FRM versus CFA

[bkay]

Two questions for someone who has both a CFA charter and FRM certification:

1) How does the difficulty of the FRM program compare to the difficulty of the CFA program?
(FYI...My "frame of reference" is the CFA program. So far, I have passed the Level 1 CFA exam, and I have made a few unsuccessful attempts at the Level 2 CFA Exam.)

2) Is it reasonable to assume that the FRM program has a more narrow focus than the CFA program?

Thanks,
Bryan

 

[braxxus]

1.) I found the FRM Part 1 to be MUCH more difficult than any of the CFA exams, while the Part 2 was considerably easier than any of the CFA exams.

2.) FRM is more narrow and goes deeper into detail, also the calculations are more complex.

 

[David Harper CFA FRM]

I basically agree with braxxus.

Re (1): I monitor feedback on social channels re: FRM and CFA, and currently, while there is not a large number of people who have passed both, most say the FRM is more difficult (it's rare to find somebody say the CFA is harder). In my opinion, this is primarily for two reasons: (i) related to braxxus' point about L1, the math is clearly more difficult (deeper) in the FRM; and (ii) GARP uses a looser (less mature) methodology than the CFA institute, which puts additional stress on a prep plan, in a way that is not all positive.

Re (2): I somewhat agree but with an important qualifier: as each has their own non-overlapping domains, the FRM domain is NOT a clean subset of FRM. Specifically, several of the FRM L2 are absent the CFA, with respect to operational risk, some credit risk, and many regulatory topics.

You might find my brief summary, from a few weeks ago, of an (admittedly biased but I do happen to agree) GARP presentation. Here is link to my comments (http://community.icontact.com/p/bionicturtle/newsletters/bionicturtle/posts/bionicturtlecom-update-and-tips-6-20-2011 ) and here is my paraphrase of their presentation point:

"With regard to a comparison to the CFA, they are not direct substitutes, but the point was: (i) the FRM and CFA have some quantitative overlap, (ii) the CFA focuses on portfolio and asset management and the FRM does not really and (iii) the FRM reviews credit risk, operational risk, and regulation that broadly apply to financial institutions while the CFA is more obsessed with market risk only. In my opinion, true, true and true."

Hope that helps, David

 

[braxxus]

The difficulty of the math, multi-step calculations, and large number of calculations (felt like at least 70% of the questions) is what makes Part 1 much more difficult. It is a giant time crunch and truthfully I doubt most people finish the exam (I mean really do every question without rush guessing at the end). I think most people are intelligent enough to random guess with a minute left in the exam any question they haven't gotten to yet. It is 100 questions with a large number of relatively complex, long, multi-step calculations. The CFA has some calculations, but not nearly as many and they seem to be more single step in general.

Part 2 on the other hand only has only 80 questions and relatively few of them required calculations, as a result there is a lot less stress and truthfully it felt like a walk in the park compared to Part 1, but all 3 levels of the CFA exam as well.

When I finished part 1 of the FRM exam I pretty much told everyone at work not to take the exam unless they want to put themselves through a pressure cooker. I said I would have rather taken the CFA Level 1, 2, and 3 exams all on consecutive days rather than take part 1 FRM again.

The difficultly of the questions and large number of calculations is what gets people I believe.

Risk is mostly glossed over in the CFA, but all of the different areas are covered in it if ony briefly. It is more for portfolio managers. Basel is material to cover in the CFA as well, but it just wasn't nearly as much of a focus.

Prepare for a certain level of difficulty and then look 2-3 levels higher and it should give you a pretty good idea for FRM part 1. They didn't stop with variance and standard deviation in november, they had us calculate skew and kurtosis, which is not something I expected. It is just an example. Sorry for being so wordy. I just want to let you know what to expect in my opinion and also give a little more information.

Obviously it is possible to pass the exam, but it is tough. Everyone has the same difficulty, which is why the exam is graded on a curve.

 

[[email protected]]

The biggest difference I saw between the two programs was the lack of any sort of accounting, financial statement analysis or bottoms-up, financial statement analysis derived valuation model on the FRM.

I feel there is a large degree of conceptual overlap between the programs on the quant, portfolio management, fixed income and derivatives side of the fence.

FRM does have some more items on the credit / operational risk management side of the fence but they're not that far apart -- both programs mention that German bank that folded in the 1970's between the day it received cash from its foreign counterparty and the day it was supposed to remit to the same foreign counterparty leaving the foreign counterparty SOL.

The difficulty of the level I FRM exam depends on who you are:
-for the quant minded, recently minted CFA charterholder, it's more math, but not that tough
-for less recently minted and / or less quant minded CFA charterholders, it's a tough exam
-for folks that have not yet successfully passed level III of the CFA exam, it's going to be very tough!

The level II FRM exam should not be particularly difficult for anyone that has passes level I and made a good faith effort to do some studying.

I agree with most of the points mentioned in earlier posts. On level I, the calculations are heavy and you need to know what you're doing from a conceptual perspective if you're going to quickly arrange the numbers given in the problem into the correct sequence of calculator key-strokes. That said, for those with strong conceptual mastery of the concepts in the CFA program, particularly level III, things are not so bad.

For example, both programs deal with the concept of the (FRM terminology) minimum variance hedge. In the CFA program questions, the test-taker is provided with the 'futures beta' while in the FRM program, the test taker is provided with either the correlation between the futures contract price and the price of the underlying as well as the standard deviation of both the futures contract and the underlying. If you remember the relationships between variance, covariance, standard deviation, correlation and beta, you can quickly derive the futures beta and be off the races.

For another example, both programs deal with (FRM terminology) cost of carry model as it applies to both futures contracts and through the replicating portfolio concept, options contracts. If you understand how dividend yield, storage costs, interest rates and etc. impact the no arbitrage current price of a futures contract then you should be able to quickly apply the same concepts to pricing an options contract or commenting on how the factors will impact the price of the options contract.

I passed both parts of the FRM on my first try. I cannot say the same for the CFA exams.

 

[JuanQuitero]

I have both the FRM and CFA and I agree with most of the comments above. However, in my experience, the CFA II was probably the most difficult one of all and CFA III the easiest. Both FRM exams and the CFA I are somewhere in the middle, with FRMs having a narrower focus.

 

[bkay]

I would like to thank everyone who posted responses to my question. Your responses were very helpful.

Bryan

 

[je77rey]

Late to the party on this string but thought I could offer an updated review for anyone interested...

I just passed level 2 of the FRM and completed level 3 of the CFA in 2016.

Generally, the perspectives offered above are still spot on and highly relevant. FRM level 1 is as challenging as level 2 or 3 of the CFA program. Level 2 of the FRM curriculum isn't quite as hard, but still no walk in the park.

The FRM is more demanding on quant/math skills while the CFA curriculum places more emphasis on being well rounded in a variety of fields (accounting, valuation, derivatives, etc.). They both have a healthy overlap in derivatives.

As others also mentioned, the support infrastructure (i.e. test prep providers) available for the CFA program is MUCH more established. Compared to the CFA, the FRM is still in its infancy and the available support reflects that difference. I literally could not imagine using the GARP issued books as my sole source to prepare for the FRM exams (the GARP books are really kind of a collection of academic articles and pieces of textbooks). Part of what makes the FRM so challenging is the lack of infrastructure and support available; BionicTurtle is invaluable in this regard. I would go so far as to say David's lectures and accompanying practice problems are critical ingredients to a passing score.

 

[berrymucho]

Late to the party on this string but thought I could offer an updated review for anyone interested...

I just passed level 2 of the FRM and completed level 3 of the CFA in 2016.

Generally, the perspectives offered above are still spot on and highly relevant. FRM level 1 is as challenging as level 2 or 3 of the CFA program. Level 2 of the FRM curriculum isn't quite as hard, but still no walk in the park.

The FRM is more demanding on quant/math skills while the CFA curriculum places more emphasis on being well rounded in a variety of fields (accounting, valuation, derivatives, etc.). They both have a healthy overlap in derivatives.

As others also mentioned, the support infrastructure (i.e. test prep providers) available for the CFA program is MUCH more established. Compared to the CFA, the FRM is still in its infancy and the available support reflects that difference. I literally could not imagine using the GARP issued books as my sole source to prepare for the FRM exams (the GARP books are really kind of a collection of academic articles and pieces of textbooks). Part of what makes the FRM so challenging is the lack of infrastructure and support available; BionicTurtle is invaluable in this regard. I would go so far as to say David's lectures and accompanying practice problems are critical ingredients to a passing score.

Thanks for the update on this question. As to the level of infrastructure/development of the FRM program — in particular the books being a collection of textbook chapters and articles — I like to think of it as part of "what it takes" (the mystique) to get the FRM certification. It certainly makes figuring out what-will-be-tested-and-how difficult but so are real-life risk management issues. Figuring out a structure out of piecemeal information and balancing your effort in your decision making process to achieve success is actually a transferable and valuable skill... It might or might not be a deliberate decision by GARP to not give the program more structure. That said, it was not easy but the feeling is quite rewarding. And fortunately, as you said, there're great preparers out there such as BT to fill this gap!

 

[davidhn]

1.) I found the FRM Part 1 to be MUCH more difficult than any of the CFA exams, while the Part 2 was considerably easier than any of the CFA exams.

2.) FRM is more narrow and goes deeper into detail, also the calculations are more complex.

Reading this (and MANY other similar posts) makes me feel extremely weird;

I passed CFA 1 then FRM 1 then FRM 2, and found FRM 2 to be orders of magnitude harder than any of the other two, especially FRM 1 which felt by far the easiest and most straightforward, but the consensus seems to be the complete opposite. Maybe because I'm quant minded and/or my degree had a strong quant focus, whereas accounting and qualitative stuff give me headaches (the long reads on Op Risk, for example; took me AGES to start remembering anything, and even then they felt very vague and dry)

I must have put only about 30-50 hours in FRM 1 but wouldn't be surprised if I well exceeded 300 for FRM 2.

Next stop: CFA 2, which I feel is going to be particularly painful

 

[Damil4real]

Reading this (and MANY other similar posts) makes me feel extremely weird;

I passed CFA 1 then FRM 1 then FRM 2, and found FRM 2 to be orders of magnitude harder than any of the other two, especially FRM 1 which felt by far the easiest and most straightforward, but the consensus seems to be the complete opposite. Maybe because I'm quant minded and/or my degree had a strong quant focus, whereas accounting and qualitative stuff give me headaches (the long reads on Op Risk, for example; took me AGES to start remembering anything, and even then they felt very vague and dry)

I must have put only about 30-50 hours in FRM 1 but wouldn't be surprised if I well exceeded 300 for FRM 2.

Next stop: CFA 2, which I feel is going to be particularly painful

Good luck on CFA L2. L2 is not as difficult as a lot of people think. Give yourself enough time to prepare and you'll be fine.

 

[nikic]

Any new responses to this? I am wondering myself, how does FRM compare to the CFA in more recent times (past 3 yrs for example).

 

[emilioalzamora1]

Nothing changed really over the years: the CFA teaches you basically everything you need to know about how to generate return" (from accoutning, equities, portfolio management) while the FRM is purely focused on "risk". As we all know that both ingredients (return & risk) are essentiel one should consider taking both exams. Even though I have to say that the shine of the CFA has come off a litlle bit over the years because so many people have taken it. The content they teach you is still great but if you wanna set yourself apart then I would not necessarily recommend it as of now. I would consider something more of niche exams like the CQF or a dedicated Master's degree in the field of Analytics/Big Data etc

 

[Skewed]

Havn't read the thread in detail, but imo it really depends in which field you graduated. Are you a Masters in Engg. ? did you do study social sciences or liberal arts ?

 

[imaduddin]

Hi Every one,

I don't know whether its right place to ask or not......Which certification is better with CMA, FRM or CFA

I have some confusion about pursuing FRM, either its suit with my earlier qualification and job role or FRM team will accept my current job role as experience.

I am CMA qualified and currently working in Financial Planning & Budgeting department in Dubai, U.A.E.

guys please be requested to help me out.

 

[Nicole Seaman]

Hi Every one,

I don't know whether its right place to ask or not......Which certification is better with CMA, FRM or CFA

I have some confusion about pursuing FRM, either its suit with my earlier qualification and job role or FRM team will accept my current job role as experience.

I am CMA qualified and currently working in Financial Planning & Budgeting department in Dubai, U.A.E.

guys please be requested to help me out.

Hello @imaduddin

I moved your question here, where I think that you will receive a better answer, as there has been a lot of discussion regarding the FRM vs other certifications.

Thank you

Nicole