CFA Vs FRM: Top Guide for the Best Course

Avadhut |
September 28, 2020

Pursuing the right education to enter the right path is instrumental for long-term success.

Often, students are misguided due to a lack of authority and credible information.

People seeking the best guide in finance often find themselves confused between two courses: CFA Vs FRM?

CFA Vs FRM

CFA Vs FRM
  1. CFA: Chartered Financial Analyst
  2. FRM: Financial Risk Manager

(Wiki links for general study)

Each course has its benefits and is suitable for a certain career path. This article is designed to help people like you choose the best finance education option.

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We will discuss these two certifications in detail.

Chartered Financial Analyst (CFA)

CFA is a specialized course offered by The CFA Institute to train graduates in specific finance fields.

It is an advanced course pursued after graduation, enabling the learner to acquire niche financial knowledge.

Armed with CFA, one can work in portfolio management and equity research, two areas where the MBA degree does not help much.

Role of CFA in the Finance Industry

Someone already working in the finance segment or looking to switch over to a specialized finance segment can opt for the CFA charter.

The CFA charter helps in areas like financial strategy, corporate finance, research analysis, and asset management roles like private banking, financial advising, relationship management, and portfolio management.

The CFA charter is globally recognized. In other words, it is transferable within the market.

If you plan to move countries, the CFA charter will still be relevant!

Check out this page detailing roles held by CFA charterholders globally. Once you clear the exam, you too become a part of this elite group.

Clearing the CFA exam is tough, really tough.

The course structure is extensively intensive, meaning the candidate learns the finance segment thoroughly.

Lastly, various research studies show that CFA charterholders are paid higher on average.

Pros and Cons

They are:

PROS

  • Gaining specialized knowledge extremely useful in finance.
  • The Financial Analyst role is a high-pay job
  • No need to leave a full-time job to study CFA.
  • Necessary for equity research, corporate finance, portfolio management, and certain hedge funds. All these options are high in demand; thus, a lot of career growth potential.

CONS

  • An intense exam system necessitating at least 1000 hours of study to clear all the three levels.
  • CFA has no value outside finance. People interested in private equity, bulge bracket investment bank or venture capital will find CFA to be of little help.
  • No access to recruiters or networking unless you have attended the exam and joined CFA society.

CFA Course Requirements

A highly valued and respected designation in finance, the CFA course can’t be taken lightly.

Certain norms and conditions are attached. A Bachelor’s degree is the first step and four-years of professional experience in finance are mandatory.

The CFA exam is a three-step process: Level 1, Level 2 and Level 3.

The exams happen around the world on the first Saturday of June, except for the Level 1 exam which also happens in December.

Candidates have to pass all the levels sequentially and the medium of instruction is English.

  • The Level 1 exam tests professional and ethical standards with questions about investment tools, financial concepts and comprehension, and some questions require the use of analytical skills too.
  • The Level 2 exam tests the application of analytical concepts and standards in certain situations. As such, the questions are about assets valuing necessitating complex analytical skills.
  • The Level 3 exam tests applicability and compliance with standards in portfolio management. The questions synthesize learned concepts and check applicability in wealth planning and portfolio management.

The first two levels have multiple choice questions and the last one is mostly essay-based. Each level is a 6-hour exam.

Financial Risk Manager (FRM)

The Global Association of Risk Professionals (GARP) offers an international professional certification called, Financial Risk Manager (FRM).

A person with FRM certification specializes in financial risk management in global and domestic scenarios.

The FRM certification program follows the four major strategic disciplines of risk management, which are credit risk, operational risk, investment management, and market risk.

Role of FRM in the Finance Industry

The FRM certification targets a niche and in-demand segment, financial careers in risk management.

It is internationally recognized where the job of the FRM professional is to manage market and non-market related financial risks.

It gives knowledge about credit risk, investment risk, operational risk, market risk, and quantitative analysis.

The FRM certified professional can work as a financial risk consultant, advisor, risk manager, credit manager, asset and liability manager and risk control manager.

The FRM gives credibility to the person and his/her skills to handle risk management situations.

The field of risk management is desirable and contains a lot of growth potential because firms and companies are focusing on the development of stronger and effective risk measures.

Few Pros and Cons

They are:

PROS

  • The FRM demonstrates the high-value skill set in a niche segment.
  • Ability to display risk management skills to employers.
  • Access to the elite group of risk management professionals around the world.
  • Better salary than other finance professionals.

CONS

  • 2-year mandatory work experience requirement for FRM Certification.
  • Difficulty level higher than PRM and CFA exams.

FRM Course Requirements

A graduate degree and 2-years of work experience is the minimum requirement to attempt FRM certification.

The purpose of the FRM certification exam is to assess the ability of the candidate to measure and manage risks in a real-world scenario.

The exam happens twice a year, specifically on the third Saturday of November and May.

Each exam is of 4-hour duration and it consists of two parts.

  • Paper 1 contains questions about the core concepts of risk management such as financial market and products, valuation and risk models, quantitative analysis and risk management foundations.
  • Part 2 contains questions about measurement, implementation, and management of risk management principles in a practical fashion.

Weight is given to market risk measurement and management, credit risk measurement and management, risk management and investment management, operational and integrated risk management and current issues in financial markets.

Endnote

Both the certifications - CFA and FRM – offer different career paths in the finance industry.

Be clear about why and in what position you want to join the finance industry, and your long-term goals. Based on this vision, decide whether FRM or CFA will fulfill your goals.

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