What Does a Financial Risk Manager Actually Do?

what does a financial risk manager do frm certified

Feeling a little stuck in your job? If you have a finance background, you might have started looking at your options and run across financial risk manager as an option. 

But what does a financial risk manager do? What kind of job is that and is it right for you? 

If your finance job allows you to focus on numbers and analysis rather than just accounting, this might be the field for you. It’s a growing career option with solid earning potential that can take you all over the world, but it isn’t the type of job for everyone. 

Before you decide, you need to understand what risk management means, how to become an FRM, and what the job might entail. 

What Is Financial Risk Management? 

The field of financial risk management plays a huge role in the success of banks and investment firms. Advanced analytics, better modeling, and machine learning are helping these organizations improve their bottom lines because they can choose the kinds of risk they’re willing to take on. 

Financial risk management is the process of identifying those risks, analyzing them, and coming up with plans to handle them to the company’s advantage. It’s a large field because almost everything a company does in spending or collecting money has some type of risk attached. The major ones you might deal with in an FRM job would be: 

• Credit risk 
• Liquidity risk 
• Operational risk 
• Model risk 
• Portfolio risk 
• Fixed-income risk 
• Derivatives risk 
• Commodity risk 
• Market risk 
• Regulatory risk 

While the type of risk might vary depending on whether the job is at a bank, investment house, or insurance company, each involves an analysis of potential risks and developing a plan for them. 

What Is an FRM? 

If you want to work as a professional risk manager, there is a special credential you can pursue — the Financial Risk Manager or FRM. An FRM isn’t required to work as a risk manager, but it does demonstrate you meet certain qualifications. It’s considered comparable to an MBA, though much more narrow in focus. 

The Global Association of Risk Professionals conducts the exams and awards the designation. 

A finance professional with FRM certification specializes in understanding risk and how it might affect a company’s business operations. The FRM evaluates the scope of the risk and how to price the risk for consideration in decision making. 

To earn your FRM, you must pass two sets of examinations and work full-time in a financial risk position for at least two years. At that time, you can apply for the designation from GARP. 

Studying for and passing the FRM exams can help broaden your knowledge and strengthen your skillset. Earning the designation helps you stand out in a crowd of applicants and makes you part of a well-connected community of fellow FRMs. Since the credential is recognized in major markets worldwide, it can open doors no matter where you choose to work and live. 

Part of what makes the FRM so prized is that the exams are quite difficult and the knowledge tested is very specific to risk. Only about half the persons taking the tests pass each time, so you are in an elite group when you do. 

What Does an FRM Do? 

If you happen to get one of the prized financial risk manager jobs out there, just what will you be doing? 

The financial risk manager identifies threats to the financial health of a business, and these types of jobs tend to fall into or encompass two distinct parts. First is the management role, where you develop rules and guidelines and ensure they’re followed. The second is the analysis role, where you determine what the risks are and how much impact they might have. 

According to GARP, nine of the top 10 FRM recruiters and hiring companies are banks. Common job titles for anyone who has earned the FRM designation might include: 

• Risk analyst 
• Risk manager 
• Credit risk analyst 
• Market risk analyst 
• Regulatory risk analysis 
• Operational risk manager 
• Chief risk officer 

The financial risk manager is the person at an organization that figures out how much and what type of financial risk the company is comfortable with. The FRM develops the rules, processes, and guidelines that apply that risk level to any activities the company undertakes, specifically those related to financial risk. 

The FRM is tasked with looking ahead to identify potential threats and make suggestions on how to avoid or mitigate those risks. They’re involved in the decision-making process by providing risk reports that allow the company to properly evaluate the risk in any choice or path. 

How Is FRM Different From CFA? 

If you’re starting to research a financial risk manager career, you might have also seen information about a Chartered Financial Analyst designation. How does it differ from FRM, and does it matter which one you have if you plan to pursue a career in financial risk management? 

To boil it down to a simple definition, the CFA is more generalist and good for a wide range of financial jobs. The FRM is highly specialized and puts more emphasis on quantitative analysis and risk. If you know you want to work in risk management and not just any financial job, the FRM is the way to go. 

Is Becoming a Financial Risk Manager For You? 

Once you earn your certification, there are hundreds of types of roles a financial risk manager might take on. As risk management moves toward a more scientific approach, tech-savvy applicants with a strong background in quantitative analytics will have the edge. An FRM certification provides solid evidence of your knowledge to go along with your experience. 

If you think becoming a financial risk manager might be for you, be sure to check out our other career articles for tips on making career changes and brushing up your resume.

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