Finance certifications such as CFA and FRM are a cost effective way (compared to an MBA) to give your finance career a boost.
We do receive a lot of questions from our readers trying to understand the core differences between them in deciding whether to pursue CFA or FRM.
Hence, for those still on the fence, or particularly new to these designations: here’s a helpful, straight-to-the-point summary guide comparing CFA vs FRM.
Let’s take a look!
- What is the CFA Program?
- What is the FRM Certification?
- FRM vs CFA difficulty
- CFA vs FRM salary
- CFA vs FRM: Summary of key differences
- CFA and FRM: Are there any topic overlaps?
- CFA or FRM: Which is right for you?
What is the CFA Program?
The Chartered Financial Analyst (CFA) Program is a professional, masters degree equivalent credential offered by the CFA Institute.
It gives you expertise and real-world skills in investment analysis, and has become a gold standard in the finance and investment management industry.
We’ve written a lot about the CFA program, check out these articles to learn more:
- What is the CFA Exam? A Useful Beginner’s Guide
- 7 Benefits of the CFA Charter You Should Know
- Is CFA Worth It?
What is the FRM Certification?
The Financial Risk Manager (FRM) certification is the leading certification for risk managers offered by Global Association of Risk Professionals (GARP). It is also a masters degree equivalent credential that is recognized globally.
With the FRM certification, you’ll obtain and hone your skillsets in identifying, analyzing, and mitigating risks at a high level, which is highly demanded by top firms and financial organizations globally.
We’ve covered quite a bit about the FRM certification too, check out these articles to learn more:
- What is the FRM Certification? A Great Beginner’s Guide
- FRM Exam Pass Rates: How Hard Are FRM Exams?
- FRM Fees: How Much Does It Truly Cost?
FRM vs CFA difficulty
Here’s one awesome chart to rule them all – the difficulty comparisons of various finance certifications 🙂
As you can see, completing CFA Level 3 or FRM are both Master degree equivalent programs, using a benchmark provided by UK NARIC (now renamed UK ENIC, thanks Brexit).
In short, both CFA and FRM are equally difficult in this sense, comparable to a Master’s degree course.
CFA vs FRM salary
First of, we are comparing apples and oranges here, as compensation varies by job function, location, seniority, specialization etc.
But to be constructive, let’s compare a “typical” CFA charterholder and FRM certified manager’s salary.
A Financial Risk Manager’s average salary is US$102,000, with a total compensation of US$128,000.
CFA vs FRM: Summary of key differences
Here’s a quick summary comparing both designations:
|Study Areas||10 Topics: Ethics, Quantitative Methods, Economics, Financial Reporting & Analysis, Corporate Finance, Equities, Fixed Income, Derivatives, Alternative, Portfolio Management.|
|10 Topics: Foundations of Risk Management, Quantitative Analysis, Financial Markets & Products, Valuation and Risk Models, Market Risk, Credit Risk, Operational Risk, Liquidity & Treasury Risk, Risk Management in Investment Management, Current Issues.|
|Exam Levels / Parts||3 levels (fastest route is in 12-18 months)||2 Parts (you can sit for both parts in one exam day)|
|Exam Frequency||From 2022, the CFA exams are run with an increased frequency:|
Level 1: 4x a year (Feb, May, Aug and Nov).
Level 2: 3x a year (Feb, Aug and Nov in 2022; May, Aug and Nov from 2023 onwards).
Level 3: Twice a year (May and Aug in 2022, Feb and Aug from 2023 onwards).
|Part 1: Twice a year (May, Nov)|
Part 2: Twice a year (May, Nov/Dec)
|Exam Format||Level 1: Multiple choice questions|
Level 2: Item set questions (multiple choice)
Level 3: Item set and essay questions
|Transitioning to computer-based exams from 2021 for all Parts:|
Part 1 & 2: Multiple choice questions
|Pass Rates||The range of CFA pass rates since 2010:|
– Level 1: 36%-43%
– Level 2: 39%-47%
– Level 3: 46%-56%
|The range of FRM pass rates since 2010:|
– Part 1: 39%-53%
– Part 2: 50%-62%
|Fees and Costs||One-off Enrollment Fee: $450|
Registration fee (per level): $700-1,000
|One-off Enrollment Fee: $400|
Registration Fee (per Part): $550-750
|Study Hours Needed||At least 300 hours per level||200-250 hours per part|
|Post Exam Requirements||To become a CFA charterholder:|
– Pass all the 3 levels of CFA exams;
– 4,000 hours of qualified work experience;
– Submit reference letters for 2-3 professional references;
– Become a regular member of CFA Institute;
– adhere to CFA ethics and professional conduct.
|To become FRM-certified:|
– Pass both FRM papers;
– a minimum of 2 years professional full-time work experience in the area of financial risk management or another related field;
– maintain membership.
|Career Opportunities||Investment analysis, portfolio management, securities research, pension, insurance, corporate finance||Financial risk management, treasury|
CFA and FRM: Are there any topic overlaps?
What about similarities between CFA and FRM?
A significant part of the FRM exam is covered by the CFA syllabus, with most of the overlap between these designations found in the FRM Part 1 exam.
We estimate that about 55% of FRM Part 1 is covered by the CFA program (all 3 levels), whereas that figure drops to about 15% for FRM Part 2.
This is an interesting insight for those who are keen on obtaining both CFA and FRM certifications (in the shortest possible time) for their career.
The FRM curriculum covers a variety of risk management topics and provides guidance on how to view these concepts in an integrated fashion.
The FRM exam is tested in two parts:
- the Part 1 exam focuses on the fundamental tools and techniques used to assess risk; whereas
- the Part 2 exam focuses on the application of those tools in practice and further examines the major subcategories of risk management (e.g. market, credit, and operational risk).
On the other hand, CFA exam is tested in 3 levels:
- Level 1 exam doesn’t assume any prior finance knowledge, and focuses on introducing various terms and concepts of the 10 topics.
- Level 2 exam builds on the foundation of Level 1, with a stronger focus on analyzing and applying the concepts learned.
- Level 3 exam is heavily focused on applying what you’ve learned holistically in portfolio management and wealth planning topics.
Let’s take a closer look at each FRM topic area and point out the main areas of overlap with the CFA curriculum.
Roughly 55% of FRM Part 1 is covered by CFA program
|FRM Part 1 Topics||CFA Level 1 |
|CFA Level 2 |
|CFA Level 3 Overlap|
|Foundations of Risk Management (FRM)||Portfolio risk & return||Corporate governance, portfolio concepts||Risk management, Evaluating portfolio performance|
|Quantitative Analysis (QA)||Probability & Statistics, Common probability distributions, sampling & estimations, hypothesis testing||Correlation & regression, multiple regression, time series analysis||–|
|Financial Markets & Products (FMP)||Market org and structure, Fixed income, Asset-backed securities, Derivative markets, Forwards, futures, options & swaps||FX rates, Commodity investing, Term structure & interest rates, Forwards, futures, options & swaps||Risk management of forwards, futures, options & swaps|
|Valuation & Risk Models (VRM)||Fixed income valuation, duration and convexity, option valuation||Arbitrage-free valuation, bonds with embedded options, option markets & contracts||Risk management, risk management of option strategies|
|Estimated % of FRM Part 1 covered by CFA Program||25%||20%||10%|
About 15% of FRM Part 2 is covered by CFA program
|FRM Part 2 Topics||CFA Level 1 Overlap||CFA Level 2 |
|CFA Level 3 Overlap|
|Market Risk Measurement & Management (MR)||–||Term structure & interest rates||Risk management|
|Credit Risk Measurement & Management (CR) ||Fundamentals of credit analysis||Credit analysis models, Asset-back securities: CDOs, Credit default swaps||Risk management|
|Operation Risk & Resiliency (ORR)||–||–||Risk management|
|Liquidity and Treasury Risk Measurement and Management (LTR)||–||–||Risk management|
|Risk Management and Investment Management (IM)||Portfolio risk & return, Alt investments: hedge funds||–||Risk management, Evaluating portfolio performance|
|Current Issues in Financial Markets (CI)||–||–||–|
|Estimated % of FRM Part 2 covered by CFA Program||5%||5%||5%|
CFA or FRM: Which is right for you?
In short, FRM is highly specialized and has a stronger focus on risk management, whereas the CFA designation covers a broader scope of financial analysis and investment topics.
While the CFA designation opens up job prospects in the field of Research Analysis, Investment Banking and Portfolio Management, FRM on the other hand will open up opportunities in Banks, Treasury & Risk Management.
From a career building perspective, both FRM and CFA stand on equal footing as both are globally recognized designations with ample employment opportunities in their respective areas of expertise. Plenty of finance professionals obtain both qualifications to better perform in their roles and career.
It really depends on your preferred career route:
- if you’re into risk management, FRM is the clear choice.
- If you’re less sure but keen on a career in finance, perhaps CFA is a better choice for a broader finance base.
Hope this helps you decide which certifications you would like to go for (or both)! If you have more questions, just comment below and I’ll try to help 🙂
Meanwhile, you may find these related articles of interest: