Posted By: Kaplan Schweser
Updated: March 25, 2020
In the finance world, two common designations are the FRM® certification and CFA® charter. If you’re thinking about becoming a financial analyst or working with investments, these are two designations that could advance your career. So, what’s the difference, and which is right for you? Let’s take a look at FRM versus CFA.
FRM stands for Financial Risk Manager. Offered by Global Association of Risk Professionals (GARP), FRM certification sets you apart in the global marketplace and gives you a strong understanding of the underlying risk management concepts in today’s ever-changing financial markets. It also lets employers know that you take risk management seriously and that your knowledge has been validated by international professional standards.
Chartered Financial Analyst® (CFA) is the professional credential 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.
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 an FRM certification and CFA charter.
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 Program exams (Level I, Level II, and Level III).
To earn your FRM certification, you need to:
To become a CFA charterholder, you need to:
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.
The topics of the FRM exam are:
Both Part I and Part II of the exam are offered in May and November. The format of both parts is multiple-choice. The cost of Part I ranges from $825 to $1125 for each part, based on when you register (the costs include a $400 one-time registration fee.) The costs for Part II range from $425-725. Of those who took Part I and Part II between 2010–2017, the average pass rate for Part I was 46% and 57% for Part II.
The topics of the CFA Program exams are:
Level I of the CFA exam is offered several times a year, and Levels II and III are offered once a year. For more information on the exact dates, read this article. 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 range from $700 to $1,450, depending on your CFA exam level and whether you register early, during the standard registration period, or late. The pass rates for the CFA exam (as of December 2019) are as follows:
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 certifcation or CFA Program 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 Part I and 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 Program 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.
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 article, 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 is a wealth of information out there that can help you earn the credential or credentials you need. You can get started here.
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