July 16, 2013
Here’s a query which we at EduPristine get from most people new to finance domain:
“Why should I go for a financial certification & which one is for me?”
Most knobs wish to find out how financial certifications help them with their professional aspirations and which exam makes most sense to go for.
Considering the fact that the candidates are from different backgrounds, the answer cannot be generalized. There are some, who are already in some way related to the finance industry, some coming with IT backgrounds, some already possess a solid knowledge of financial products and involved instruments and a good general understanding of the industry. Then there are those who before going for graduation in quart degree, would like to build up a more solid foundation with an official exam.
Some of the most sought after certifications are:
Chartered Financial Analyst (CFA) offered by CFA Institute (formerly known as AIMR):
There are three levels of this exam:
The Level I: Introduction to asset valuation, financial reporting and analysis, and portfolio management techniques
The Level II: Asset valuation and also includes applications of the tools and inputs (including economics, financial reporting and analysis, and quantitative methods) in asset valuation
The Level III: Portfolio management and also includes strategies for applying the tools, inputs, and asset valuation models in managing equity, fixed income, and derivative investments for individuals and institutions.
Financial Risk Manager (FRM) offered by GARP – Global Association of Risk Professionals: This exam has two parts:
Financial Markets and Products
Foundations of Risk Management
Valuation and Risk Models
Market Risk Measurement and Management
Credit Risk Measurement and Management
Operational and Integrated Risk Management
Risk Management and Investment Management
Current Issues in Financial Markets
Professional Risk Managers (PRM) offered by PRMIA – Professional Risk Managers’ International Association:This exam has four parts:
EXAM I: Finance Theory, Financial Instruments and Markets
EXAM II: Mathematical Foundations of Risk Measurement
EXAM III: Risk Management Practices
EXAM IV: Case Studies, PRMIA Standards of Best Practice, Conduct and Ethics, Bylaws
Then there are others like:
Associate of the Society of Actuaries (ASA)– Focuses the fundamental concepts and techniques of modeling and managing risk
Chartered Enterprise Risk Analyst (CERA)– Centers around identification, measurements and management of risk within risk bearing enterprises
Fellow of the Society of Actuaries (FSA)– Deals with financial decisions making concerning retirement benefits, life insurance, annuities, health insurance, investments, finance, and enterprise risk management, including the application of advanced concepts and techniques for modeling and managing risk.
The thing they all have in common is that these certifications:
Help you to better equip yourself with the essential knowledge to pursue a career in finance
Empower you by adding credentials to your resume
Expand your professional opportunities
Provides you with the ability to network with some of the world’s leading finance professionals.
Talking from curriculum perspective:
The FRM curriculum goes into the detail on areas of financial and non-financial risk while the CFA curriculum provides a broad view of financial analysis in general.
The FRM Part 1 syllabus will overlap with some part of the CFA curriculum, mainly in the areas of quantitative analysis, portfolio theory, derivatives, and fixed income securities etc.
The FRM and CFA overlap at Part 2/Level 2 is minimal. Still, some concepts that are mentioned briefly in the CFA curriculum, such as value at risk, credit risk, risk budgeting, and hedge funds, are expanded upon in Part 2 FRM curriculum.
Exclusive to the FRM exams are readings on operational and integrated risk management, Basel II, current issues in financial markets, and case studies in risk management.
Broadly speaking, the FRM exams tend to have more of a quantitative focus than the CFA exams.
Regarding PRM syllabus, it’s almost the same as FRM syllabus with an overlap of almost 80-90%. PRM is a bit more extensive and rigorous on quantitative part. CFAs or Actuaries who want a risk management certification prefer PRM since it grants them exemption of upto 2 exams.
CFA and FRM Exam are slightly more popular among test- takers and among employers because it has a longer history, however PRM is quickly gaining ground and all three designations have come to be equally respected.
Talking about the job opportunities:
The key thing to note is that job markets are diverse
The CFA is helpful if you want to work in equity research or, say, become a debt analyst
The FRM/PRM would be more relevant to a risk manager
For other Financial Services jobs (e.g., consulting, sales, management), these credentials are elements that complement your overall presentation
Like the MBA, they don’t buy you advancement per se, rather they enhance your resume.
Let me assure you that among the industry, there is NO prevailing ‘argument’ for or against one of the exams.
So take a look at the syllabi, test-structure and most importantly your long term career goals to make out which one is the best for you. Once you zero-in, take the plunge!