Financial Risk Manager® (FRM) program

Introduction to the Financial Risk Manager® (FRM) program:

Financial Risk is a broad term that comprises various types of risks that could cause financial loss(es) to a business. Some of the risks firms face are Interest Rate Risk, Credit Risk, Liquidity Risk, Operational Risk etc. Financial Risk Management therefore requires very specialized type of knowledge. The Financial Risk Manager (FRM) program conducted by The Global Association of Risk Professionals (GARP) program aims to provide a holistic education in Financial Risk Management and is an ideal program for candidates aspiring to top Financial Risk Management profiles across firms. GARP is a non-profit organization that is involved in creating risk related awareness and providing quality training in the field of Risk Management. Globally, the FRM designation is one of the best known and respected designations in the Risk Management area. If you are interested in this field, FRM is the certification to do. The FRM program is good to have even if you are working in other fields like Corporate Finance, Investment Management etc., since it introduces you to the world of financial markets, different financial products, valuation tools and risk metrics.
The exam has two parts. You need to clear both the parts and have a work experience of 2+ years to make you eligible to use the famed FRM designation beside your name. This indicates that you are a Certified Risk Manager and are adept at concepts in the Risk Management arena. The FRM certification also makes you a part of an elite group of global Financial Risk Managers, connecting you to a vast network and providing immense learning opportunities.

Who should do a FRM?

The FRM program is tough and also expensive (please see the fees below). If you are reasonably sure of pursuing a career in Risk Management, Investment Management or Corporate Finance, and also have a fair idea of your own abilities to crack the exam, you should give this program a try. If you are unsure, you could take up FRM coaching / mock exams being offered by several training institutes to judge if the exam is something you will be able to crack and if the subject matter makes sense for the current stage that your career is in.
A FRM is apt for you if:
1)   You are a student and want to strengthen your resume for a career in the Risk or Financial Markets domain
Leave alone clearing, even pursuing FRM has a strong signaling ability. A candidate who has cleared one or both parts of FRM is seen as quantitatively sound and proficient in Risk Concepts and Financial Markets as compared to others. Several students take up this program simultaneously with their regular degrees
2)   You want to switch to the Risk Management domain from any other domain
This certification will give you a foot in the door to various opportunities in Risk Management, without having to do a conventional academic degree in the subject 
3)   You want to deepen your knowledge of Risk, Financial Markets & Products and Risk Management Tools
Every firm has to manage risk in some or all forms. This certification gives you a thorough knowledge of risk concepts that can be applied in various roles across firms.

Key skills for an entry-level role would be:

  1. Strong analytical and quantitative skills: Risk Analysis requires heavy quantitative skills and a lot of number crunching
  2. Knowledge of theories of risk, risk metrics: Risk terms are quite different from regular financial parlance and requires some knowledge and studying
  3. Attention to detail and diligence: Risk Management strives to reduce risk. Needless to say, not being accurate would just add to these risks!
  4. Knowledge of financial markets,asset classes and regulations: A Risk Analyst should be familiar with the financial markets, asset classes and should keep abreast of the latest regulatory environment
  5. Comfort with Quant models/Statistical software: Risk analysis requires using complex quantitative models and statistical software. Hence knowledge and comfort with these would be an advantage

How to get in:

A major chunk of Risk Management candidates are hired by Banks and Consultancy companies
•  Do an MBA in Finance or Masters in Mathematics / Statistics / Economics and focus on subjects related to risk in your syllabus. Take additional electives if needed
•  Try to hone your quantitative modeling and statistical skills
•  Financial Risk Manager (FRM) or Professional Risk Manager (PRM) certifications are extremely sought after in this field
•  Quantitative Risk Modeling is an essential skillset and it would be good to take up courses on this

Career opportunities after FRM:

Most firms, whether financial or otherwise, have risk teams that assess and manage Financial Risks. Several firms have dedicated teams for each type of risk such as a Credit Risk team, an FX Risk team, an Operational Risk team and so on. Therefore, an FRM designation holder is sought after widely across industries and sub verticals like:
  Banks and Financial Institutions that need to assess and manage all sorts of Financial Risk
  Other firms that are interested in managing their financial exposure related to foreign exchange or markets etc.
  Consultants that advise clients on Risk Management
Over 95% of the top 20 companies employing the most Certified FRMs are global Banks / Investment Banks.

Details of the program:

The exam is after all mostly about Risk Management and hence the topics are heavily oriented towards identifying and managing different types of risks
•   Part 1:
    o  Quantitative Analysis
    o  Foundations of Risk Management
    o  Financial Markets & Products
    o  Valuation and Risk Models
•   Part 2:
    o  Market Risk
    o  Credit Risk
    o  Operational Risk
    o  Risk Management & Investment Management
    o  Current Issues in Financial Management

Exam difficulty level: 
Generally, the FRM exam is seen as a very tough exam and the passing percentage for Part 1 is usually around 40-50% but has also gone as low at 39% in the recent past

Registration body

Fees (Do confirm with the FRM institute website for the latest fee):
•   One-time enrollment fee: ~$300 
•   Part 1 and 2 registration: $350- $650 per part (depending on if you register early or late)

Exam dates and Duration:
•   The exam is conducted twice a year, in May and November
•   Candidates have the choice to first only take Part 1 and then schedule Part 2 once they pass Part 1
•   The other option is to take both parts on the same day, Part 1 is conducted in the morning session and Part 2 in the afternoon
•   Candidates should pass Part 1 for their Part 2 papers to be graded
•   Each part is 4 hours long

Exam format: 
This is a pencil and paper test
•   Part 1: 100 multiple choice questions to be done in 4 hours 
•   Part 2: 80 multiple choice questions to be done in 4 hours 
•   There is no negative marking

Materials to bring to exam:
•   Admission ticket
•   Govt. issued ID proof
•   HB pencils (or #2 pencils) 
•   Eraser
•   Calculator – only 3 types are allowed:
    o  Texas Instruments BA II Plus (including BA II Plus Professional)
    o  Hewlett Packard 10B II, 10B II+,20B
    o  Hewlett Packard 12C (including the HP 12C Platinum and the Anniversary Edition)
•   Smartphones or smart watches are not allowed

Interview with Mridul Sharma, who has 6+ years of experience in Risk Managementin an MNC Consulting company

Proschool : Please tell us about your background and qualifications
Mridul : I have a BE in Electronics and Communication post which I did an MBA in Finance. I then pursued and completed FRM, PMP certifications and have also cleared CFA L1

Proschool : Why did you decide to pursue this career and how did you get into this role?
Mridul : Coming from an engineering background I was always interested in the quantitative aspect of analyses and found myself pursuing this career to build on my strengths while keeping my interests in finance in mind. I got through my job by applying online

Proschool : Your current role and a typical day?
Mridul : I’m currently a Risk Consultant - Delivery (multiple projects). On a typical day, I perform regulatory requirement analysis, current Project analysis, interact with stakeholders and vendors, identify gaps (requirement as well as planning) and strive to close them through stakeholders

Proschool : High points in your career so far?
Mridul : Several come to mind, but I felt great when the Rating Models developed by me were adopted by an MNC as a standard offering for the region

Proschool : Important projects you have worked on?
Mridul : I have worked on numerous projects in terms of variety and complexity. All projects were with Corporate and Investment Banks

Proschool : Challenges faced?
Mridul : Some of the challenges faced are changing regulations, inconsistent rules across geographies (subsidiary related work), no standard processes at the client’s end, unaccountability of ownership, duplication of work, low budget, clashing business requirements and unreasonable delivery expectations from business 

Proschool : Outlook for the industry?
Mridul : The Financial Services industry is recovering slowly. Risk is picking up momentum through regulatory initiatives. More and more clients are becoming aware of the benefits of doing additional or advanced risk management work than what the regulators demand

Proschool : Career opportunities for aspirants in India (and elsewhere)?
Mridul : Consultancies and Banks are primary employers for Risk Management talent. There is a lot of demand for people specialized in Quantitative Risk modeling

Proschool : Word of advice for aspirants?
Mridul : Focus your career towards the goal for getting into a Risk Management profile. Choose relevant subjects during your postgraduate program. Enroll for either FRM or PRM. Apply outside the campus as well. Keep trying to get into a risk related project/profile even when you are not recruited directly into a risk department and build up your risk related skills through reading updated regulations, attending relevant seminars and workshops