What is an FRM?

In the early 2000s, Financial Risk Managers (FRM) were fairly few and far between. However, after the nationwide financial crisis in 2008, this professional designation became a lot more popular. The enormous fallout from irresponsible credit handling and investment bubbles created a need for risk professionals to advise companies on the safest way to handle their financial investments.

Specifically, an FRM is responsible for assessing a company's level of risk and working with management to minimize it or remove it completely. FRMs are frequently found in the following industries:

• Banking firms
• Large corporations
• Asset management firms
• Government sectors

In particular, some of the worlds largest banks - including ICBC, the Bank of China, HSBC, Citigroup, Deutsche Bank, Credit Suisse, and many others, are responsible for employing the most FRMs in the world.

Ultimately, the FRM designation is both coveted and difficult to obtain, with only 50,000 FRMs certified globally in 2018. The Global Association of Risk Professionals (GARP)  oversees and administers FRM testing and accrediting. Consequently, when preparing for the FRM exam, you’ll want to use study materials and courses that are up to GARP standards to maximize your chance of passing!

Let’s take a closer look at what an FRM does and is responsible for in their role.

What does an FRM do?

A Financial Risk Manager (FRM) brings a ton of value to the organizations and clients they work with. As a certified FRM, you’ll be in charge of some or all of these tasks:

• Risk Management- You’ll use a variety of tools and models to analyze, assess and control operational risk related to the company. Financial risk management includes many areas of an organization's operations and finances, such as market, operational, credit and liquidity ratios.
• Audit Procedures- A large part of mitigating financial risk includes assessing, testing and improving internal controls in the company. FRM’s can help minimize loss, theft, and defects in a company organization, and work with top level management to accomplish these goals.
• Complying with Regulations- You’ll use in-depth knowledge of national, international and global regulations over the market and corporate financial procedures to guide your client or organization through legal regulations while meeting objectives.

• Funding Controls- As part of FRM training, you’ll learn how to stress test various financial risk to the company’s funding options, investments and ability to liquidize assets effectively.

• Portfolio Management & Trading- Depending on your position or the company you work with, you may advise or play a part in portfolio management and trading options with company investments in order to best minimize financial risk.

As you can see, a lot of skill and training supports the Financial Risk Manager professional certification. This equips you to take a leadership role in company finances, as well as advising top-tier leadership on strategic moves with confidence.

So how do you go about earning your FRM certification? Let’s dive into the process below!

How do you become an FRM?

The Financial Risk Manager (FRM) professional certification is prestigious, and signifies a total mastery of corporate finance, risk management, and strategic concepts. In fact, according to the Global Association of Risk Professionals, FRM holders have the educational equivalent of a Master’s Degree!

FRM credentials are awarded after you meet three milestones: passing Part 1 and Part 2 of the FRM exam and earning two years of relevant professional experience.

Let’s take a closer look at the exam, which is offered twice a year in the spring and the fall on pre-selected dates. In order to take the exam, you’ll need to schedule on a test date at one of the 100 available exam sites in the world.

Keep in mind when reviewing the topics and weights of each section that an important study strategy is key to passing the FRM exam. The exam is notoriously tough, with each years pass rate usually just above 50%.

FRM Exam Part 1

The FRM exam is split into two parts, with the first portion being a 100-question multiple choice test. This test is always scheduled in the morning, and you have four hours to complete it.

Part One of the FRM exam focuses on tool used to assess financial risk. These include:

• Foundations of Risk Management
• Quantitative Analysis
• FInancial Markets and Products
• Valuation and Risk Models

Each section of part one is weighted, with the following weights assigned to each:

• Foundations of Risk Management (20%)
• Quantitative Analysis (20%)
• Financial Markets and Products (30%)
• Valuation and Risk Models (30%)

FRM Exam Part 2

The second part of the FRM exam takes place in the afternoon, and you’ll have four hours to complete this portion of the test. Although you can take both parts of the test on the same day, lots of students schedule Part One for the spring and Part Two for the fall in order to best fit their study schedule. However, if you do happen to take both portions on the same day, your Part Two Exam won’t be graded unless you pass Part One.

Part Two focuses on application of the tools you were tested on in Part One. The topics include:

• Market Risk Measurement and Management
• Credit Risk Measurement and Management
• Operational and Integrated Risk Management
• Risk Management and Investment Management  
• Current Issues in Financial Markets

Like Part One, each topic is weighted for the following values:

• Market Risk (25%)
• Credit Risk (25%)
• Operational and Integrated Risk (25%)
• Risk Management & Investment Management (15%)
• Current Issues in Financial Markets (10%)

Truthfully, these values are important to keep in mind when formulating the best study strategy possible. You want to perform well in heavier weighted subjects in order to score highly on the exam.

Once you take the exam (and pass!) your work isn’t over. There’s one more milestone to complete in order to earn your FRM credential: proving relevant work experience.

Proving Relevant Work Experience For FRM

After the exam, there’s one more step. You’ll need to demonstrate at least two years of experience in full-time risk management work. It must be a finance-related job; some popular examples are:

• Portfolio Management
• Financial Industry Research
• Trading
• Risk Consulting

You have five years to submit your work experience to GARP. Fortunately, the good news is that getting the work experience is the hardest part of this task. To prove your experience, you’ll just need to describe your professional role in financial risk management in at least five sentences and submit it to the organization.

After you submit the description and it is approved, GARP will confirm your credentials and add you to the official registry. Then, Presto! You’re an accredited Financial Risk Manager!

How much money does an FRM make?

It may seem like a lot of time and effort to get your FRM credentials, but at the end of the road it’ll be worth it: if not for a position that allows you to exercise leadership and strategy, then for the generous FRM salary!

According to PayScale, the average salary for an FRM is $88,124. This number goes as high as $93,000 or begins at $73,000 depending on the size of the company as well as industry. Furthermore, your career options are also rich and varied, with opportunities to work as a consultant, client analyst, or within an organization as a Chief Financial Officer.

Main Takeaways

A Financial Risk Manager (FRM) is responsible for analyzing possible risks to a client or company’s financial and/or operating status and creating strategies to reduce or eliminate that risk. A risk manager is a tough job, but a rewarding one, especially for those that love risk and strategy.

Additionally, in order to earn your FRM credential you’ll need to study the learning objectives published by the GARP yearly. Furthermore, you’ll also need to schedule both parts of your exam on one of two testing dates offered every year. Although the exam is difficult, with a pass rate that usually hovers in the 50th percentile, you can beat the exam and earn your FRM credential with the right study materials!