If you’re in financial services, or aspiring to be, you may have heard of the Financial Risk Manager (FRM®) alongside the CFA program. We’ve also previously written about the FRM Program, alongside other qualifications such as CAIA, IMC and MBA.
We recently had the opportunity to attend a webinar hosted by the Global Association of Risk Professionals (GARP), where they shared a wealth of information on their FRM designation, and why it is an essential tool for risk professionals worldwide.
If you’re curious about the FRM qualification and want to learn more, read on!
GARP is a not-for-profit professional association founded in 1996 that focuses on advancing the risk profession. GARP is an international organisation, with 150,000 members across 190 countries and territories. The are also non-partisan: all of their members are individuals – not banks, or insurance companies, or regulators.
What does GARP do?
GARP’s mission is to advance the risk profession through education training and the promotion of best practices globally.
This is achieved mainly through their certification programs:
- The Financial Risk Manager (FRM) certification, and
- The Energy Risk Professionals (ERP®) certification
Through these two programs, GARP aims to advance the risk profession, providing a base level of knowledge for those who wish to participate in the financial services industry.
- What is the program’s structure like?
- How well-respected is it as a certification?
- What does the industry think about it?
- Is this a certification worthy of my time, effort and resources?
Let’s address these questions.
GARP is overseen by a Board of Trustees. These are very high-leveled people in the risk industry from a variety of different firms and geographies, and they guide and direct the overall functions of GARP the organization.
Then there’s the FRM committee, consisting of some of the members of the Board of Trustees and others who are drawn from a spectrum of geographies, industries, risk specializations. The FRM committee guides and directs the FRM program, and are critical in ensuring FRM remains a top-quality program, aligned with industry best practices and with industry needs.
Constant research keeps FRM aligned to industry needs
To maintain the relevance and quality of the FRM program, GARP also reaches out to the risk management profession. They conduct extensive research and analysis – a process surveying thousands of FRMs and non-FRM risk managers from around the world, asking them:
“What are the knowledge, skills, and ability requisite to function effectively as a Financial Risk Manager?”
Rigorous analysis ensures the high standard of the examination
The actual FRM exam is created through a rigorous process with certified, practicing FRMs. Every single question and answer choice is analysed with these industry practitioners. This is to make sure every aspect of the exam is valid, unbiased, and that candidates are being tested fairly.
Widely accepted throughout the industry
FRM is the flagship program at GARP, and the FRM is the flagship certification in financial risk management in the marketplace.
Today there are close to 38,000 certified FRMs around the world, literally at every major bank, major hedge fund, insurance company, major asset management firms, and regulator. The acceptance level of the FRM has grown significantly, as GARP and the demand for risk management has grown.
Continuous education and expertise
The financial services and risk management industry is a dynamic one. You don’t want to be left with only what you knew and studied at the time of certification. That’s why GARP has an active and continuing education program, which makes it possible for people who are certified to stay current, continue polishing their skills, or stay abreast of current issues outside of your area of expertise.
The FRM exam in a nutshell: The FRM exam is a two-part examination consisting of a four-hour multiple choice exam each. Exams take place on the third Saturday of May and the third Saturday of November every year, with Part I in the morning, and Part II in the afternoon. Candidates don’t need to take both parts on the same day, but you will need to take and pass Part I before Part II is scored.
FRM Part I
Part I is four hours long, with 100 multiple-choice questions, and this is really the bedrock knowledge that a risk management professional needs to know. It consists of four parts:
- Foundations of Risk Management: covering basic theories and concepts underlying risk management, why it is necessary and how it is important to the financial industry
- Quantitative Analysis: includes topics like probability, statistics, regression analysis, time shares analysis – basic tools which risk professionals need to have
- Financials Markets and Products: covering all of the different financial instruments and markets which you might encounter in the industry
- Valuation and Risk Models: covering basic types of valuation and risk tools and techniques
FRM Part II
Part II is also four hours long, with 80 multiple-choice questions. It takes the basic knowledge learnt in Part I and applies it to different specific areas of risk management:
- Market Risk Measurement & Management
- Credit Risk Measurement & Management
- Operational & Integrated Risk Management
- Risk Management in Investment Management
- Current Issues in Financial Markets: a section that is significantly updated every year to keep pace with changes in the financial industry
This curriculum is reviewed and revised as necessary every single year. So the 2016 curriculum is somewhat different from the 2015 curriculum and 2017 will be somewhat different from 2016. GARP updates it in order to reflect the dynamism which exists in the risk management community. It’s therefor a ‘living curriculum’ which best serves candidates as it is as current as it can be.
Getting full certification after passing the exams
In chronological order, the summarised process of getting certified are:
- Register for and pass FRM Part I
- Register for and pass FRM Part II
- Accumulate two years of relevant work experience
- Submit your application to be certified as an FRM
- Participate in the voluntary Continuing Professional Development (CPD) program
100% of the FRM curriculum is contained in GARP’s official Study Guides and the Learning Objectives.
The Study Guides are a high-level curriculum, containing broad knowledge points and readings which candidates can use in order to become familiar with the topics. The Study Guides don’t contain study notes, but rather refer candidates to recommended readings, such as certain chapters in financial textbooks. The more detailed Learning Objectives are associated with each one of the readings and knowledge points. These are specific learning objectives which candidates should be comfortable with before the test.
Both Study Guides and Learning Objectives are available free to all candidates.
If you’d like a curriculum book to fully cover the FRM curriculum, GARP also has FRM Exam Books for Part I and Part II available for purchase. They’re available either in paper form or electronically, and strongly recommended by GARP. Full-length practice exams are also available for purchase.
Third-Party Prep Providers
Candidates that would like more support also can choose from a wide range of prep providers. Here at 300 Hours, Kaplan Schweser and Wiley also provide for FRM – you can see their current deals in our Offers page under ‘Other Qualifications’. A list of approved exam prep providers can also be found on GARP’s website.
As mentioned, the FRM exam takes place every May and November: the earlier candidates register, the lower the registration fee. There’s an enrollment fee into the program which is valid for four years, which includes one year of complimentary GARP membership. There are exam sites all over the world, listed on the GARP website. If you have any questions, you can always reach out directly to GARP at memberservices@GARP.com.
If you’re interested in the FRM qualification, you may also be interested in these articles:
- The Complete Beginner’s Guide to FRM: the Financial Risk Management Qualification
- The Similarities and Differences Between FRM and the CFA Exams, Summarized
- Which Financial Qualification Should You Pick? CFA vs. CAIA, FRM and IMC
- CFA & FRM: How You Can Nail Both Instead of Choosing One
This article is from our coverage on discussions from the GARP Webinar – “How I Became and FRM and Why It Was Worth It”. You can view the full hour-long webinar here.
Are you going to start your FRM journey, or simply just thinking about it? Let us know in the comments below!