Are you considering a career as a certified financial risk manager (FRM)? If you are a current or aspiring accountant who enjoys the idea of identifying and assessing risk to a companies profit or downward shifts in the market, becoming an FRM may be a good fit for you. There are many benefits associated with earning this credential, including standing out among other financial professionals in the field and having the power to help manage the money and investments of a large company and have a real effect through efficient financial risk management. You might work specifically on market risk, operational risk, portfolio management, investment risk management, or financial analysis using risk management tools and your own expertise in finance. The certification also serves as proof of your knowledge regarding the latest international financial safety standards, as well as connecting you to an elite network of experts employed by some of the world’s most prominent institutions. Additionally, because every industry requires some level of financial oversight, FRMs usually have no trouble securing and maintaining employment, have plenty of career opportunities, and are often very well compensated.
What is a Financial Risk Manager (FRM)?
Overseen and offered by the Global Association of Risk Professionals (GARP), the FRM certification shows that a risk management professionals are capable of identifying and analyzing potential threats to assets, earning capacity, and/or the overall success of a company or organization. While the specific job responsibilities vary drastically between industries, many professionals are responsible for assessing corporate financial operations. They are often essential to ensuring future fiscal safety, success, and efficiency.
What Does a Financial Risk Manager Do?
The majority of FRMs will either work directly with a single entity or offer their services as a consultant to multiple companies and/or organizations. They are responsible for dealing with both financial and material risks. Depending on their role, they may plan and orchestrate periodic audits or checks to verify that all safety regulations are being met. It is also common for risk professionals to make policy recommendations when areas of weakness are identified. Similarly, they may design and lead training programs for employees designed to improve employee development and continuing education and help mitigate potential risk factors in the future.
Once financial risks are identified, managers work to create a comprehensive plan to address them. This often requires significant research and field work to gain a complete and thorough understanding of the situation. Professionals frequently test current protocols, which helps them pinpoint areas that may be particularly susceptible. They will use these tests to project the potential losses if the issues are not addressed. Reports are often presented to company or organization stakeholders who ultimately decide how to proceed. It is also a risk manager’s responsibility to ensure all recommended adjustments adhere to international regulations and standards.
Education Requirements to Become a Certified FRM
Anyone can join the FRM program and take the necessary exams. While there are no education requirements or prerequisites specified, it is important to realize that most states have strict regulations regarding financial managers of all kinds. Additionally, most employers expect candidates to have a bachelor’s degree or higher to make sure they have an understanding of risk management practices. In order to get the most out of your certification, consider your ultimate career path and goals and pursue the education best suited to helping you achieve them.
After completing the necessary exams, FRM candidates must submit documentation of two years of professional full-time risk management or other relevant work experience in a professional role. This information must be received within five years of passing the exams.
The FRM certification exams cover several relevant topics. One of the primary focuses is on the tools used to assess financial risk. This includes quantitative analysis, fundamental risk management concepts, financial markets and products, and valuation and risk models. The exams also test candidates’ knowledge of applying these various tools, with a focus placed on market, credit, operational and integrated risk management, investment management, and current corporate finance market issues.
There are two FRM certification exams for those looking to enter the risk profession: part I and part II. Both are standard pencil and paper examinations offered at a testing center with multiple choice questions. Part I consists of 100 questions, but part II has only 80 questions. Each must be completed within four hours or less.
Candidates can choose from over 100 exam locations around the world and testing is available twice a year, once in May and once in November. These dates can, however, vary due to unforeseen circumstances. For example, the exams dates changed to October 24 and November 21 in 2020. It is also important to note that the FRM exams are available only in English.
Only the following types of business calculators are authorized for use:
- Hewlett Packard 12C
- Hewlett Packard 10B II
- Hewlett Packard 10BII+
- Hewlett Packard 20B
- Texas Instruments BA II Plus
A government issued passport or driver’s licenses is required to gain admission to the examination site the day of the exam. Test-takers must also present a printed admission ticket. Electronic versions are not permitted and the name on the ticket must match exactly the name on the passport or driver’s license.
How is the Certified Financial Risk Manager Exam Scored?
The FRM Committee determines all passing scores for both the Part I and Part II examination. There are no penalties for selecting wrong answers and exam results are provided as a pass/fail designation. Participants can expect their results to be sent via email within approximately six weeks. Quartile results are also sent to candidates so they can compare their performance to others around the world.
Test-takers can request manual exam result recalculation for a $100 fee. These are not appeals, but do confirm that answers were recorded and totaled correctly. If results are found to be accurate, no further details are provided. However, if the exam result is changed due to the recalculation, the associated fee will be refunded. Recalculation requests are processed within 30 days of receipt but fee refunds will take at least seven additional business days to complete.
Study Resources and Preparation for the Exam
The financial risk management examinations are extremely difficult to pass without proper preparation. For most, this includes a minimum of 200 to 240 hours of studying the recommended materials.
GARP provides a wide variety of helpful study materials and practice exams. They also offer information regarding pre-approved, third-party exam preparation providers. Some are free, while others must be purchased in addition to the cost of exam registration.
Free and official resources include:
2020 FRM Learning Objectives:
This downloadable document provides a comprehensive framework to help guide candidates through their preparation process. It details how topics will be weighted, as well as information regarding individual learning objectives for each reading.
2020 FRM Study Guide:
This study guide is also downloadable online and identifies the primary topics and required readings for exam preparation. It is regularly updated to keep up with the most current information available.
2020 FRM Study Guide Changes:
Returning candidates can use this downloadable document to view any recent changes made to the official study guide.
Official study materials available for purchase include:
2020 FRM Exam Part I Books:
There are four official books for Part I. They can be purchased for $300, plus shipping.
- Foundation of Financial Risk Management
- Quantitative Analysis
- Financial Markets and Products
- Valuation and Risk Models
2020 FRM Exam Part I EBooks:
Alternatively, candidates can purchase electronic versions of the Part I books for $250. Test-takers will have access to these materials online for three years and offline via a desktop or mobile application for two years. Limited printing is supported.
2020 FRM Exam Part II Books:
There are five official books for Part I. They can be purchased for $300, plus shipping.
- Market Risk Measurement and Management
- Credit Risk Measurement and Management
- Operational Risk and Resiliency
- Liquidity and Treasury Risk Measurement and Management
- Risk Management and Investment Management
2020 FRM Exam Part II EBooks:
Candidates can also purchase electronic versions of the Part II books for $250. Test-takers maintain access to these materials online for three years and offline via a desktop or mobile application for two years. Limited printing is supported.
Additionally, the exams include information from a selection of pre-selected materials from leading academics and practitioners in the field. GARP provides a list of both required and optional regulatory readings on their website. There are also two practice exams available for download online.
The FRM certification process is considered relatively difficult when compared to other credentials in the field. This is, in large part, due to the examinations. Part I is particularly hard to pass for new candidates.
In 2019, the historical pass rate for Part I was 42% in May and 46% in November. The Part II exam saw only a modest increase in passing scores, with a historical pass rate of 60% in May and 59% in November. Since 2013, only one testing session has resulted in a pass rate above 60%.
New candidates can pay $825 for early registration to the FRM Exam Part I. Returning candidates owe $425. These rates will increase as the testing date approaches. The cost of registering for the FRM Exam Part II early is $350. GARP accepts online credit card payments, US bank checks, and direct bank wires. Checks and wires must include an additional $50 fee for processing. Payment must be received by midnight EDT on the closing date of each registration period.
Refunds are permitted, but candidates must submit the request within 48 hours after registering. Candidates may also defer their exam registration to the next scheduled exam date, but this costs $150 and can only be done once.
Career & Salary
Where Might You Work?
Because nearly every company and organization faces some level of financial risk, financial risk managers can find employment in a wide variety of industries. From small businesses to multi-million dollar corporations, most benefit from working with a risk management professional.
The industries that hire financial risk managers most often include those involved in:
- Financial Services
- Loan Origination & Management
- Wealth Management
- Financial Compliance
As previously mentioned, FRMs can either work for a single company or organization exclusively or offer their services on a consultation basis. The difference between these two options can greatly impact where a professional works.
According to PayScale, the average annual salary for financial managers is $86,840. This is well above the median annual wage of $37,690 for all occupations, as reported by the Bureau of Labor and Statistics. Entry-level professionals may make closer to $65,000 or $75,000 a year, whereas individuals with 10 to 20 years of experience can expect yearly salaries of $95,000.
Overall, the job outlook for financial managers working in the United States is very promising. In fact, the Bureau of Labor and Statistics projects that there will be a 16% increase in job availability between 2018 and 2028. This is faster growth than the national average for other professions. The major reasons for this growth are likely a consistent demand for planning, directing, and coordinating investment services. As globalization persists and technology continues to advance rapidly, companies that have accumulated more cash on their balance sheets will need to adapt and enhance protective procedures.
Additionally, there has been an increased emphasis on risk management within the entire financial industry. This is expected to continue, with banks in particular placing an emphasis on stability and risk management over profits.
The Bureau of Labor and Statistics projects there will be about 64,900 job openings for financial managers each year for the next decade. Most of these will be a result of current professionals exiting the labor force. Candidates with master’s degrees and certifications will be highly sought after.
There are many employment opportunities available to certified FRMs. This credential sets professionals apart in the financial services industry. Most top firms employ at least one financial risk manager.
While work can be found in nearly any industry, some of the most common professions include:
- Risk Analyst
- Risk Manager
- Credit Risk Analyst
- Regulatory Risk Analyst
- Chief Risk Officer (CRO)
- Risk Analyst:
Risk analysts are responsible analyzing data to calculate risks and outcomes. They frequently work for banks and insurance companies, verifying potential clients’ application information. According to PayScale, the average yearly salary for a risk analyst is $64,249.
- Risk Manager:
Risk managers are responsible for designing, implementing, overseeing, and managing a company or organization’s risk management plan. They often investigate and troubleshoot individual and organization-wide issues. According to PayScale, the average yearly salary for a risk manager is $86,840.
- Credit Risk Analyst:
Credit risk analysts are usually in charge of analyzing client credit risks for companies or organizations. They provide accurate results that explain complex analyses in non-technical terms. According to PayScale, the average yearly salary for a credit risk analyst is $66,753.
- Regulatory Risk Analyst:
Regulatory risk analysts generally prepare, review, and file regulatory financial documents. They help companies and organizations avoid unnecessary fines and negative consequences for operating outside of government mandates. According to PayScale, the average yearly salary for a regulatory risk analyst is $62,712.
- Chief Risk Officer (CRO):
Chief risk officers often coordinate with senior company or organization management to develop, evaluate, and implement risk management policies for an entire region. They ensure profits are prioritized while also ensuring adherence to policies and regulations. According to PayScale, the average yearly salary for a chief risk officer is $154,219.