Financial Risk Manager (FRM®)

An accreditation offered by the Global Association of Risk Professionals (GARP) that certifies the understanding of risk

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Written by CFI Team

What is a Financial Risk Manager (FRM®)?

A Financial Risk Manager (FRM®) is an accreditation offered by the Global Association of Risk Professionals (GARP) that certifies the understanding of risk management concepts that are validated by international professional standards.

Financial Risk Manager (FRM)

Broadly speaking, financial risk management is the active process by which the economic value of a firm is protected by using different financial mechanisms to reduce and mitigate risk exposure.

Various types of risk fall under risk management. Two levels of exams must be written to obtain the FRM designation, but it is widely considered a strong credential in the field of financial risk management.

Professionals in financial risk management often attempt to determine whether they should take the FRM or CFA, and we will examine the criteria that may make the FRM the right choice for you.

Summary

A Financial Risk Manager (FRM) is an accreditation offered by the Global Association of Risk Professionals (GARP) that certifies understanding of risk management concepts.
It is a rigorous credential to obtain and can provide a gateway into different career paths in the world of financial risk management.
Managers can access opportunities to create different types of shareholder value when they properly utilize financial risk management.

Financial Risk Management – Different Types of Risk

There are different types of risk a financial risk manager must examine and keep in check to be effective at their job. The risks include:

Credit Risk
Market Risk
Operational Risk
Inflation risk
Liquidity Risk

FRM Designation Requirements

Pass both parts of the Financial Risk Manager (FRM) Exam
Work in the field of financial risk management for two years
Submit work experience to GARP within 5 years of passing the FRM Part 2 Exam

FRM Designation Exam Topics

According to the GARP website, when studying for the FRM, there are 10 key exam topics (as of 2020):

Foundations of Risk Management
Quantitative Analysis (all analytical concepts found on the exam)
Financial Market & Products
Valuation & Risk Models
Market Risk Measurement and Management
Credit Risk Measurement and Management
Operational and Integrated Risk Management
Liquidity and Treasury Risk Measurement and Management
Risk Management and Investment Management
Current Issues in Financial Markets

CFA vs. FRM

The Chartered Financial Analyst (CFA) and FRM certifications come with overlapping similarities and are both strong designations for finance professionals. However, they often result in two vastly different career paths.

Both emphasize financial analysis and require a great deal of commitment and focus on passing; however, the FRM certification is more specialized than the CFA and offers a narrower scope of careers.

There are two levels to the FRM and three levels to the CFA. Furthermore, the CFA requires a minimum of a bachelor’s degree to obtain, while the FRM has no formal degree requirements. It can make the program advantageous for those who may not have received a formal degree in business.

The CFA is still a strong choice for many career paths in finance, as it provides a broad scope of careers and opportunities throughout various types of institutions. As a result, if you have not yet determined exactly which area of finance you wish to go into, the CFA may still be the strongest choice for you.

Financial Risk Management – Practical Applications

Managers of firms have opportunities to create different types of shareholder value when applying the various principles of financial risk management. Managers can use financial risk management to determine which risks are cheaper and how to properly take on risk depending on the potential rewards it can bring about.

FRMs frequently encounter unique scenarios depending on where their firm operates, which bring about different opportunities to take advantage of risk to maximize returns, creating profits and value.