Difference Between FRM and CAIA

Finance certifications have always been a lucrative career option. Unfortunately, there are innumerable, and it is still a nightmare if one finally decides what it should be. To help you out on this process, let us grab a quick understanding of the two – FRM exams and CAIA exams through this article.

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In this article, we discuss the following.

What is FRM or Financial Risk Manager?

The Financial Risk Manager is a US-based global certified program offered by the Global Association of Risk Professionals. The course consists of two parts and prepares the candidate from risk management and measurement to quantitative analysis techniques and financial marketsFinancial MarketsThe term “financial market” refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.read more and products and evaluation models.

The FRM course requires the candidate to have two years of full-time working experience in finance, including risk management, trading, academia, research, portfolio, management, auditing, economics, risk management, or risk consulting.

What is CAIA?

The Chartered Alternative Investment Analyst is a designation achieved by an investment professional after triumphantly clearing the CAIA exam conducted by the CAIA institution. The CAIA course requires the candidate to pass two examinations to be recognized as a specialist in a hedge fund, real estate investment, private equity, and venture capital. The CAIA exam is globally recognized, and professionals want to distinguish between alternative investments.

The course is divided into two levels to help a professional understand the fundamentals of each alternative investment class and apply the asset-allocated information to achieve result-oriented decision making. In addition, the curriculum designed helps a professional understand a portfolio from the investor’s perspective and implement diverse strategies.

FRM vs CAIA Infographics

Exam Requirements

  • FRM: There is no prerequisite to opt for the FRM exam (educational or work experience). However, GARP Individual Membership must appear for the FRM exam. The cost of membership for practicing risk professionals and certified FRMs are $195/year and $150/year, respectively.CAIA: To appear for the CAIA exam, the candidates must have at least one year of professional experience and a bachelor’s degree.

Comparative Table

Key Differences Between FRM and CAIA

  • The Financial Risk Management course is conducted by the GARP or Global Association of Risk Professionals. The CAIA Association manages a Chartered Alternative Investment Analyst or CAIA course.The subjects in the FRM course are financial markets and products, quantitative analysis, foundations of risk management, market risk measurement and management, valuation and risk models, credit risk measurement and control, current issues in financial markets, operational and integrated risk management, operational risk and resiliency, risk management and investment riskInvestment RiskInvestment risk is the probability or uncertainty of losses rather than expected profit from investment due to a fall in the fair price of securities such as bonds, stocks, real estate. In addition, each type of investment is prone to some degree of investment or default risk.read more management, liquidity and treasury risk measurement and management, financial markets and products, etc.The subjects in the CAIA course are indexation, managed futures, current and integrated topics, private equity, due diligenceDue DiligenceDue diligence is a thorough examination of information and strict adherence to the applicable rules and regulations. It ensures asset protection as well as the avoidance of malpractices and conflicts.read more, hedge funds, asset allocationAsset AllocationAsset Allocation is the process of investing your money in various asset classes such as debt, equity, mutual funds, and real estate, depending on your return expectations and risk tolerance. This makes it easier to achieve your long-term financial goals.read more, and institutional investorsInstitutional InvestorsInstitutional investors are entities that pool money from a variety of investors and individuals to create a large sum that is then handed to investment managers who invest it in a variety of assets, shares, and securities. Banks, NBFCs, mutual funds, pension funds, and hedge funds are all examples.read more, professional standards and ethics, introduction to alternative investments, structured products, qualitative analysis, benchmarking, trading theories of alternative investments, etc.A Financial Risk Manager can apply for the job roles of risk manager, risk management analytics consultant, managing director for the management of corporate risk, personal banker, risk officer for a global asset, risk quantification manager, enterprise risk manager, credit riskCredit RiskCredit risk is the probability of a loss owing to the borrower’s failure to repay the loan or meet debt obligations. It refers to the possibility that the lender may not receive the debt’s principal and an interest component, resulting in interrupted cash flow and increased cost of collection.read more specialist, senior operational risks manager, regulatory risk analysts, prudential risks manager, etc.On the other hand, a Chartered Alternative Investment Analyst can apply for the job title of an analyst in the fields of private equity funds, hedgeHedgeHedge refers to an investment strategy that protects traders against potential losses due to unforeseen price fluctuations in an assetread more funds, venture capital, etc.Aspirants pursuing a Financial Risk Manager course must dedicate a minimum study time of 200 hours to 240 hours for each exam round. The aspirants seeking a Chartered Alternative Investment AnalystInvestment AnalystAn investment analyst is an individual or firm that excels in the financial and investment research and have a keen knowledge of financial instruments and models. Such financial professionals include portfolio managers, investment advisors, brokerage firms, mutual fund companies, investment banks, etc.read more course must reserve a minimum study time of 200 hours for each level of exams.An aspirant applying for the FRM course must have worked as a full-time employee for two years in any financial riskFinancial RiskFinancial risk refers to the risk of losing funds and assets with the possibility of not being able to pay off the debt taken from creditors, banks and financial institutions. A firm may face this due to incompetent business decisions and practices, eventually leading to bankruptcy.read more role. In contrast, an aspirant applying for the CAIA course must have a bachelor’s degree and a minimum of 1-year professional experience or at least a professional background of 4 years in the absence of a valid degree.

Why pursue FRM?

Today, FRM is considered an alternative option to CFA Charter. At the same time, CFA and MBA remain the traditional choices to boost career prospects. FRM, as observed by industry experts, is poised for growth, considering that the market is less saturated with FRMs than CFAs at the moment.

  • Part I

  • Part II

  • Level I

  • Level II

  • Quantitative Analysis

  • Financial Markets & Products

  • Valuation

  • Risk Models

  • Credit Risk, Market Risk & Operational Risk

  • Investment Management

  • Treasury & Liquidity Risk Management

  • Professional Standards & Ethics

  • Alternative Investments

  • Hedge Funds, Private Equity, Real Assets & Structured Products

  • Due Diligence & Selecting Strategies

  • Volatility & Complex Strategies

  • Institutional Asset Owners & Investment Policies

  • Risk Manager Risk Management Analyst Investment Banker Financial Risk Consultant

  • Part I: May 07 – May 20, Nov 5 – Nov 18 Part II: May 21 – May 27 and Nov 19 – Nov 25

  • Level I: Feb 28 – Mar 11 and Aug 29 – Sep 09 Level II: Mar 14 – Mar 25 and Sep 12 – Sep 23

Though FRM can boost earning power, to believe that it would happen overnight and create a millionaire is a wrong perception. The banks are still to be made aware of FRM as a certification, which is on par with a CFA (though less holistic and narrower). Therefore, it is not mandatory while a candidate is being recruited.

The FRM certified course is best suited for those individuals in the finance industries who play a senior role in management firms, government agencies, investment banking firms, hedge funds, asset management firms, commercial banks, central banks, credit agencies, corporations, technology, and asset vendors, consulting firm, etc. and want to achieve their positions or seeking for a change in career domain.

The additional certification after a traditional degree is a prerequisite considering the industry’s booming number of talented professionals. Thus, FRM is for professionals looking to excel and make progress in their portfolio or who desire a shift in their career with a more diversified, analytical, and challenging role in their career. In addition, the syllabus of these certified courses has a much broader global perspective and current relevance in today’s financial market scenario.

Why pursue CAIA?

The CAIA is an ideal course for those individuals who wish to fill the educational gap to escalate in the alternative investment field. The program improves the core fundamentals of the candidates in the industry. Moreover, CAIA is globally recognized and well-respected, enabling credibility in the alternative investment field.

The program is the highest achievement an individual can achieve in this field, directly increasing his career opportunities. In addition, it explores the opportunity to gain a more client base and professional networking connections through membership in global chapters.

This article has been a guide to FRM vs. CAIA. Here, we have discussed the differences between FRM and CAIA and infographics and a comparative table. You may also have a look at the following articles: –

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