CFA vs FRM: Everything You Need To Know

CFA vs FRM

The Global Association of Risk Professionals (GARP), headquartered in New Jersey offers the FRM certification (Financial Risk Manager), while the CFA Institute, headquartered in Virginia offers the CFA charter (Chartered Financial Analyst). Both certifications are recognized in around 100 countries.

The comparison of these two courses is done on four aspects in this article. These are 1) exam structure, 2) course content, 3) course fee and 4) career prospects.

1) Differences in Exam Structure:

FRM:

Earning the FRM certification requires passing two exams consisting of multiple-choice questions. Each exam has a duration of 4 hours.

The FRM Exam Part I is a 100-question multiple-choice exam emphasizing the tools used to assess financial risk: foundations of risk management, quantitative analysis, financial markets and products, and valuation and risk models.

The FRM Part II is an 80-question multiple choice exam emphasizing the application of the tools acquired in Part I: market risk, credit risk, operational risk and resiliency, treasury and liquidity risk management, risk management and investment management, and current issues in financial markets.

CFA:

The CFA certification requires passing three Levels.

Level I

The Level I computer-based exam consists of 180 multiple-choice questions, split between two 135-minute sessions. There is an optional break between sessions.

• First session (2 hours, 15 minutes): 90 multiple choice questions, covering the topics of ethics & professional standards, quantitative methods, economics, and financial reporting and analysis

• Second session (2 hours, 15 minutes): 90 multiple choice questions, covering the topics of corporate finance, equity, fixed income, derivatives, alternative investments and portfolio management

Level II

The CFA Level II exam consists of item sets comprised of vignettes with accompanying multiple-choice questions. It is a computer-based exam and is approximately 4.5 hours, split into two sessions with an optional break in-between.

Each item set on the CFA exam consists of a vignette followed by either 4 or 6 multiple-choice items (questions). There are 44 multiple-choice items in each of the two sessions, for a total of 88 for the entire exam, each worth 3 points.

Level III

The Level III exam consists of item sets comprised of vignettes with accompanying multiple-choice items and constructed response (essay) questions. It is a computer-based exam and is approximately 4.5 hours, split into two sessions with an optional break in-between.

The first session of the CFA Level III exam is comprised of 8 to 11 constructed response (essay) questions. Each essay question on the exam consists of a vignette followed by several related items that require a written response. There are some multiple-choice items in this session, as well. For example, you may be asked a multiple-choice question to select the portfolio (A, B or C) that meets a particular objective, followed by an essay question to justify that response.

The second session is comprised of 44 multiple-choice items, each worth 3 points. Each item set on the CFA exam consists of a vignette followed by either 4 or 6 multiple-choice items (questions).

2) Course Content:

FRM Course Content:

• Foundations of risk management

• Quantitative analysis

• Financial markets and products

• Valuation and risk models

• Market risk measurement and management

• Credit risk measurement and management

• Operational risk and resiliency

• Liquidity and treasury risk measurement and management

• Risk management and investment management

• Current issues in financial markets

CFA Course Content:

• Ethical and professional standards

• Quantitative methods

• Economics

• Financial reporting and analysis

• Corporate finance

• Equity investments

• Fixed income

• Derivatives

• Alternative investments

• Portfolio management

3) Course Fees:

The total course fees for FRM (part I and II) ranges between USD 1,250 to USD 1,850 based on when you register.

The total course fee for CFA Charter (Level I, II & III) ranges between USD 2,400 – USD 4,590 depending on fee deadline.

4) Career Prospects

The FRM course focuses on various types of risk management such as credit, financial, operational, market, regulatory, foreign exchange risk, etc. Therefore a career for someone with the FRM certification would be best suited in any of the aforementioned areas. These roles can be in a commercial bank or a venture debt fund as a credit risk analyst / manager or in an investment bank as a compliance officer for regulatory risk. Investment funds or asset management companies employ financial / operational risk analysts or managers. Commercial banks and large corporations with operations in multiple companies also employ foreign exchange risk management professionals to manage the impact of exchange rate risk on the company’s financial statements.

The two most suitable career choices for CFA Charterholders based on the course content are portfolio manager and research analyst. These portfolio managers can work in hedge funds, assets management companies, pension funds, insurance companies or mutual funds. Research analysts work in brokerage houses issuing research reports for their clients who trade or make investments based on these reports. Other roles for CFA Charterholers include working in an investment bank, private equity fund or corporate finance department of companies.