Almost all financial activity is based on some form of risk. The level of risk inherent in an investment opportunity, security or insurance policy must be carefully determined before purchase or appropriation. The professionals who assess the risk involved in financial activities are typically called risk analysts or risk managers.
Within the financial services industry, risk managers may be classified as financial risk analysts who assess the risks associated with industrial, commercial or public sector organizations, or an insurance risk manager, who evaluates the risks involved in underwriting insurance policies. Both of these categories require highly developed mathematical and analytical skills, but they often use considerably different methodologies and techniques.
Risk Management Job Options
Financial risk manager jobs are defined by credit, market, operational and regulatory specialties.
- Credit specialists evaluate the likelihood consumers will repay loans.
- Market specialists analyze financial transactions like mergers or IPOs.
- Operational specialists assess the probability of major events like cyber-attack or a natural disaster.
- Regulatory specialists examine the effects of impending or new legislation.
Financial risk management jobs involve deconstructing major decisions within an organization as well as possible events in the larger industry or markets. These professionals attribute values to the likelihoods of detrimental events and the success of proposed organizational policies in order to create a comprehensive model of the organization. These models are then utilized by investment professionals to determine the proper interest rates for loan or the values of stocks and options. These risk profiles may also be utilized by the organization itself in order to develop remediation strategies that mitigate risks.
Insurance risk management jobs involve using statistical tables that represent the likelihood an event like a health crisis or a home fire may occur. This actuarial data must often be applied to the specific circumstances of the policy holder in order to develop an accurate model of potential risks. In large insurance companies, risk managers may develop the company’s payment and policy structure for whole segments of the market. They may also be responsible for analyzing the risks associated with complex financial instruments like mortgage-backed securities.
How to Become a Risk Manager: Education and Degree Options
The risk analysis profession is one that utilizes well-developed mathematical models and systems for determining the level of risk within investment products and companies. A bachelor’s degree is necessary to enter this field and the more prestigious the undergraduate institution, the greater the likelihood of receiving a job offer from a reputable firm.
In order to begin a risk analysis career with an illustrious Wall Street firm, it is absolutely essential to gain entry to a globally respected university. It is just as important to choose a major with a strong technical background like mathematics, information systems or engineering. This profession uses actuarial tables and other forms of statistical analysis, so it is very important to obtain some knowledge of probability and statistics. With only an undergraduate degree, a candidate may limited to an associate or entry-level position.
Most risk managers also continue their education at the graduate level in order to obtain a Master of Business Administration (MBA) or an advanced degree in a related field. Business and management skills learned at the graduate level can be extremely helpful in the advancement of a risk manager’s career. It is uncommon but also helpful to obtain a doctorate in a highly demanding field like mathematics or physics.
Professional Certifications for Risk Managers
There are some certifications that better enable risk managers to practice in the field. Although in the United States, there is no regulatory requirement to obtain some of these certifications, many firms will only hire accredited professionals.
- Certified Risk Analyst is a certification offered by the American Academy of Financial Management. This program is only available to professionals with a master’s degree, law degree, CPA or specialized executive training. Most financial firms only hire risk analysts with this certification.
- Financial Risk Manager certification is offered by the Global Association of Risk Professionals. There are two examinations that must be successfully completed. The first covers topics including tools for risk analysis, quantitative analysis, fundamental concepts, financial markets and valuation models. The second covers many of the applications used in market, credit and integrated risk management strategies.
- Certified Financial Analyst certification is designed and administered by the CFA Institute. Three levels of exams must be successfully completed. Considerable independent study is required and most professionals complete the certification process within 18 months to four years. This certification covers more topics than may be necessary to serve as a risk analyst, but it is often an indicator to potential clients and employers of the professional’s work ethic and intellectual capacity.
- Certified Risk Manager certification is primarily for risk management professionals in the insurance industry and is administered by the National Alliance for Insurance Education and Research. Five courses in principles of risk management, analysis of risk, financing of risk, control of risk and practice of risk management must be completed along with their associated exams. The coursework and exams must be completed within five years.
Employment and Salary for Risk Managers
The salary for a risk analyst is heavily dependent upon their performance in the prior year. Analysts who minimized losses in portfolios can expect outsized salaries, while those that posted losses consistent with the market or below market levels may see their salary significantly reduced.
According to Robert Half’s 2021 Salary Guide, the median annual salary for a market risk analyst manager is $123,750. The median annual salary for an operational risk analyst manager is $100,750.
Like many professions in the financial sector, the base salary may only represent a portion of the risk analyst’s annual compensation. Many analysts receive bonuses in the forms of cash, stock or options. Some firms allow their risk analysts to participate in profit-sharing programs or earn commissions on the portfolios they manage. These bonuses and benefits may contribute to significantly higher take home pay than their reported salary may suggest.