What Does a Financial Risk Analyst Do?
What exactly does a risk analyst do? In the day-to-day, a risk analyst's job looks much like that of a financial data analyst but with a focus on understanding potential risk. Life as a risk analyst can be challenging, as risk management is filled with inherently difficult decisions, and risk-related data does not always entail straightforward solutions. Nevertheless, this career offers the opportunity to make a direct impact on an organization's success. Risk analysts get the chance to collaborate across the organization to make important business decisions.
Job DescriptionIn the finance industry, risk analysts are typically employed by investment banks, insurance companies, and organizations responsible for large sums of money like hedge funds and investment firms. While a risk analyst may play a part in the company's enterprise risk management program, working to minimize overall risk across a variety of categories, a financial risk analyst typically focuses on reducing negative financial outcomes related to market risk, credit risk, insurance risk, tradeable risk, and more.
- Manipulating and interpreting risk-related data using risk information management software (RIMS)
- Quantifying the potential negative effects of risk-related activities
- Identifying practices within the organization that contribute to increased financial risk
- Compiling reports, summaries, and presentations to communicate findings to key stakeholders within the business
- Collaborating with risk managers on reporting and evaluation techniques to support the ongoing collection and interpretation of risk management data
Typical SalaryAccording to a 2019 CFA Institute compensation study of charterholders and members, financial risk analysts and managers reported a typical, global total compensation of US$129,000 (US$105,000 base salary).
Is a Career in Financial Risk Analysis Right for Me?
Risk analyst career paths will appeal to organized individuals who enjoy tracking economic conditions, investment trends, working with financial documents, and evaluating data sets to make good business decisions under uncertainty. Financial risk analysis is a constantly changing field and is also attractive for individuals with a natural curiosity and a passion for learning.
In addition to the wide variety of analytical and communication skills previously mentioned, financial institutions benefit from hiring employees with proven statistical aptitude and mathematical skill. Here are a couple examples of the types of assessments risk analysts will perform:
- Risk scoring, or the process of weighting potential risks based on both likelihood and level of impact, involves working with discreet percentages, relative and fixed values, and statistical distributions.
- Financial risk modeling, a calculation of risk volatility that helps businesses decide between multiple investment opportunities, involves assigning independent and dependent variables and assessing their impact on one another.
For more resources on the risk analyst and risk management career path, check out GARP. GARP is the central risk management professional organization that produces risk management thought leadership and offers continuing professional development for risk managers.
What Does a Financial Risk Manager Do?
While a financial risk analyst compiles and evaluates data, managers apply the analysts' findings on the level of risk involved to make decisions and create strategies. Risk managers develop plans to minimize and mitigate negative financial outcomes through a combination of project management and proposal development.
Some of the areas of risk in which financial risk managers may specialize include:
- Credit Risk
- Transaction Fraud Risk
- Liquidity Risk
- Tradeable Risk
- Interest Rate Risk
- Market & Price Risk
More so than risk analysts, risk managers are experts on the regulatory and compliance standards in the financial field and draw on years of experience navigating risk-related scenarios. While risk analysts provide data that can help risk managers explore all possible solutions to minimize risk, risk managers have a greater degree of responsibility and accountability in how an organization moves forward with a risk management strategy.
The Risk Analysis to Risk Management Career Path
Risk analysts and managers work together as a part of a holistic risk management team within an organization. Risk manager roles typically require five-to-ten years of professional experience in the risk management field, so this path is more difficult to break into with an unrelated background or without an advanced degree. There is strong promotion potential into the manager level if you are a seasoned risk analyst since an investment company or bank will often draw from internal employees who cannot only understand risk management but also have a strong knowledge of the organization.
What Is the Difference between the FRM® Certification and the CFA® Charter?
Entry-level risk management employees are unlikely to need a professional certification to get their start in the field, but it is a great idea to consider credentialing options early to plan your professional development goals and open up career opportunities.
GARP offers a risk management credential called the FRM Certification, which focuses solely on demonstrating expertise in risk management best practices. While anyone can register for the exam, it cannot be awarded until both tests in the in-depth two-part exam have been passed, and the individual has completed two years of work in the field.
In contrast, the CFA charter is a broader credential that can apply to a range of financial careers, especially those that touch on portfolio and asset management. If you are interested in a more versatile finance career path that touches on both risk management and other investing concepts, the CFA charter may be more aligned with your needs.
Other Finance & Investment Management Career Tracks
How Can the CFA Program Help Me?
Investment professionals looking for risk analysis and management roles need to demonstrate mastery of in-depth investment knowledge, which is exactly what the CFA® Program curriculum is designed to provide. Moreover, because risk managers are in demand around the world, the global reputation of the CFA charter as the “gold standard” for investment credentials can help open professional opportunities with financial institutions in diverse markets around the world.