What Is a Financial Risk Manager (FRM)?
Financial risk manager (FRM) is a professional designation issued by the Global Association of Risk Professionals (GARP).
The GARP FRM accreditation is globally recognizedas the premier certificationfor financial risk professionals dealing in financial markets. To earn 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 assessing risk and typically work for major banks, insurance companies, accounting firms, regulatory agencies, and asset management firms.
Key Takeaways
- Financial risk managers (FRM) are accredited by the Global Association of Risk Professionals (GARP).
- FRMs specialize in assessing risk for major banks, insurance companies, accounting firms, regulatory agencies, and asset management firms.
- FRM certification requires passing a two-part examand gaining two years of work experience in financial risk management.
- Benefits of earning the FRM certification include professional recognition (FRM is the global standard in the field), boosting job prospects, commanding a higher income, and becoming a better overall risk manager.
- The CFA is a tougher designation to acquire overall, but FRM is a more specialized certification.
Understanding Financial Risk Managers (FRMs)
An FRM identifies threats to assets, earning capacity, or the success of an organization. FRMs may work in financial services, banking, loan origination, trading, or marketing. Many specialize in areas like credit or market risk.
FRMs determine risk by analyzing financial markets and the global environment to predict changes or trends. It is also the FRM's role to develop strategies to counteract the effects of potential risks.
Financial risk managers (FRMs) are required to be accredited by the Global Association of Risk Professionals (GARP).
The Financial Risk Manager (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 examand complete two years of work in financial risk management.
Professionals who hold the FRM designation can participate in optional continued professional development. The FRM program follows the major strategic disciplines of risk management: market risk, credit risk, operational risk, and investment management. The exam is recognized in over 90 countries and is designed to measure a financial risk manager's ability 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 as they would apply to a risk manager's day-to-day activities.
Part 1 of the FRM exam is 100 questions that focus on the following four topics (weighted as noted):
- Foundations of risk management (20%)
- Quantitative analysis (20%)
- Financial markets and products (30%)
- Valuation and risk models (30%)
Part 2 of the exam consists of 80 questions from the following topics (weighted as follows):
- 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%)
$156,100
The median annual salary of financial managers and FRMs in 2023, according to the U.S. Bureau of Labor Statistics (BLS).
Industry Outlook for Financial Risk Managers (FRMs)
In 2023, the median pay for financial managers including FRMs was $156,100 per year, according to the U.S. Bureau of Labor Statistics (BLS).
Employment of FRMs is expected to grow much faster than the average for all occupations at 16% from 2022 to 2032. The BLS states that "several specialties within financial management, particularly cash management and risk management, are expected to be in high demand over the decade."
Naturally, the vast majority of FRMs are employed in the financial services industry. But the demand for good risk management teams is high in all areas of the economy, from healthcare and engineering to technology and natural resources.
According to GARP, these are the top 10 companies employing the most FRMs:
- ICBC
- Bank of China
- HSBC
- Agricultural Bank of China
- Citigroup
- KPMG
- Deutsche Bank
- Credit Suisse (now merged into UBS)
- UBS
- PwC
FRM vs. CFA
The chartered financial analyst (CFA) designation is one of the most recognized financial designations in the world. FRM is considered the "gold standard" of financial risk managers, and the CFA has a similarly stellar reputation among financial analysts.
Since both the CFA and FRM seek to certify professionals in the financial industry, they're often compared with each other.
The basic difference between the two is this: FRM is a more specialized designation than the CFA. The CFA covers a wide range of topics related primarily to investment management, including financial analysis, corporate finance, equities, bonds, derivatives, and portfolio management.
The FRM, on the other hand, focuses primarily on managing exposure to a variety of risks, including operational risk, credit risk, market risk, and liquidity risk.
The FRM and CFA also have different requirements.
To earn your FRM certification, you must:
- Pass both Part 1 and Part 2 of the FRM exams
- Have two years of professional financial risk experience
To become a CFA charterholder, you must:
- Have a bachelor's degree (or be in the final year of your bachelor's program) in order 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 role
Advantages of the FRM Designation
There are several advantages to earning the FRM certification.
First, there is the reputation that comes with the program. It is widely regarded as the risk management industry's leading designation. Thus, it is a strong indication of ability and experience within the field. In other words, the FRM carries significant weight with employers and colleagues.
Given how rapidly financial markets are changing, the demand for risk management experts will likely only grow over time.
The second benefit is the obvious educational one. As mentioned earlier, the FRM certification provides professionals with a thorough understanding of risk management. In practical terms, that means knowing how to anticipate, respond, and adapt to critical risks.
Which Is Better, CFA or FRM?
That largely depends on your career path. Generally speaking, FRMs are meant for managerial roles that focus specifically on risk (i.e., credit risk manager, regulatory risk manager, operational risk manager, and more). By contrast, CFA charterholders are primarily investment management professionals (i.e., investment analyst, portfolio manager, financial adviser, etc.).
Is FRM Tougher Than CFA?
FRM exams are tough, but not as difficult as the CFA exams.
The pass rates for FRM Part 1 fall in the range of 40% to 50%; in 2023, the pass rate was 45%. For Part 2, they range between 50% and 60%, with a rate of 53% in 2023.
For the CFA exams, historical pass rates for Level 1 and Level 2 are generally in the range of 35% to 50%. Level 3 pass rates are usually in the ballpark of 50%. It's this combination of lower pass rates and the additional exam that makes the CFA tougher than the FRM.
How Much Does the FRM Cost?
The FRM charges a one-time enrollment fee of $400 to first-time FRM candidates.
From there, standard registration is $800 for Part 1 and another $800 for Part 2. Candidates who register early, however, are able to get a discounted rate of $600 for Part 1 and $600 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 expert financial risk managers is high and should only continue to grow over at least the next decade.
While the CFA is generally regarded as more prestigious and tougher to attain, FRM's big advantage lies in its highly specialized focus on risk. For professionals looking to differentiate themselves, boost job prospects, and command better pay specifically within the risk management field, the FRM is second to none.
