Everything You Need to Know About FRM vs. CFA

The FRM certification and CFA charter are two popular qualifications in the financial industry. These are two titles that could boost your career if you're considering working with investments or becoming a financial analyst. Which is best for you and what are the differences? Let's compare the CFA Charter with the FRM certification.

What is the CFA Charter and FRM Certification?

Financial Risk Manager is referred to as FRM. FRM certification, which is provided by the Global Association of Risk Professionals (GARP), distinguishes you in the global marketplace and equips you with a solid understanding of the fundamental concepts of risk management in today's dynamic financial markets. Additionally, it shows potential employers that you take risk management seriously and that your expertise has been confirmed by global professional norms.

The Chartered Financial Analyst (CFA) professional credential is offered internationally by CFA Institute to investment and financial professionals. The program covers a broad range of topics relating to investment and portfolio management, financial analysis, stocks, bonds, and derivatives, and provides a generalist knowledge of other areas of finance. Industry professionals worldwide recognize the CFA charter as the “gold standard” of all financial analyst designations.

How are the CFA Charter and the FRM Designation Similar?

Both designate professionals who are knowledgeable in finance and capable of analysis. For each, you must pass a set of exams, and you can’t move to the next level or part until you pass the first. The exams for each require a great deal of study, practice, and commitment to learning and analysis.

Note: It is possible to hold the FRM certification and CFA charter.

How are the CFA Charter and the FRM Designation Different?

FRM certification is more specialized than the CFA charter. Its focus is managing exposure to operational, credit, market, foreign exchange, volatility, liquidity, inflation, business, legal, reputational, and sector risk. The CFA charter requires knowledge and expertise in a much broader range of financial analysis topics, such as portfolio management, economics, reporting, quantitative analysis, and more. Another difference is exam structure. There are two FRM exams (Part I and Part II), and there are three CFA exams (Level I, Level II, and Level III).

FRM Certification and CFA Charter Requirements

To earn your FRM certification, you need to:

• Take and pass the FRM exams. There are no degree or work requirements for taking the exams.
• Work full-time in a financial risk role for 2 years.
• Demonstrate your experience to GARP by describing your professional role in financial risk management and submitting it to GARP within 5 years of passing Part II.

To become a CFA charterholder, you need to:

• Have a bachelor’s degree (or equivalent) or be in the final year of your bachelor’s degree program (you can register for the CFA exam in the second-to-last year of your undergraduate degree and take it in your final year). If you have 4,000 hours of relevant work experience or a combination of professional work and university experience that totals 4,000 hours, you are also eligible to start the CFA Program.
• Take and pass the Level I, Level II, and Level III CFA exams.
• Become a member of CFA Institute (which costs $275 and includes agreeing to abide by its code of ethics).
• Provide CFA Institute with proof that you’ve been working full-time for 4,000 hours in a role that either involves investment decision-making or with a product that contributes to that process. This can include any work experience you had before passing the exam, as well as after.

Exam Topics, Formats, Fees, and Pass Rates

In a discussion about FRM certification versus CFA charter, people are most likely to be concerned about the exams. Here’s what you need to know.

FRM Exam Topics

• Foundations of risk management
• Quantitative analysis
• Financial markets and products
• Valuation and risk models
• Market risk measurement and management
• Credit risk measurement and management
• Operational risk and resiliency
• Liquidity and treasury risk measurement and management
• Risk management and investment management
• Current issues in financial markets

There are two parts to the exam. Both Part I and Part II FRM exam windows are in May and November. The format of both parts is multiple-choice.  

The FRM Exam requires a program enrollment fee of $400, which is payable when a candidate initially registers for the FRM Exam Part I. The enrollment fee is not charged again unless the candidate has not passed the FRM Exam Part II within four years after passing the FRM Exam Part I.

Recent pass rates for the FRM exam are as follows:

• Part I: 45%
• Part II: 63%

CFA Exam Topics

• Ethics
• Quantitative methods
• Economics
• Financial reporting and analysis
• Corporate issuers
• Equity investments
• Fixed income
• Derivatives
• Alternative investments
• Portfolio management

The format of the first two levels is multiple-choice. Level III has a written portion called constructed response and a multiple-choice portion. CFA exam fees for each level are $700 for early registration and $1,000 for standard registration. There is also a $400 one-time enrollment fee that you pay when you register for Level I.

Recent pass rates for the CFA exam are as follows:

• Level I: 27%
• Level II: 46%
• Level III: 39%

Preparing for the CFA and FRM Exams

Another similarity between the two designations is that all levels of both exams cannot be passed if all you do is last-minute cramming. So, whether it’s the FRM certification or CFA exam, you should start studying early.

To prepare for the FRM exams, plan to study a minimum of 200–240 hours for each part. The basic strategies you should follow while learning the FRM curriculum include being aware of the big picture and knowing the main concepts. FRM Exam preparation classes for FRM Part I and FRM Part II are recommended, as is focused study. Take as many practice exams as you can. Save one for the last week before the exam.

To prepare for the CFA exams, CFA Institute advises a minimum of 300 hours of study for each level. You should focus on the Learning Outcome Statements (LOS) from CFA Institute because they detail exactly what you are expected to do on exam day. CFA exam preparation classes can really help, as will immersing yourself in practice questions. In addition, you should plan to take as many mock exams as you can to get used to the whole exam process.

FRM Certification vs. CFA Charter: How to Choose

Deciding which designation to pursue really depends on what you want to do as a financial analyst. FRMs typically hold managerial and executive-level positions that concentrate on risk and investment risk.

So, if you’re interested in specializing in analyzing risk as a credit risk manager, market risk manager, regulatory risk manager, or operational risk manager, then the FRM designation is right for you.

If you’re interested in becoming a portfolio manager, research analyst, consultant, risk manager, corporate financial analyst, financial adviser, or moving into the C-suite, then the CFA charter will be a better fit.

Of course, you don’t have to choose at all. As we mentioned near the beginning of this blog, you can hold both designations. Today, risk, investment, portfolio management, and financial advising are more intertwined than ever.

So, it makes sense for a CFA charterholder who wants to focus on risk management to earn the FRM designation. However, becoming a Certified FRM first has worked well for some risk analysts who wanted to broaden their overall expertise in finance concepts. No matter which path you choose, there are lots of CFA and FRM resources out there to help you earn the credential or credentials you need.

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