What does FRM mean? Roles, Certification Requirements and Earnings

Businessman pointing at risk management concept on screen
What does FRM mean? Financial Risk Manager.
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What does FRM mean?

A Financial Risk Manager (FRM) means a certified professional who is knowledgeable about the market, investment, credit, and operational risks that businesses may face and the tools necessary to manage them effectively. FRMs are essential members of any organization due to their specialized skill set and knowledge.

The Global Association of Risk Professionals (GARP) is the only professional organization that issues the title of financial risk manager.

The GARP FRM certification is widely regarded as the gold standard in the field of risk management. Candidates for the FRM certification must pass two rigorous exams and work in the risk management field for a period of two years before they can apply for the certification.

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

What Is Financial Risk Management?

Financial risk management is a method by which businesses identify potential financial risks, analyze them, and devise precautionary measures and strategies to avoid or minimize such risks. It is required in banks, non-banking financial institutions, and corporations.

KEY POINTS

  • Financial Risk Managers (FRM) are certified by the Global Association of Risk Professionals (GARP).
  • FRMs are risk assessors who work for major banks, insurance companies, accounting firms, regulatory agencies, and asset management firms.
  • FRM certification requires passing a two-part exam as well as two years of work experience in financial risk management.
  • Earning the FRM certification provides professional recognition (FRM is the global standard in the field), increases job prospects, commands a higher salary, and makes you a better overall risk manager.
  • Overall, the CFA is a more difficult designation, but the FRM is a more specialized certification. CFA is discussed later in this article.

What is the Role of a Financial Risk Manager (FRM)?

  • Design a comprehensive risk management process:

The most essential function of a Financial Risk Manager is designing a comprehensive risk management process, procedures, and policies of an organization. They also plan and carry out risk management strategies.

  • Methodology for risk identification, assessment, and analysis: 

They create a clear and comprehensive methodology for risk identification, assessment, and analysis for this purpose. The evaluation and analysis should be able to demonstrate the scope and magnitude of the risks, as well as estimate the costs to the organization. For assessment, the FRM may choose to create software/computer programs or use statistical methods.

  • Risk evaluation and budgeting:

The risk’s intensity and magnitude must be assessed based on the organization’s risk management policies, and it must follow specific guidelines for minimizing/ averting risks or reducing their impact. The assessment must also consider legal & relevant authorities’ guidelines in terms of insurance, costs, legal requirements, environmental regulations, etc. These components must be carefully budgeted for. The organization’s previous handling of risks will also have to be evaluated and taken into cognizance. All of this is handled by the FRM.

  • Establish risk appetite:

The FRM is in charge of determining the level of risk the organization is willing and prepared to take; this is known as establishing an organization’s risk appetite.

  • Precautionary measures and contingency plans

The FRM implements sound contingency plans and precautionary measures based on assessments and evaluations of both internal and external risks (global, national, local). They plan and buy insurance, put together health and safety measures, and create business continuity plans to reduce business risk.

Other roles includes
  • Risk reporting and record-keeping: 

Based on the needs of various groups of stakeholders, the FRM creates customized reports on various aspects of risks such as assessment of depth and magnitude, nature, probable consequences, budgeting, costs, insurance, and so on. In addition, they keep records of insurance policies, risk experiences, claims, and losses.

  • Review: 

As financial risk specialists, FRM play an essential role in reviewing legal documents, contracts, policies, new activities and programs, and so on. They examine these to determine the extent of losses, insurance coverage, and other financial implications.

  • Proposal development: 

They assist in the preparation of proposals by forecasting trends and risks involved and, as a result, accommodating these in the proposal.

Financial risk management courses and certifications provide individuals with all of the knowledge, skills, and tools they need to become Financial Risk Managers.

The Financial Risk Manager (FRM) Program

The FRM exam examines how risk management tools and techniques are applied to the investment management process.

To obtain the FRM designation, candidates must pass a comprehensive two-part exam and have two years of work experience in financial risk management.

Professionals with the FRM designation are eligible to participate in optional continuing professional development. The FRM program conforms to the major strategic risk management disciplines of market risk, credit risk, operational risk, and investment management. The exam, accepted in over 90 countries, is designed to assess a financial risk manager’s ability to manage risk in a global environment.

The questions are practical and relate to real-world work experiences. Candidates must understand risk management concepts and approaches as they apply to the day-to-day activities of a risk manager.

Part 1 of the FRM exam has of 100 questions covering the following four topics (in descending order of weight):
  • The fundamentals of risk management
  • Quantitative evaluation (20 percent )
  • Financial markets and products (30 percent )
  • Risk models and valuation (30%)
The second section of the exam contains 80 questions. (weighted as follows) from the following topics:
  • Measurement and management of market risk (20 percent )
  • Credit risk evaluation and management (20 percent )
  • Resilience and operational risk (20 percent )
  • Measurement and management of liquidity and treasury risk (15 percent )
  • Management of risks and investments (15 percent )
  • Current financial market issues (10 percent )

Financial Risk Managers’ (FRMs) Industry Outlook.

From 2018 to 2028, FRM employment is expected to grow at a much faster rate than the national average of 16%. According to the Bureau, “Over the next decade, core financial manager functions like risk management and cash management will be in high demand.”

Obviously, the vast majority of FRMs work in the financial services industry. However, risk management teams are in high demand in all economic sectors, from healthcare to engineering to technology and natural resources.

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

  • HSBC
  • China Agricultural Bank
  • Citigroup
  • KPMG
  • Deutsche Bank & Co.
  • Credit Suisse (Credit Suisse)
  • UBS
  • ICBC
  • Bank of China

CFA vs FRM

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

The CFA and the FRM are frequently compared because they both aim to certify financial industry professionals.

The primary difference between the two is that FRM is a more specialized designation than CFA Charter. The CFA exam covers a broad range of topics primarily related to investment management, such as financial analysis, corporate finance, bonds, derivatives, equities, and portfolio management.

The FRM, on the other hand, is primarily concerned with managing exposure to a wide range of risks, such as operational risk, credit risk, market risk, and liquidity risk.

The FRM and CFA have different requirements as well.

To obtain your FRM certification, you must first:

  • Pass Parts 1 and 2 of the FRM examinations.
  • Have two years of professional experience in financial risk management

To obtain your CFA Charter, you must first:

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

The Benefits of the FRM Designation

Earning the FRM certification has several advantages.

The first is the program’s reputation. It is generally regarded to be the most prestigious designation in the risk management industry. As a result, it is a strong indicator of ability and experience in the field. In other words, the FRM carries a lot of weight with employers and coworkers.

Given how quickly financial markets change, the demand for risk management professionals is likely to rise over time.

The second advantage is clearly educational. As previously stated, the FRM certification provides professionals with a comprehensive understanding of risk management. In practice, this means understanding how to anticipate, respond to, and adapt to critical risks.

FRM Frequently Asked Questions

  • Is CFA or FRM superior?

Your career path primarily determines that. For example, FRMs are generally intended for risk-focused managerial roles (i.e., credit risk manager, regulatory risk manager, operational risk manager, etc.). CFA charter holders, on the other hand, are primarily investment management professionals (i.e., investment analysts, portfolio managers, financial advisers, etc.).

  • Is FRM more difficult than CFA?

FRM examinations are difficult, but not as difficult as CFA exams.

FRM Part 1 pass rates are typically between 40% and 50%. They range between 50 and 60 percent for Part 2.

Pass rates for the CFA exams have historically ranged between 40% and 50% for Level 1 and Level 2. Level 3 pass rates are typically in the 50 percent range. The combination of lower pass rates and one more exam makes the CFA more difficult than the FRM.

  • What is the cost of the FRM?

First-time FRM candidates 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 can get a discounted rate of $550 for Part 1 and $550 for Part 2.

Bottom Line 

What does FRM mean? FRM is the leading professional risk management certification and is widely accepted as the global standard for financial risk. As a result, the current demand for expert financial risk managers is high and is expected to rise further in the future.

While the CFA is considered to be more prestigious and difficult to obtain, the FRM has a significant advantage in its highly specialized focus on risk. As a result, the FRM is unrivalled for professionals looking to distinguish themselves, advance their careers, and command higher pay in the risk management field.

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