CFA® vs. FRM®
Which Financial Designation to Bank On!
It’s natural to find yourself at a crossroads when determining the best career for you, especially when choosing between two powerhouse designations in the finance industry: Chartered Financial Analyst (CFA) and Financial Risk Manager (FRM). Both designations have their merits, but your decision should be based on your comfort with the subject matter and personal interests. For starters, CFA charterholders work for corporate businesses to analyze security markets and trends. FRMs, on the other hand, work chiefly in risk analysis. While both designations require candidates to go through (and pass) some intense examinations, there are subtle differences that can affect your decision-making process.
CFA and FRM Quick Overview
With over 160,000 CFA charterholders worldwide, the CFA charter is one of the most important certifications in the financial industry. The FRM certification, with over 70,000 professionals, sprung to immediate relevance during the United States subprime mortgage crisis (2007–2010), when risk was not appropriately evaluated or managed. The need for a new sector of specialists who recognized the possible risk of various investments and took action to mitigate it was clear.
The CFA charter covers a wide variety of financial industry-related topics, such as fixed income, financial statement analysis, and ethics, to name a few. The FRM certification focuses on risk management topics, such as market risk, volatility, liquidity, and inflation.
Applicants for the CFA charter
- must pass all three levels of the CFA exam with at least a MPS (Minimum Passing Score)
- have a bachelor's degree or four years of relevant experience, join the CFA Institute (CFAI®)
- have two years of relevant investment employment experience
Candidates for the FRM certification
- must pass two exams (Part 1 and Part 2)
- have a minimum of two years of expertise in managing and working with financial risks and their management
Even though the CFA and FRM programs are similar in that they open up many opportunities for candidates, the path to earning each designation is significantly different.
The CFA charter is authorized and distributed by the CFAI, which also develops the curriculum and administers the examinations. Candidates must complete all undergraduate coursework and 4,000 hours of approved work experience, submit references, and pass all three levels of the CFA exam to be eligible for the certification. Aspiring candidates are advised to spend roughly 300 hours studying for each of the three CFA exam levels, which are administered each year in various CFA testing windows. Once candidates meet all of the requirements, they may apply to become Chartered Financial Analysts.
The Global Association of Risk Professionals (GARP) grants the FRM credential. It is the premier risk management certification in the world. FRMs conduct work that generally falls into three categories: risk-based advice, risk pricing, and risk management. The program’s curriculum is arranged similarly to a master’s degree course, but without the actual degree. To get the FRM credential, applicants must pass the FRM Examinations (Part 1 and Part 2) and have two years of relevant work experience. Candidates have the option of taking both exams on the same day. The recommended preparation time for each of the two parts is 150-200 hours.
Since 2013, the FRM pass rates have averaged between 40 to 60 percent. The November 2021 FRM Exam pass rates are as follows:
- Part 1: 45%
- Part 2: 63%
As potential candidates examine each program, another critical factor to consider is the estimated costs.
To start the CFA program, all candidates must pay a one-time enrollment fee of $350.
Candidates must also pay a registration fee for each of the three exam levels (as well as if retakes are necessary). The CFAI now charges the following fees for each exam level:
- Early registration cost: $900
- Standard registration cost: $1,200
When you register, the total cost of taking all three levels may range from $2,700 to $3,600, providing you pass each CFA exam the first time. When you include the $350 registration fee, total CFA test expenses vary from $3,050 to $3,950
GARP has implemented the below fee structure for the FRM Exam:
- One-time enrollment fee of $400
- Registration fee of $1,000 (early registration), and $1200 (standard registration)
- Part 2 exam fee of $ 600-$800 depending on your date of registration
- Re-attempt fee (either Part 1 or Part 2)
The FRM program costs a student approximately $1,700 to $2,000.
The CFA curriculum covers a considerable portion of the FRM Exam, with most of the overlap occurring in Part 1. According to estimates, the CFA program (all three levels) covers around 55% of FRM Part 1; however, that proportion reduces to approximately 15% for FRM Part 2. The overlap can change annually when the CFAI publishes revisions or changes in the CFA curriculum.
The three levels of the CFA exam vary in question structure, difficulty, and topic weighting. Here’s how:
- The CFA Level 1 exam focuses on fundamental concepts related to investment valuation and portfolio management tools. The Level 1 exam consists of 180 multiple-choice questions, split between two 135-minute sessions (session times are approximate).
- The CFA Level 2 exam is more or less an extension of the concepts studied in Level 1. Here, the focus shifts more toward asset classes; although, the investment tools are still weighted relatively high. The Level 2 exam consists of 22 item sets of vignettes with 88 accompanying multiple-choice questions.
- The CFA Level 3 exam, unlike the first two levels, heavily focuses on holistically applying what you’ve learned in portfolio management and wealth planning topics. The Level 3 exam consists of item sets of vignettes with accompanying multiple-choice questions and constructed response (essay) questions.
Unlike the CFA exam, the FRM Exam is divided into two sections:
- FRM Exam Part 1 focuses on the core tools and procedures used to evaluate financial risk: foundations of risk management, financial markets and products, quantitative analysis, and valuation and risk models. Part 1 consists of 100 multiple-choice questions.
- FRM Exam Part 2 focuses on putting Part 1’s skills into practice and delving further into: market risk, operational risk and resiliency, credit risk, risk management and investment management, treasury and liquidity risk management, and current issues in financial markets. Part 2 consists of 80 multiple-choice questions.
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Salaries
Compensation for both the CFA and FRM designations predominantly depends on your:
- Job title (role)
- Years of experience
- Geographic location
Total compensation for many financial roles consists of base salary, cash bonuses, and equity, with bonuses accounting for a large portion of the remuneration in the investing sector.
CFA Charter
The typical average annual salary for financial research analysts is roughly $86,000 with a 5% yearly growth rate. With that said, the CFA program is designed for candidates to work in the capacity of executives and senior-level partners with salaries upwards of $250,000.
FRM Designation
The typical annual salary for financial risk analysts is roughly $62,000 with a 7% yearly growth rate. One thing to consider is that many FRMs candidates opt for the designation after receiving a CFA charter or other finance-related certifications. This also means they have already been working in the field for many years and depending on the varying job titles, the highest wages may not be reflected in determining the state median pay and can be upwards of $200,000.
Why Not Attain the CFA and FRM Designations?
Both designations could improve long-term career prospects in the financially competitive world, where employers prefer candidates with diverse skill sets and knowledge. Of course, one should be aware of the expense and time commitment associated with the five levels of exams, which require a combined total of 1,200 to 1,300 hours of study time.
The Deciding Factor
When it comes to a career, narrowing your options down to one decisive element might be difficult. The CFA and FRM designations are among the highest regarded in the financial industry and require significant time and effort. Choosing the one that fits your schedule and keeps you on track with your professional goals.
The CFA charter is intended for professionals working in investment management, such as investment bankers or portfolio managers. The CFA charter requires a candidate to complete challenging tests in economics, ethics, money management, and other financial issues. Not only is the designation well known and accepted worldwide, but also connects one to the best in the industry. The FRM certificate is ideal for those pursuing risk management or risk assessment careers in banks or corporate treasury departments. Risk exists for the typical investor, but it is also a reality for the financial institutions that serve them. An FRM certificate holder may assist a company with identifying risk, pricing risk into their products, and minimizing risk wherever possible.
Whatever career path you take should depend on your interests and passion for what you like to do.
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Frequently Asked Questions
Does the CFA program also include risk management?
The CFAI does not have an exam topic dedicated to risk management, but it does include similar content under portfolio management and wealth planning.
Which is more expensive, the CFA or FRM program?
Can CFA and FRM programs be done simultaneously?
What’s the eligibility criteria for taking the CFA and FRM Exams?
Read More About the CFA Charter
Getting the CFA charter or CPA designation is an important decision for anyone in the financial industry. This article will help you decide which one to choose.
Understanding the difference between the CFA charter and CFP designation is critical when deciding on your career path. This article will help you choose the best solution for your requirements.
Do you want to know whether getting a CFA charter would benefit your career? Here’s all you need to know about various job opportunities for CFA charterholders.
Want to compare CFA charterholder salaries worldwide and in other finance-related roles? Here is a list of the primary aspects that influence your compensation.