The Financial Risk Manager ® (FRM) is a leading certification in the field of risk management awarded by the Global Association of Risk Professionals (GARP), USA. With ever-increasing competition in the job markets, it is all-the-more crucial for professionals to exhibit that their knowledge and skills correspond to the international standards. Earning the FRM certification helps a risk manager prove such value to his/her employer.
The curriculum entails a specialized knowledge of risk management techniques, quantitative and qualitative skills that helps a professional to specialize in certain roles.
Typically, the work done by FRMs today include:
- Managing Market Risk (managing losses that occur due to factors that affect the overall financial markets, e.g. change in interest rates, recession, natural calamities, etc.)
- Managing Credit Risk (managing the risk of default or delay in the repayment of borrowed funds – this is significant primarily in the banking companies)
- Recognizing threats to an organization and taking steps to minimize them
- Estimating the quantum of risk being faced by a company
- Making relevant recommendations to the management to minimize the risk
Based on a survey, only 50% of the total tasks of FRMs is spent managing the various risk.
Moreover, as the case is in most jobs, as the experience level increases, the role sees a gradual shift from performing risk managing tasks to managing people who perform such tasks.
The FRM certification helps to build certain skillsets among the professionals who take up this course. Skillsets which are common to most certified Financial Risk Managers are:
- Research & Strategy : FRMs are known for appreciating lessons learned from the historical financial situations whilst also assessing the current fundamentals and use their quantitative and qualitative techniques to deliver forward-looking insights.
- Trading : In the field of trading of securities, an FRM is able to look beyond the face value performance of a security or a portfolio. By penalizing securities having excessive risk exposures, an FRM can maximize the return earned per unit of risk. Given an overall risk appetite of the portfolio, the trader then can allocate the risk to more efficient alternatives, which earn a higher return per unit of risk taken.
- Model Building & Valuation : They also exhibit an understanding of specific limitations faced by various risk models and assure to validate any model that is in use for the purpose of effective risk management.
- Product Management : FRMs are also equipped to identify and manage risks associated with the product being offered by the company. These may include the risk of uncertainty regarding the demand for the product, productions costs overruns, loss of sales to competitors stemming from testing, production, or shipping delays. Unless managed, such risks may adversely impact the financial performance of an enterprise.
- Portfolio Management : FRMs use a risk-aware framework when they evaluate the financial performance of a portfolio in which they make use both of their technical and strategic know-how.
Risk managers may also add value to most organizations by working in certain functions such as – Audit, Treasury, Regulatory Compliance, Accounting & Control. They could consult clients by providing them insights on their risk appetite and help them maximize their returns on a risk-adjusted basis.
Naturally, the need for risk management would be very rare in a manufacturing company, for instance. The major demand for risk management professionals stems mostly from the banking industry (ICICI bank, J.P. Morgan, etc.), insurance industry, credit rating agencies (Moody’s, CRISIL, etc.) and certain financial institutions (organizations that deal with huge amounts of money – hedge funds, investment banks, etc.).
However, companies in the energy, as well as the IT sector also deal with various types of risk and therefore have a need for a risk management function. The following snapshots include some of the companies and banks that are known for recruiting most of the FRM candidates.
- Top Companies which recruit FRMs are ICBC, HSBC, Citigroup, KPMG, Deutsche Bank, Credit Suisse, UBS, PWC
- Top Banks which recruit FRMs are Chinese Construction Bank, JP Morgan Chase, Wells Fargo, Bank of Americe, Banco Santader
The salaries for FRMs differs across countries on account of factors such as cost of living, demand for jobs, etc. Besides, the quantum of pay also varies across different job profiles at which FRMs are majorly employed.
According to the estimates, the average salary of an FRM charter-holder in India is somewhere close to INR 10,00,000 per year. However, this number varies for different job profiles and increases with the level of experience as shown below:
Meanwhile, the overall average salaries for charter-holders in the USA stands at $99,000 per year. A closer look into the specifics for various profiles and experience levels can be seen below:
According to the U.S. Bureau of Labor Statistics, “the core functions of financial managers, including risk management and cash management, are expected to be in high demand over the next decade” which shall bring about some growth in the overall salary levels for FRM charter-holders.