As the financial landscape continually evolves, risk management has emerged as a crucial component for businesses. The Financial Risk Manager (FRM) certification is a globally recognized credential that demonstrates an individual’s expertise in this field. If you’re considering pursuing an FRM certification, you might be wondering, “Is FRM worth it?”
In this post, we’ll explore the advantages and challenges associated with pursuing FRM certification, enabling you to make a well-informed choice.
What is FRM Certification?
The FRM certification is a prestigious designation awarded by the Global Association of Risk Professionals (GARP). It signifies a thorough understanding of financial risk management concepts, tools, and techniques.
How to become an FRM?
Earning FRM certification requires candidates to successfully complete two demanding examinations (Part I and Part II), encompassing subjects like market risk, credit risk, operational risk, and risk management within investment management.
Also, the candidate needs to complete 2 years of work experience in a Risk related job profile.
Benefits of Obtaining an FRM Certification
Enhanced career prospects
The FRM certification opens doors to various job roles in financial institutions, including risk analyst, risk manager, and chief risk officer. As the financial sector’s need for risk management experts grows, individuals holding FRM certification are in high demand among banks, asset management companies, insurance providers, and consulting agencies.
Increased earning potential
FRM-certified professionals can expect higher salaries compared to their non-certified peers. According to Payscale, the average salary for an FRM charterholder is around $97,000 per year. This figure can increase significantly based on experience, job role, and location.
Earning an FRM certification equips professionals with a comprehensive understanding of risk management tools and techniques. It also helps improve critical thinking and decision-making abilities, making FRM-certified individuals valuable assets in their organizations.
As an FRM-certified professional, you’ll gain access to the GARP community, which consists of risk management experts from around the world. This network can provide invaluable resources, insights, and potential job opportunities.
Challenges for Pursuing FRM Certification
Time and effort required
Preparing for the FRM exams can be a significant time commitment, with candidates typically spending 200-300 hours studying for each part. Balancing work and study commitments can be challenging, and prospective candidates should be prepared for the dedication required.
Exam difficulty and pass rates
The FRM exams are known for their difficulty, with historical pass rates ranging between 40-60%. This means that candidates must be diligent in their exam preparation to increase their chances of success.
Cost of the certification
The cost of obtaining an FRM certification can be substantial, including exam fees, study materials, and courses which roughly totals arounf $1,000 to $1,500. Candidates should also consider the opportunity costs associated with the time invested in studying for the exams.
Factors to consider while deciding whether FRM is worth it.
Personal Career Goals and Interests
Here are some aspects of personal career goals and interests to consider:
- Career Path: Reflect on your desired career path and determine whether a role in financial risk management aligns with your long-term objectives. If you see yourself working in risk management, credit analysis, or a similar field, the FRM certification can provide a significant advantage in terms of knowledge, credibility, and marketability.
- Passion for Risk Management: Evaluate your interest in the subject matter covered by the FRM curriculum. Are you genuinely passionate about financial risk management, or are you more drawn to other areas of finance? Pursuing an FRM certification requires a substantial time and effort investment, so it’s essential to ensure that you’re genuinely interested in the subject matter.
- Industry Relevance: Assess the relevance of the FRM certification within your industry or target industry. While the FRM designation is highly valued in many sectors, it may not carry the same weight in others. You need to determine whether the certification would be a valuable asset in your industry or if a different certification would be more beneficial.
- Alternative Certifications: Research other finance-related certifications, such as the CFA (Chartered Financial Analyst) or CAIA (Chartered Alternative Investment Analyst), to determine if they better align with your career goals and interests. Based on your preferred professional trajectory, one of these options might be a better fit for your needs.
Employer and Industry Demand
Here are some aspects to consider regarding employer and industry demand:
- Job Market Trends – Research the job market to understand the demand for financial risk management professionals in your target industry and region. Are there a significant number of job openings that require or prefer an FRM certification? Identifying such trends can help you gauge the potential value of obtaining the certification.
- Employer Preferences – Investigate whether your current or target employers prioritize hiring FRM-certified professionals. Some organizations place a high value on the FRM designation and may even require it for certain positions.
- Industry Regulations and Standards – Assess the impact of industry regulations and risk management standards on the demand for certified risk managers. Within certain sectors, like banking and insurance, financial risk management holds significant importance, leading to increased demand for FRMs.
- Future Growth Potential – Evaluate the potential for growth in demand for financial risk management professionals in the coming years. Factors such as increasing financial market complexity, heightened regulatory scrutiny, and growing emphasis on risk management in decision-making processes may contribute to increased demand for skilled risk managers, making an FRM certification a valuable long-term investment.
Financial Investment and Return on Investment (ROI)
Here are some aspects to consider regarding financial investment and ROI:
- Upfront Costs – As previously mentioned, pursuing an FRM certification involves various costs, including exam fees, study materials, and potential travel and accommodations expenses. Take the time to calculate the total cost of obtaining the certification and determine whether it’s a feasible investment for you.
- Earning Potential – Research the average salaries for FRM-certified professionals in your target industry and region. Compare the potential salary increase with the financial investment required to obtain the certification to help determine if the investment is worthwhile.
- Career Advancement – Consider whether obtaining an FRM certification will open doors for career advancement within your target organization or industry. Assess the potential for career growth and weigh this against the financial investment required to obtain the certification.
- Job Security – In some cases, having an FRM certification can provide increased job security, as certified professionals may be more valuable to their organizations due to their specialized knowledge and skills. Consider whether this factor is important to you or not, in this world of layoffs.
- Opportunity Cost – Keep in mind the opportunity cost associated with the time and effort required to obtain the FRM certification. Are there other certifications or educational opportunities, that could provide a better return on investment given your career goals and interests?
FRM Vs Other Certifications
Here’s a comparison table featuring the FRM certification and other popular finance certifications. The table provides a concise overview of key aspects for each certification.
|Certification||Focus Area||Exam Levels||Exam Duration||Work Experience Requirement||Costs*||Difficulty|
|FRM||Financial Risk Management||2||4 + 4 hours||2 years||$1,100 – $1,500||High|
|CFA||Investment Management||3||6 + 6 + 6 hours||4 years||$2,550 – $4,590||High|
|CAIA||Alternative Investments||2||4 + 4 hours||1 year||$3,000 – $3,450||Moderate|
|CFP||Financial Planning||1||6 hours||3 years||$1,000 – $2,000||Moderate|
|CMT||Technical Analysis||3||2 + 4 + 4 hours||None||$1,000 – $1,700||Moderate|
*Note: Costs are approximations and may vary depending on study materials, exam retakes, and other factors.
Key aspects included in the table are:
- Focus Area: The primary area of expertise each certification is designed to develop.
- Exam Levels: The number of exam levels candidates must pass to obtain the certification.
- Exam Duration: The cumulative duration of exams for each certification.
- Work Experience Requirement: The minimum work experience required to earn the certification.
- Costs: The approximate costs associated with each certification, including registration and exam fees.
- Difficulty: A general indication of the relative difficulty of each certification based on exam content and pass rates.
This table provides a quick comparison of the FRM certification with other finance certifications, making it easier to understand the key differences between them.
You might be interested in: CFA Vs FRM: Detailed Comparison on Salary, Difficulty, Syllabus, Fees etc.
Given below is a decision matrix that compares the FRM certification with other alternatives, such as the CFA certification and the CAIA Degree.
In this decision matrix, each row represents a criterion relevant to the decision-making process, and each column represents an option (CFA, FRM, and CAIA). The weights assigned to each criterion should reflect your personal preferences and priorities, and the sum of all weights should equal 1.
For each option, you can assign a score of 1-5 based on how well that option fulfills the specific criterion. Multiply the score by the weight for each criterion to calculate the weighted score. The total weighted score for each option is the sum of all the weighted scores.
|Criterion||Weight (0-1)||CFA Rating (1-5)||FRM Rating (1-5)||CAIA Rating (1-5)|
|Career Path Alignment||0.25||4||3||5|
|Return on Investment (ROI)||0.15||4||3||4|
|Time and Cost Commitment||0.10||3||4||2|
In this example, the CAIA has the highest total weighted score of 4.00, followed by the CFA with 3.95, and the FRM with 3.35. This suggests that, based on the given criteria and their importance, the CAIA degree may be the best choice for the individual in this scenario.
Please note that this table is a tool to help you reflect on your personal circumstances and preferences. You need to carefully consider each criterion and discuss your situation with mentors, colleagues, or professionals in the finance industry to make an informed decision.
In conclusion, the FRM certification can provide numerous benefits, including enhanced career prospects, increased earning potential, skill development, and networking opportunities. However, candidates should also consider the challenges, such as the time and effort required for exam preparation, exam difficulty, and costs associated with obtaining the certification.
Ultimately, the decision of whether an FRM certification is worth it depends on your individual career aspirations, interests, and circumstances. By weighing the benefits and challenges, as well as considering personal factors and alternative finance certifications, you can make an informed decision about pursuing an FRM certification.
Frequently Asked Questions
The main factor that makes FRM worth is the high demand for FRMs that is not being met with the current supply
On an average, 220-250 hours need to be dedicated for FRM Part 1 prep and 400-450 hours for FRM Part 2 prep.