This is one of the most commonly debated questions among students who have made up their mind about furthering their career and adding a designation such as CFA, FRM, or CAIA to their name.
Making the right choice can be crucial for a couple of reasons: 1) Each of these certifications are expensive, for example, you will end up spending more than $1,500 just to complete one level of the CFA exam. 2) You are going to devote a very long time to complete the program. While FRM has only two levels compared to three levels in CFA, most candidates will agree that FRM is much harder because of its quantitative nature.
So, you don’t want to have spent money and time, and then get the feeling that this wasn’t the right designation for you.
Let’s look at some of the important points that can help you decide whether you should go for CFA or FRM certification.
I think more than anything else, how you want to shape your career and what kind of job you want to see yourself doing should be the most important factor while making a choice.
A Chartered Financial Analyst (CFA) is a generalist in nature, while a Financial Risk Manager (FRM) is a specialist in nature. The field of finance is very broad and has huge scope. Financial analysis, investments, research, risk all are a part of the finance field. The CFA designation has broad scope and gets you ready or have a decent knowledge platform for a whole variety of roles. For example, if you want to be in equity research CFA is probably the right designation for you. In terms of careers and job opportunities, investment bankers are also mostly looking for CFAs apart from MBA Finance. However, if you are looking for building a career as a risk manager or join the treasury/risk department in a bank or a corporation, then FRM is the best designation. While these designations are not mandatory to land into any of these jobs, they provide you the right orientation, skills, and knowledge needed to perform these jobs better. As a simple example, if you are a portfolio manager, then CFA equips you with tools and knowledge you need to construct and manage portfolios. You may want to know about the risk limits or about calculating value at risk, but these may not be the core skills that you require to perform your job. However, a risk manager needs to ensure risk controls are in place, and how much risk the firm is facing from its trading activity and for him knowing about the same concepts of risk limits and value at risk are essential to perform the job well.
Apart from this, CFA is also looked by many as a great resume enhancer especially if you don’t have a strong background in finance. Say for example, you are coming from a non-finance background, and what to make a move to a career in finance, then CFA does help. There are many people who first do their CFA and then opt for FRM which provides them specialized skills.
Now, let say that you don’t really have a preference in terms of what job you want to do, and instead want to play safe and go for a career that is more in demand and hence choose a designation that will help you get in the jobs that are more in demand. In such a situation, your best friend is the CFA designation. CFA has much broader scope and wide industry acceptance. For many jobs such as a portfolio manager or an equity research analyst, a CFA is all that you need. In terms of careers, you can also compare CFA with MBA in Finance from a reputed institute (not literally as MBA has many other advantages). The whole curriculum is awesome. It exposes an individual to all the relevant areas that impact financial decision makers. Even if you have no experience in finance, just by following the curriculum you can learn a lot and be ready for a wonderful career. The same cannot be said for FRM, that is, unless you are sure that you want to be in risk management, FRM is not a certification of choice. But within risk management, FRM is by far the most popular and widely accepted.
I would like to add a word of caution if you are considering CFA over MBA. An MBA degree, apart from the knowledge and skills, also provides you many other benefits. For an MBA, you get a much more balanced exposure to facets of a business as a whole that are incredibly valuable to a professional in the long term. An MBA degree also gives you direct access to job opportunities with top banks and other employers, which does not happen with CFA. In case of a CFA you already need to be a working professional and it helps you enhance your career. But to land a new job in finance, an MBA would fare much better than a CFA. An MBA also helps you easily switch careers. For example, if you are in information technology or marketing and want to move into say M&A, then an MBA will make it easier.
To conclude there are many routes to achieve your goals and it will all depend on what you want. If you have the resources, the best thing to do would be to do MBA Finance from a top business school, get a job in Finance and then do your CFA. However, MBA is an expensive choice and it is worth doing only from top B-schools. If you don’t get admission into a good B-School or cannot afford it then go for CFA directly. This is a generalization and there are many people who first do their CFA and then go in for more focused executive education programs rather than an MBA. FRM on the other hand is really a niche and you should do that to build a career in risk. You can do FRM after your CFA or even after an MBA degree.