11 April 2015
A financial risk manager deals with identification, management and reduction of the financial risks that a company faces. A career as a financial risk manager is for people who have the ability to take and manage calculated risks on a regular basis.
The work
The risk manager typically deals with credit risk, market risk, liquidity risk and non-market risk. Credit risk is the potential for loss due to a debtor defaulting on a loan. Market risk is the chance that an investment will lose value due to the movement of market forces. Depending on the investment, these market forces could be stock prices, commodity prices, interest rates, foreign exchange rates or credit spreads. Liquidity risk, as the name suggests related to ensuring that the firm has enough funds (liquidity) at hand to meet any financial obligations. Non-market risk comes from the company – also called non-systematic risk, or extra-market risk, this is not dependent on market forces and comes from forces affecting the company specifically.
Identify, Analyze and Manage Risks Is What an FRM Does! Thus a risk manager essentially analyzes measures and reduces these risks which can affect the company. For example, a risk manager might look at a bond and spot the possibility of default as a risk .He might suggest diversification of investment in other types of bond, hedging etc to mitigate the risk but where it is not possible to do so, the risk managers evaluates how crucial is the investment to one’s risk tolerance and investment goals and may suggest not to buy the bond if the risk return trade-off does not suit the company. Risk managers, therefore, help the investors in accomplishment of their goals by showing the affect of their investments and looking for ways to alleviate the situation. These people must be able to work under immense pressure. The average working hours are highly variable and so is the pay – look at the “career path” section down below for details.
Requirements
In order to be a Financial Risk Manager, one needs to analyze various forces and make sense of multiple risk factors. Then, one needs to present the analysis in a form that can be understood easily and can be acted upon. Hence having a strong background in mathematics and accounting is essential – CAs, MBAs, Mathematics/Commerce majors are at an advantage.
To add to that, most firms consider the FRM charter (GARP) as a mandatory requirement is financial risk managers. The FRM Program offered by Global Association of Risk Professionals (GARP), USA is a professional credential course designed to increase the candidate’s grasp of the most up-to-date technical and industry knowledge. To receive the FRM charter the candidate must:
Clear the Part 1 and Part2 exams Have a minimum of 24 months of work experience (The institute gives 5 years to gain the required work experience) The candidate must gain active membership of GARP Part1 and Part 2 exams are conducted in May and November. These are multiple choice exams with no negative marking. Graduates from any discipline or final year students are eligible to register to give Part 1 exams.
You can visit http://www.garp.org/frm.aspx for more information regarding the program.
FRM pay is linked to multiple factors Career Path
If you enter the market after graduation, you will enter as a risk assistant – risk associate that requires a great deal of document review and number checking, quantitative analysis. All this work is highly analytical without much decision making responsibility. However with the FRM or PhD you enter as a risk manager/senior risk analyst with a better pay package. Then as you get fluent with your work and gain experience, you move on to become the senior risk manager, with pinnacle in the risk function being the chief risk officer for the company.
The pay scale and hours of work for a Financial Risk Manager is quite varied and depends on employer size, years of experience, industry, employee reputation etc. Higher pay typically translates to higher work pressure and longer hours at work. For a senior risk manager with 5-9 years of experience, the pay ranges from as broad as INR 6 lpa to INR 25 lpa+, with industry average being somewhere around INR 14lpa. Regarding starting pay for employees with 0-4 years of experience, the variability is relatively less: pay ranges from INR 5lpa – INR 11lpa, with average being somewhere close to INR 9lpa.
Opportunities The financial crisis of 2008 – the bankruptcy of Lehman Brothers and the losses suffered by UBS and others has given a greater role to financial risk professionals, and driven further demand for skilled FRM’s. While this is all the more true at the global level, today companies in India are focusing all the more on management and minimization of risks as Indian people are by default highly risk sensitive. Hence there is a good scope of FRM and it will provide a specialization and differentiation from your peers in financial services industry. The options are many to choose from: the FRM’s are hired in asset management firms, brokerage firms, banks, insurance firms, auditing firms, merchant/investment banking etc. They can also be hired as a more generic “financial analyst” in company finance teams.
Thus all these opportunities make FRM an option to go for if you are a person who likes life “on the edge”
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