FRM vs CAIA | which is the better option?

Estimated reading time: 10 minutes


Which Should You Choose?

Careers in the world of finance will thrive on professional certifications. Programs such as FRM, CFA, PRM, CAIA, among others, have immensely grown in popularity. 

They bridge the knowledge gap between what is offered in schools and what the industry needs. They also serve as a stepping stone for those considering a midlife career switch into finance.

Read on to find out our take on the FRM vs CAIA debate. 


Course Providers

GARP, the Global Association of Risk Professionals, provides the Financial Risk Manager program.

Over the years, they have earned a solid reputation as a dependable certification exam provider. Over the past 5 years, GARP has become a widely sought after institution.

  • GARP also actively participates and organizes yearly training and industry dialogue that bring all players around one table to discuss the various facets of risk.
  • Established in 1996, it is the pioneer professional body in financial management studies.
  • GARP has more than 150,000 members across the world and continues to grow at a steady pace.

On the other hand, the Chartered Alternative Investment Analyst program provides the Chartered Alternative Investment Analyst certification program.

  • Formed in 2002, the CAIA program is the birth child of the Center for International Securities and Derivatives Markets (CISDM) and Alternative Investment Management Association (AIMA).
  • The CAIA association is a not-for-profit and independent body that focuses on educational advancement and the furtherance of excellence in the profession.
  • At the time of writing this, there are over 10,000 CAIA members worldwide.


Program Details

The risk manager qualification has a global recognition and is accepted as the gold standard in the field of financial risk management. 

The program consists of 2 levels and explores a vast range of topics relevant to the understanding and management of risk. 

Alternatively, the Chartered Alternative Investment Analyst program is one that focuses on alternative investment studies. The charter also entails a two-part exam process. 

The CAIA certificate is also a globally recognized course for high academic achievement in alternative investment studies.


Certification Significance

GARP has carved its position as one of the most desirable professional course providers in the field of financial risk management.

The entire course can be completed within a year and is quickly gaining popularity, even among holders of MBA and CFA titles.

This accreditation has the potential to boost your earning power and improve your overall performance at work, among many other perks. On the other hand, CAIA has great significance, but in the field of alternative investment education.

The CAIA program equips candidates with cutting edge skills that can place them ahead in the competitive job market.

The certification has the same prestigious esteem as the Financial Risk Manager course, and it opens you up to opportunities for higher earnings, networking, and promotions.


Entry Requirements

There are no eligibility requirements for entry into the FRM program. Even an undergraduate can sit for the examinations while still being in college. 

Nevertheless, you will be required to pass part 1 before you proceed to part 2, or even before the second is marked (assuming you took both on the same day).

To qualify for the risk manager accreditation, the following must be met:

  • You should have passed both parts 1 and 2
  • You have demonstrated the requisite work experience
  • An active membership with GARP has ensued

For the work experience criteria, you will need to demonstrate at least two years of relevant work involvement in the field of financial risk management. 

The experience could come from areas such as academia, portfolio management, risk consulting, and industry research, among others. 

As for the CAIA certification, enrollment requires candidates to have at least a bachelor’s degree with a full year of work experience in the industry in areas such as banking and finance.

Alternatively, if you don’t have a bachelor’s degree, you can still qualify to sit for the CAIA exam if you demonstrate four years of full-time professional experience in the finance industry.

To receive the CAIA certification, one must:

  • Pass both level 1 and level 2 of the CAIA examination
  • Demonstrate the aforementioned work experience
  • Have an active membership with the CAIA Association


Course Curriculum

The FRM program has a two-tier curriculum with part 1 focusing on the basics of financial risk management and part 2 delving in to explore the types of financial risk and methods of measurement and management.

  • Part 1 topics include: Foundations of Risk Management, Quantitative Analysis, Financial Markets, and Valuation& Models
  • Part 2 topics include: Market/Credit Risk Measurement, Operational Risk & Resiliency, Risk & Investment Management and Current Issues in Financial Markets

On the other hand, the CAIA level 1 curriculum leans towards the analysis of alternative investments. It introduces candidates to fundamental concepts of quantitative analysis and finance.

Level 2 delves into the practicality of alternative investments.

  • CAIA Part 1 topics include: Professional Standards and Ethics, Structured Products, Introduction to Alternative Investments, Real Assets, Private Equities, Risk Management, and Portfolio Management
  • Whilst, CAIA Part 2 topics include: Commodities, Futures, Private Equity, Hedge Funds, Structured Products, Asset Allocation and Portfolio Management, Regulation and Due Diligence


Exam Fees

GARP’s program enrollment costs US$400. After that, you will have to pay individual exam fees rated at US$350 for each level. This exam registration fee varies with the time you register.

The US$350 is for early registration, but late registration can cost you as high as US$650.

Enrollment into CAIA is also US$400. After this, you will be required to pay individual exam fees, each of which is US$1,250. 

For certification, you will be required to pay annual membership fees to the association, costing US$350 at the time of this writing.


Exam Format

The FRM exams entail only multiple-choice questions.

  • Level 1 has 100 questions, while level 2 has 80 questions.
  • Level 1 is typically held in a morning session, while level 2 falls into an afternoon session on exam day.
  • As previously stated, all candidates can sit for both exams on the same day, if they wish.

When it comes to CAIA:

  • Level 1 consists of 200 multiple-choice questions.
  • Level 2 has 100 questions with multiple-choice questions and three sets of essay questions.

This later level builds purely on the knowledge acquired in level 1 of the course.


Study Hours

It typically takes around 350 hours to prepare for each of the risk manager examination levels.

There is usually a broad range of materials to go through, from the course textbooks provided by GARP to third party materials like practice questions and mock exams.

After registration, GARP will avail to you the course syllabus and study guide to help in your groundwork. We also have our own free downloadable guides to aid you in your preparations.

The CAIA exams take approximately 200 hours of preparation time for the ‘average’ student. Just like the risk manager program, the CAIA program involves self-directed learning (that is, no ‘official’ classroom training).

Upon registration, the CAIA Association will advise you on the required readings and furnish you with an official curriculum plus a list of third party providers you can turn to for assistance.


Pass Rates

The FRM program is considered a performance-based course. This, even though it takes a practical approach in equipping candidates with knowledge and skills in financial risk management. 

That means that you need to ‘show up’ in all your exams to qualify for the certification. The pass rate for both of the exams is typically low, hovering between 40% and 50% each year.

Nevertheless, the scoring rate is adjusted each year depending on the overall performance of all candidates.

You will have several chances to retake the exam(s) if you don’t pass on your first attempt. Similarly, the CAIA program is also considered a challenging experience. 

However, the pass rate is normally around 65% for both CAIA level 1 and level 2 exams. You can retake the exam at a discounted cost if you don’t pass on your first attempt.


Exam Difficulty

The Financial Risk Manager challenge is relatively harder than many other certifications in finance, CAIA included. The pass rate of this exam is historically low, hovering in the 40th percentile.

It takes a lot of preparation and going through many study materials to be ready for the risk manager examinations.

Even after that, the exam questions don’t come straight from the textbook concepts. They are convoluted to test your ability to apply knowledge to real-life scenarios in the financial world. 

The test also involves complex calculations that require your best analytical mind.

In stark contrast, the CAIA examination has higher pass rates, each normally around 65%. After thorough preparation, candidates often find the CAIA exams to be more straightforward.


Exam Preparation Techniques

Both of these examinations need proper preparation. They are not tests you can pass with last minute cramming. The FRM exams more so, require plenty of time dedicated to going through the GARP-provided textbooks. 

After that, you will need to go through many practice questions to boost your exam readiness. The CAIA exams also need you to have an in-depth knowledge of the concepts in alternative investments.

The tests will require you to apply your skills to investment analysis, and therefore, adequate preparation is vital.


Top Employers

Risk experts mostly find work with financial institutions such as:

  • Banks
  • Pension funds
  • Investment management firms
  • Insurance companies and
  • Management consultancies, among others.

Top employers include KPMG, HSBC, Deutsche Bank, Ernst, & Young, and many others. It’s important to note that there is an overlap here; both these professionals share the same employers.

However, these are not competing jobs; they fall under different departments. The top employers for CAIA professionals include Credit Suisse, HSBC, JP Morgan, Deutsche Bank, and China Investment Corp., among others.


Job Responsibilities

As a certified FRM professional, your job will involve steering the company’s vision. You might find yourself on the first point of contact, where you are involved in evaluation, management, and setting up of mitigation measures.

You can also be in top management positions, where you are involved in designing risk management strategies and advising the board on matters when it comes to short and long term goals.

Risk practitioners face a considerable amount of pressure. You always have to be aware of market events and news, regulation changes, and what is happening within your company. 

It will fall upon you to compile reports, brief the top management, and conduct regular training to create a culture of risk awareness in the company.

By contrast, CAIA charter holders mainly analyze investment data and risks; they conduct peer bench-marking, performance attribution, and other investment operation tasks.

As a CAIA charter holder, you will be responsible for advising the company, or its clients, on investment products and planning.

The work environment for a CAIA professional is similarly fast-paced. You will meet with clients regularly, create financial documents, analyze investment options, make projections, and monitor market and economic happenings.


Job Titles

The Risk Management certificate holders can fit in many roles in the field of finance, including roles such as:

  • Regulatory Analyst
  • Risk Qualification Manager
  • Corporate Risk Director
  • Financial Risk Consultant
  • Credit Specialist
  • Operational Risk Analyst

After the CAIA certification, several job positions will fit your qualification in the industry; these include:

  • Investment Consultant
  • Portfolio Manager
  • Investment Adviser
  • Investment Analyst


Salary Scales

Undoubtedly, both of these certifications will increase your earning potential. The FRM salary scale ranges between $80,000 and $180,000 in the US. The relative CAIA equipped salary scale falls between $45,000 and $100,000 in the US.

In both cases, the actual amount you take home is contingent on your city of work, job title, and years of experience.


Our Final Thoughts

In the FRM vs CAIA debate, both programs are prestigious certifications in the global financial industry. Whereas the former focuses on risk management, the latter skews towards investment and portfolio management.

Both of these professionals will hold managerial and executive-level job positions, but the FRM equipped individual typically has a higher earning potential. Your choice between the two should be informed by the direction you wish your career to take.

Thanks for stopping by and reading and feel free to look at our other articles. And, don’t forget to download our free prep materials!


You can do it. One day at a time, 

The QuestionBank Family