What Is a Financial Risk Manager?

Financial Risk Manager

According to the US Bureau of Labor Statistics, there are 681,700 people working as financial managers. The job outlook for this field for the next ten years is expected to grow by 17%, which is a much faster rate than average.

One specific type of financial manager is a financial risk manager. What is a financial risk manager and what do they do, though? Is this the right career path for you?

This career can offer a decent paycheck and you might even have the opportunity to work remotely. However, it can also be a stressful job as you will most likely be working in a stressful environment.

Whether or not you should undergo financial risk management training is a matter only you can decide. Let’s take a look at what you need to know about the occupation to help you determine whether or not it makes sense for you.

What Is a Financial Risk Manager?

A financial risk manager (FRM) is an individual who has received a professional designation from the Global Association of Risk Professionals (GARP). This is an accreditation that is recognized globally. It is considered the gold standard in terms of financial risk professional certifications.

In order to earn the certification, individuals have to pass two exams that are quite rigorous. In addition, they must work for two years in the risk management field.

Financial risk managers typically work for insurance companies, major banks, regulatory agencies, accounting firms, and asset management firms.

What Does a Financial Risk Manager Do?

In this profession, financial risk managers are responsible for scrutinizing and identifying all of the possible financial risks that an organization faces. They use analytical reports that are created from assessing the risk profile of a company. They then can make recommendations on how the organization can mitigate business and financial risks.

It is common for financial risk managers to specialize in certain fields. Some of the specializations that a financial risk manager my focus on include:

  • Operational risk analysis
  • Market risk analysis
  • Credit risk analysis
  • Regulatory risk analysis

Some of the duties of a financial risk manager might include:

  • Designing risk management processes for an organization
  • Using the methodology for risk identification, analysis, and assessment to help an organization mitigate risk
  • Evaluating risks and budgets
  • Creating precautionary measures and contingency plans
  • Maintaining records and reporting risks
  • Reviewing legal documents, policies, contracts, new programs and activities, etc.
  • Preparing proposals that involve forecasting trends and risks

Quantifying the risk of an organization has become a very important component of financial well-being in the business world today.

The Financial Risk Manager (FRM) Program

As mentioned above, financial risk managers must pass rigorous exams in addition to acquiring two years of work experience in the field of financial risk management. There are also continued professional development opportunities for professionals that are optional.

More than 90 different countries recognize this exam. It is specifically designed to measure the ability of a potential financial risk manager to mitigate and manage risk.

The questions on the exam are related to circumstances that could emerge in a real-world work environment. In order to pass, candidates must demonstrate that they understand the concepts of risk management and the approaches that would apply to the day-to-day activities of an FRM.

The first part of the exam is made up of 100 questions. The four topics and their respective weights on this exam are:

  • 20%: The foundations of risk management
  • 20%: Quantitative analysis
  • 30%: Valuation and risk models
  • 30%: Financial products and markets

The second part of the exam has 80 questions. The topics and weights of these topics are:

  • 20%: Market risk management and measurement
  • 20%: Operational resiliency and risk
  • 20%: Credit risk management and measurement
  • 15%: Liquidity and treasury risk management and measurement
  • 15%: Investment management and risk management
  • 10%: Issues that are current to financial markets

While there is a rigorous exam for this profession, it seems to pay off from a salary standpoint. According to the U.S. Bureau of Labor Statistics, the median annual salary of FRMs in 2020 is $134,180.

What Is the Difference Between FRM and CFA?

Another highly respected designation in addition to becoming an FRM is that of a CFA. This stands for Chartered Financial Analyst.

Both of these programs seek to give professional certifications in the financial industry. The most obvious difference between these two different designations is that the CFA charter is more broad while FRM is more specialized.

The CFA has a wider range of focus. The topics in the wheelhouse of CFAs include:

  • Corporate finance
  • Financial analysis
  • Bonds
  • Equities
  • Portfolio Management
  • Derivatives

CFAs primarily focus on the world of investment management. Financial risk managers focus their attention mostly on managing exposure to a wide variety of risks.

Financial Risk Management Training: Is It Right For You?

Working in financial risk management might not be for everyone. However, for the right candidate, it can provide a lucrative career that assists organizations in their management of risk. This is a job that has a decent amount of job security, since high-quality risk managers are currently in high demand.

If you love working with numbers, this might be the job for you. However, if you will feel frustrated by the prospects of never creating anything tangible, you might want to look down a different road.

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