risk manager.

Part 1 of the FRM exam consists of 100 questions that focus on the following four topics (weight as such):

  • Risk Management Fundamentals (20%)
  • Quantitative analysis (20%)
  • Financial markets and products (30%)
  • Valuation and risk models (30%)

Part 2 of the exam consists of 80 questions on the following topics (weighted as follows):

  • Market risk measurement and management (20%)
  • Credit risk measurement and management (20%)
  • Operational risk and resilience (20%)
  • Measurement and management of liquidity and cash risk (15%)
  • Risk management and investment management (15%)
  • Current issues in financial markets (10%)

$ 134,180

The median annual salary for financial managers and FRMs in 2020, according to the U.S. Bureau of Labor Statistics.

Industry Insights for Financial Risk Managers (FRM)

In 2018, the median salary for financial managers, including FRMs, was $ 127,990 per year, according to the U.S. Bureau of Labor Statistics.

The employment of FRMs is expected to grow much faster than the average for all occupations by 16% from 2018 to 2028. The Office states that “the core functions of financial managers, including risk management and cash management will be in high demand in the next decade. ”

Naturally, the vast majority of FRMs are used in the financial services industry. But the demand for good risk management teams is high in all areas of the economy; from health and engineering to technology and natural resources.

According to GARP, these are the top 10 companies that employ the most FRM:

  1. ICBC
  2. Bank of China
  3. HSBC
  4. Agricultural Bank of China
  5. Citigroup
  6. KPMG
  7. German bank
  8. Swiss credit
  9. UBS
  10. PwC

FRM vs. CFA

The Chartered Financial Analyst (CFA) designation is one of the most recognized financial designations in the world. Where FRM is considered the “gold standard” of financial risk managers, the CFA has the same level of reputation among financial analysts.

Since both the CFA and the FRM seek to certify professionals in the financial industry, they are often compared to each other.

The basic difference between the two is as follows: FRM is a more specialized designation than the CFA Charter. The CFA covers a wide range of topics primarily related to investment management, including financial analysis, corporate finance, equities, bonds, derivatives, and portfolio management.

FRM, on the other hand, primarily focuses on managing exposure to a variety of risks, including operational risk, credit risk, market risk, and liquidity risk.

Ther FRM and CFA also have different requirements.

To earn your FRM certification, you must:

  • Pass Part 1 and Part 2 of the FRM exams
  • Have two years of professional experience in financial risks.

To get your CFA Charter, you must:

  • Have a bachelor’s degree (or be in the last year of your bachelor’s program) to start the CFA program.
  • Pass Level 1, Level 2 and Level 3 of the CFA exams
  • Become a member of the CFA Institute
  • Have 4,000 hours of experience in an investment related position.

Advantages of the FRM designation

There are several advantages of obtaining the FRM certification.

First, there is the reputation aspect that comes with the program. It is widely regarded as the leading designation in the risk management industry. Therefore, it is a strong indication of skill and experience in the field. In other words, the FRM carries significant weight with employers and colleagues.

Given how quickly financial markets change, the demand for risk management experts is likely to only grow over time.

The second benefit is the obvious educational one. As mentioned above, the FRM certification provides professionals with in-depth knowledge of risk management. In practical terms, that means knowing how to anticipate, respond and adapt to critical risks.

FRM FAQ

Is CFA better or FRM?

That largely depends on your career path. Generally speaking, FRMs are intended for managerial roles that focus specifically on risk (i.e. credit risk manager, regulatory risk manager, operational risk manager, etc.). On the other hand, CFA Charterholders are primarily investment management professionals (i.e. investment analysts, portfolio managers, financial advisers, etc.).

Is FRM stronger than CFA?

The FRM exams are difficult, but not as difficult as the CFA exams.

Pass rates for FRM Part 1 are generally in the 40% to 50% range. For Part 2, they range from 50% to 60%.

For the CFA exams, the historical pass rates for Level 1 and Level 2 are generally in the range of 40% and 50%. Level 3 pass rates are typically around 50%. It is this combination of lower pass rates and one more exam that makes the CFA more difficult than the FRM.

How much does the FRM cost?

The FRM charges a one-time registration fee of $ 400 to first-time FRM candidates.

From there, the standard registration is $ 750 for Part 1 and another $ 750 for Part 2. However, if you register early, candidates can get a discounted rate of $ 550 for Part 1 and $ 550 for Part 2.

The bottom line

FRM is the leading professional certification for risk managers and widely recognized as the global standard for financial risk. The current demand for savvy financial risk managers is high and should continue to grow over time.

While the CFA is generally considered more prestigious and more difficult to achieve, FRM’s great advantage lies in its highly specialized approach to risk. For professionals looking to differentiate themselves, boost job prospects, and earn better salaries specifically in the field of risk management, the FRM is second to none.

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Mark Holland

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