Financial risk managers are some of the most important people in the industry.
When people think of a risk manager, they often think of someone that manages risk. A financial risk manager does exactly that but with finances. They’re essentially the reason why businesses can succeed and grow.
Many people aspire to become financial risk managers but there isn’t a lot of information that talks about the requirements and FRM certification process. Fortunately, we’ve gathered everything you need to know about becoming one.
Read on to learn more about financial risk managers, what they do, and what the requirements are.
What is a Financial Risk Manager?
A financial risk manager (FRM) is someone that typically works for a bank, insurance companies, and accounting firms. The main role of a risk manager is to asses risks. This involves coming up with strategies that can be used to avoid potential risks.
Becoming a financial risk manager requires candidates to go through an exam and have 2 years of experience in financial risk management. FRMs will learn about things like credit risk, marketing risk, and investment management.
Requirements to Become an FRM
There aren’t any education pre-requisites to become an FRM, but it’s recommended that candidates get a bachelor’s degree in a business-related field. You must also complete something known as an FRM examination.
Most employers want to see that FRMs have a degree in accounting, finance, or business administration. This lets employers know that an applicant has had time to learn more about how business works. However, many employers are willing to take applicants that have nothing more than a financial risk manager certification.
Financial risk management is an incredibly demanding job because of how much faith is put into FRMs. They must have strong communication skills, excellent organization, and they need to be able to think critically during tense situations.
In the business world, many things can factor how well a business does. The market is constantly changing, so FRMs need to think of ideas that will keep major institutions afloat. This is why most employers want to see that an FRM has a degree.
Examination for FRM Certification
To get an FRM certification, you must go through the FMR exam. You can register for it at the Global Association of Risk Professionals (GARP). The FRM exam is extensive and has 2 parts that are 6 months from each other.
You can take both parts within a day, but it’s advised that you do them separately to have a better chance of passing. Should you fail the first part, your second part won’t be graded and you’ll have to redo both.
Part 1
Part 1 of the exam consists of 100 multiple-choice questions. All questions carry the same weight, so you would get a 75% if you only answered 75 correctly. Part 1 covers several topics, such as the foundation of risk management, financial markets, and valuation and risk models.
After completing the exam, you’ll receive your results after about 6 weeks. You should study for a couple of hundred hours in total because the average pass rate is below 50%.
Part 2
If you choose to take part 2 only after completing the first part, you can do so after receiving the notification that you’ve passed part 1. Part 2 has 80 equally weight questions, but they’re not all multiple choice.
Part 2 will go over topics such as market risk measurement and management, credit risk measurement and management, and current issues in financial markets. Part 2 is likely much easier than the first because most candidates pass it.
Career Options
After completing the FRM exam, you’ll need to get 2 years of experience in the field of risk. Several positions align with this, such as portfolio management, trading, and risk consulting. You’ll need to submit this to GARP within 5 years after passing the exam.
Many people will work in the risk field before taking the exam because it ensures they can quickly get certified. After you receive your FRM certification, you can start looking at several risk manager roles:
Credit Risk
Credit risk is the risk that a debtor doesn’t pay the lender back. Loans and bonds are the most common form of lending, so FRMs often become credit analysts for credit institutions.
Model Risk
Most banks and credit institutions will come up with models to represent their inventory, credit risk, etc. These models will simulate future scenarios. FRMs are trained to manage models and think of alternative plans in case something goes differently.
Portfolio Risk
A portfolio consists of several assets that all have various risks. These assets make determining the overall risk profile of investments difficult, so FRMs can help businesses better determine what the risks of their investments are.
Regulatory Risk
With every business, there’s a set of rules and regulations that they must follow. FRMs can ensure that a business is operating strictly within the guidelines.
Consider Become a Financial Risk Manager
Financial risk managers are necessary for businesses to operate. Without them, the likes of banks and credit unions run the risk of losing money or breaking the law. Becoming an FRM could earn you well over $100k per year, and you don’t need much to become one.
If you decide you’d like to become one, you should start looking into the risk industry to find out what you need to learn to get the FRM certification. Visiting the GARP website will provide you with more information about the FRM exam and certification process.
Browse our articles to learn about more employment in the financial industry.
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