In the world of finance, two popular designations are FRM® and CFA®. If you’re thinking about becoming a finance professional, these are two designations that could advance your career. But, what’s the difference between them, and which one is right for you? Let’s explore FRM versus CFA.
What Do CFA® and FRM® Mean?
CFA stands for Chartered Financial Analyst®. It 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 and ethics. Industry professionals worldwide recognize the CFA charter as the “gold standard” of all financial analyst designations.
FRM stands for Financial Risk Manager. Offered by the 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 constantly-changing financial markets. It also signals to employers that you take risk management seriously and that your knowledge has been validated by international professional standards.
What are the similarities between CFA® and FRM® ?
Both designate professionals who are knowledgeable in finance and capable of analysis. For each, one must pass a set of exams. One 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.
What are the differences between CFA® and FRM® ?
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, on the other hand, 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. While there are two FRM exams (Part I and Part II), there are three CFA exams (Level I, Level II, and Level III).
What are the requirements for CFA® and FRM® ?
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. If you have 4 years of relevant work experience or a combination of professional work and university experience that totals 4 years, 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 2 years 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.
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.
Exam Topics, Formats, Fees, and Pass Rates
In a discussion about FRM versus CFA, candidates are most concerned about the exams. Here’s what you need to know.
The topics of the CFA exams are:
- Ethical and professional standards
- Quantitative methods
- Financial reporting and analysis
- Corporate finance
- Equity valuation
- Alternative investments
- Fixed income
- Portfolio management
CFA Institute offers Level I of the CFA exam in June and December. Levels II and III are offered in June only. 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 $620 to $1,610, 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 2017) are as follows:
- Level I: 43%
- Level II: 47%
- Level III: 54%
The topics of the FRM exams are:
- Foundations of risk management
- Quantitative analysis
- Financial markets and products
- Valuation and risk models
- Market risk measurement and management
- Operational and integrated risk management
- Credit risk measurement and management
- Risk management and investment management
- Current issues in financial markets
GARP offers Part I and Part II of the exam in May and November. The format of both parts is multiple-choice. The cost ranges from $750 to $1050 for each part, based on when you register. Part of the registration is a $400 enrollment fee. 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.
Preparing for the Exams
As is with all professional designations of rigour, both these exams cannot be passed if all you do is last-minute cramming. So, whether it’s the FRM or CFA exam, one should start studying early.
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 help immensely in grasping concepts, as will immersing yourself in practice questions. We strongly recommend In addition, you should plan to take as many mock exams as you can to get used to the whole exam process.
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.
How to choose CFA® or FRM® ?
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.