Sunday, December 13, 2015

CFA vs FRM. Which certification is better?

CFA or FRM. When pursuing a finance career, students often ask these questions: shall I get the CFA (Chartered Financial Analyst), or FRM (Financial Risk Manager) certification, or both? Which one is better for investment banking, portfolio management, hedge fund, or quantitative analysis? Do these certifications have any long-term value? How tough are they?

As a first tip: both qualifications are well-recognized standards in finance; their attainment demonstrates to the employers your competitive advantages, commitment to certain areas of finance, and your skills. But before committing your time and costs for either qualification, you should have a good idea the type of financial work you want to focus in three years. In reality, your practical experiences rather than the certifications are what really help you move up the ladder. 

CFA, organized by the CFA Institute, has become the de-facto and globally recognized certification for portfolio management and investment analysis while the FRM certification, organized by the Global Association of Risk Professionals (GARP), is gaining importance as businesses need better risk managers. 

CFA vs FRM - let us see how they compare.

Career and curriculum coverage
While both certifications focus on finance, the CFA certification covers a broad area of financial career including equity and fixed income analysis, portfolio management, alternatives investment, and investment advisory including wealth management. The FRM certification is more narrowly focused and is suitable for a career in risk management in banks, Treasury, or asset management companies. Around 5% of CFA holders self-report as risk managers as of September 2014. The CFA curriculum covers accounting, corporate finance, asset valuation (equities, fixed income, and derivatives), portfolio management, alternatives, and ethics. 

The FRM curriculum has some overlaps with that of the CFA in terms of financial market products, asset valuation, alternatives, and ethics although it clearly emphasizes risk management (enterprise, credit, operational), risk models such as value-at-risk, Basel regulations, and quantitative analysis. If you want to be a risk officer, a FRM is clearly the right qualification to have because it gets deeper into risk assessments and forecasts.

Preparation, costs, and certification requirement
To earn the CFA charter, you have to pass sequentially 3 levels of CFA exams, which take place in June (except June and December for level 1), possess an international passport, have at least 4 years of investment-related experiences, and join the CFA Institute as a regular member. The registration and material costs for 3 levels are US$900 to 1,300 per year with a one-time enrollment fee of US$450 for level 1 as of 2015. Candidates have reported about 6 months of preparation and 300 hours of studies per year. 

To receive the FRM certification, you need to pass sequentially 2 parts of multiple choice-only exams, which take place in May and November each year with the option of taking both exams on the same day. You also need 2 years of related experiences. No prior qualifications are required to register for exams although you have to pass the second level within 4 years of passing part 1 and finish the work certification within 5 years of passing part 2. The registration and enrollment costs for the 2 levels are US$1,250 to 1,600 per year for level 1 and $950 to $1,300 for level 2 with a one-time enrollment fee of US$300 for part 1 as of 2015. Candidates have reported about 240 hours of studies per year. The passing rate for both CFA and FRM exams is between 40 to 50%. 

Choose one or both?
Both certifications are internationally well-known for finance professionals, enhance the employee’s long-term value, and are trusted by employers. How you choose depends on the level of specialization you want and your background. CFA is more broad-based and opens up a number of career options. FRM has a more quantitative and mathematical tilt while CFA has more accounting coverage. Quite a number of people first become CFAs and then decide to specialize in the area they want, for example, risk management, and hence they will also get the FRM.

Also Read :   MBA vs CFA. Which is better?                 FRM vs PRM. Which is better?