2009 FRM - New Format

[ssu039]

Hi All,

GARP has just announced a new format to the FRM Exam begining Novemeber 2009.

As per the letter issued to its members - FRM Exam will be tested in 2 Levels - Level 1 and Level 2. Beginning in 2010, the FRM Exam Level I and FRM Exam Level II will be offered simultaneously each May and November, respectively.

November 21, 2009 will be the last time that you can sit for the Full FRM Examination.

David - We would like to know your views on the same as to

1. what are the Advantages and Disadvantages to sit Full FRM Exam in November 2009 as opposed to FRM Level 1 and Level 2 exams beginning November 2010 (Please Note: I didnt clear 2008 exam and would be attempting 2009)

2. Outlook on the new Handbook to be released in April 2009 considering the fact that the Interactive CD this time round will contain questions from 2005 - 2007 FRM Exams. Is FRM exam going transparent - considering all the Issues in 2008 exam

3. Market Perception - I mean - would an employer be keen to recruit a candidate who has passed FRM exam in New Format or would still holistically view them on par with those attempting Full FRM exams (considering that the new exam will test candidates on 2 new topics Risk Modelling and Current Issues in Financial Markets)

4. FRM vs PRM - With new additional exam topics and 2 level exam format, Do u think GARP has pulled its socks to a new competency benchmark for its candidates?

Very keen to have your expert views on the same as usual.

Thanks and Regards,

Shyam

 

[chanakya]

Hi,

Let me make it clear about the FRM exam on Nov 09 here:

On November 21, 2009, the entire FRM exam (FRM Exam Full) and Level I of the newly designed FRM exam (FRM Exam Level I) will be offered at the same time. This will be the last opportunity for candidates to take the entire FRM Exam in one sitting. Beginning in 2010, the FRM Exam Level I and FRM Exam Level II will be offered simultaneously each May and November, respectively.

Thanks.

 

[David Harper CFA FRM]

Hi Shyam,

Great questions.

First, I have little specific knowledge beyond the announcement. All the course providers, including us, attended a conference call with GARP just yesterday where we were able to ask questions, etc. However (of course this is all "just my opinion"), I feel some aspects can only be demonstrated over time as this is a totally new format for GARP. In some respects, we can only know more after the first exam round.

With that caveat,

1a. The particular advantage, that springs to mind, of taking two rounds, is for the candidate: it will force the candidate to start early in order to pass the first round. The #1 determinant in passing, I think , is "do you start regular study early enough?" If you take two rounds, you cannot defer (procrastinate) until Aug/Sept to really engage. I do also think that the FRM (or any professional risk curriculum) does tend to naturally segment into: (a) a generally more static foundational set of competencies (e.g., econometrics foundation) plus (b) a dynamic curriculum that refreshes with the times (e.g., the learning from the credit crunch will provide dynamic expert material for years, operational risk is updating rapidly). So, I totally agree with GARP's judgment that there is a cause for, in their words, a "core area" (Level I) and a set of "specifics" (Level II)

1b. The disadvantage (and GARP well knows my view here, so this is not a new criticism that i haven't shared with them), relates to a challenge for GARP. Specifically, the 2008 exam sequence (assignments, learning outcomes, sample questions, and probably, test questions) was not sufficiently "in alignment;" e.g., the AIMs were imperfectly calibrated against assignments, the practice questions were too often irrelevant or incorrect. My challenge to GARP, I feel it is essential, is to make the test as fair as possible against the assignments; in fairness, it is an ideal, it cannot be perfectly realized due to the dynamic nature of a practice-oriented cirriculum. I have labeled this problem "exam tracking error" such that I think GARP needs to balance the virtue of dynamic risk cirriculum with the importance of minmizing exam tracking error. So, the disadvantage is, a higher frequency puts greater stress on minimizing tracking error (this may only be a level II issue).

2. About the new handbook, I have no basis for an opinion. As I've said before, if Jorion is the author (and that is my understanding), I think it will be great because he is so good (and so precise). The problem with the current handbook, as everyone seems to know, is too many lame/incorrect questions. I hope vet the questions better....

3. I don't know, my *guess* is that it will have no dramatic impact on a perception which was/is already on the rise. Even before the format change, the reputation and awareness was, IMO, clearly rising so I think the format change is overwhelmed by a general increase in reputation, mostly fueled by the market's need for risk education (and for reasons that are not clear to me, GARP seems to be seizing on this market opportunity better than PRMIA).

4. I'm keenly interested in the question of FRM vs. PRM but, you know, everybody has a different opinion. Currently, FRM is trouncing PRM on numbers (which shouldn't be the case, they have Carol Alexander, the best in the whole business, and a noble non profit mission so it's not clear to me why, based on numbers I've seen, that FRM has more market share). Importantly, I am told PRM has announcements coming. So, FRM vs. PRM, I don't know. In regard to FRM, I think an interesting comparison is CFA, which is a more mature exam, etc (it basically has little of the "tracking error" problem I cited above). I think GARP leadership does look at CFA as a sort of role model, but I think they have a ways to go.

Let me know what you think, I hope that's helpful...

David

 

[peter333]

Hi david:

I think its a positive development. But it would be really difficult to estimate what will be the level of difficulty at first and second level. Because nvevertheless all topics of level II are also similar to level I. For example, What would they cover in Risk Modelling which will not be a part of credit, market or operational risk and is not in quantitative method section. Secondly, what I saw in examination was a practical approach i.e. apply methods on real life issues so current issues in financial markets can come up in level I as well. If they really create distinction like CFA exam levels then it would be really a great development.

But it will definitely improve the pattern and standards, anyway.

best regards,

peter

 

[arnemartin]

Hi David,

How will this format change affect Bionic Turtle? Will your focus still be the "big one" and will you provide anything for the new Level 1 exam?

Personally I think this is a good development because it is easier when you have shorter term goals. It is hard to start studying in March for something in the end of November. Breaking it down may make it easier in terms of continuous effort. On the other hand, it's also nice to have one exam and then you're done with it.

I will definitively go for the "all-in-one".


Cheers,
Arne

 

[David Harper CFA FRM]

Peter,

That's a great point, it will be interesting to see how they define the separation when there is of course no clear line. I think the current PRM may give a hint where Levels I & II tend to be stable (theory and tools) while III and IV tend to be about applications/practices

Re: "what I saw in examination was a practical approach i.e. apply methods on real life issues" I think that is very interesting comment. It's my mere perception that more experienced candidates have this assessment, and it's obviously a virtue of the exam. But, at the same time, i think there may be something of a *natural* tension between a "practical approach" and standardization. An example comes to mind: take copulas. I *think* a standardized approach would emphasize the "how to" and the nuts and bolts, but the practical treatment of copulas surely must consider more timely treatment incl. the backlash (limitations/weakness/alternatives, etc). I am influenced on this point as BT customers have included many non-US-based candidates (most of my customers are international by a wide margin, English is often not primary language). So my personal view is that a candidate with "only" two years of experience should be the baseline for what constitutes a "fair test" (i.e., the test shouldn't bias against somebody without deep practical experience).

I suppose it is an a priori and open Principle that informs the exam: does the exam try to give any/some/much benefit to actual experience or is the exam largely/only meant to test study of the assigned material?

I feel that, after a certain point, standardization shouldn't be sacrificed for practicality (or even necessarily for timeliness).

Arne,

How will this format change affect Bionic Turtle? Thanks for asking. I am not totally sure yet, still processing and I want to see the Study Guide, i think it will be revealing. My first hunch is that I + II is similar to the current "big one" so generally it is a logistical issue for us (e.g., breaking it up, the timing of the schedule). For 2009, my current plan is to focus on the big one; I will assess what a Level I offering (for November 2009) looks like as soon as i see the Study Guide. If i think the Level I option can be offered incrementally (without undue stress on my resources), I'll do that...

Re: better development due to short term goals, good to hear, that's what i was thinking too...

David

 

[ravishankar80]

Hi,

When i see some candidates ask about "Market Perception" - would an employer be keen to recruit a candidate who has passed FRM exam in New Format or would still holistically view them on par with those attempting Full FRM exams , I am really keen to know David's opinion considering his vast experience in the field of Finance.
I passed FRM 2008 , but I really wonder whether these certifications help in terms of "getting a job" or "making a switch into risk management" unless one has experience in Risk Management. The way I look at these certifications , they enhance your knowledge and credentials but are only useful if one is already working in the Risk Management Field. Even if one has experience in Banking and Financial services the risk practioners do not take you seriously just because you have a certification.So do these change in formats etc really help a candidate in Practical terms or is it a case of getting one more certification which helps you enhance you knowledge of risk management and nothing more than that

Regards
Ravi

 

[David Harper CFA FRM]

Hi Ravi,

I basically agree with you: I don't know of any certification that can "get you a job." At best, if you think about the CFA or some MBA programs, a certification can signal a baseline/threshold competency and/or enhances a candidate's overall portrait. If the FRM continues to grow in perception, then it "succeeds" I think if it becomes a criteria in job descriptions (like the CFA for some jobs; "FRM preferred" or "FRM required") and then it is, at best, necessary but not sufficient, or for the moment, preferred but not sufficient. But it also can signal "affinity" so I would hope it may give a little boost when somebody is trying to shift into risk.

I do think time is a dimension: perceptions change. When I started the BT offering, I rarely met people in FinServices who even heard of the FRM. Only a few years ago, it was sort of a specialty, but that's been changing. If GARP does their job, i think it has the potential to become a gold standard. But it's only a certification, after all. I agree with you that--although it may help your odds to "get in the door"--after that, I've *never* heard of a decision maker making a final selection based on a certification.

(Thanks for sticking around after you passed!)

David

 

[pobbionic]

If I may add: this is a recipe for massive exam tracking error (ETE).

Finish with the old system, and then start everyone on the same page with the new. Also don't shorten the time to correct ETE by shoe-horning a super-size-me exam galaxy into the November sitting. That's just asking for trouble. And trouble these days means a big dent in brand credibility.

 

[johnschwitz]

I wish to reinforce some of the points that David is making and contribute my experience with the PRM.

1a. Thank you David for stimulating our interest in preparation for the FRM with your free previews. Notice that I did not say advanced preparation. I believe that without early and steady preparation people significantly diminish the probability of passing. I agree with David on the two constituents of a Risk Certification. 1) Basic Financial and Quantitative Foundation and 2) current market and risk topics which are rapidly evolving. The PRM addresses this mix through offering the candidate the opportunity to take four exams: Financial (1), Quantitative (2), Risk Management (3), Cases (4). Because of candidate difficulties with Quantitative they now offer an Associate PRM without quant. You can view this as Handbook (fundamental sections) and current topics. Level 1 looks to me like a PRM (1,2) and the basics of Risk(3). The PRM delivers Risk (3) in a Handbook developed in 1994 and Cases on their site (but not updated). The Risk Handbook is dated and somewhat superficial. It appears that FRM is addressing this through the Level 2 curriculum. I expect a new Handbook from PRM next year. I must say that Bionic Turtle does an excellent job of getting people through the quantitative sections of the FRM.

I encourage candidates to use a resource like David's and be realistic about budgeting their time for success. From experience I believe the PRM requires 250 - 500 hours of study. I expect the FRM is similar.

 

[David Harper CFA FRM]

John,

Thanks for those insights. Regarding "I believe the PRM requires 250 - 500 hours of study. I expect the FRM is similar," that does really underscore the time required to prepare, and your range is consisistent with GARP's feedback (they say along the lines of 300 to 400 but i do think the truth is more disperse like your range).

GARP just sent us (training providers) a presentation for marketing purposes. I attached below as PDF. It is interesting that 2008 saw registrations jump +35% (!) to 13,682 (quite a bit larger than the annualized PRM number, to my knowledge).

On an extremely *superficial* level, I do note that the new FRM course, in terms of major bullet topics, includes the current five plus three new:

Level I : Foundations of Risk Management
•Quantitative Analysis
•Financial Markets and Products
•Risk Modeling

Level II
•Market risk measurement and management
•Credit risk measurement and management
•Operational and integrated risk measurement and management
•Risk management and investment management
•Current issues in financial markets

The current five disciplines are: Quant, Market, Credit, Ops, Investment. So, the three "new bullets" are:

•Financial Markets and Products
•Risk Modeling
•Current issues in financial markets

I have to say, I really like the new three formal areas; it's good to see products formalized (as historically we tended to *assume* knowledge of the products!). I like risk modeling pulled out specifically, that's core and topical.

David

 

[ssu039]

Hi David,

To continue with where u left in the previous post, its good that GARP has introduced RISK MODELLING as a separate section as well.

But honestly I feel, theoretically testing the Risk Models is of no use. Most in India dont even have exposure to Bloomberg and Reuters, forget working on Risk Models. GARP should tie up with Statistic Modelling Software firms like SAS, SPSS and offer some kind of joint programs with them - In this way atleast FRM passed candidates would get a hands on some Statistics Software.

I feel this move would greatly benefit candidates especially in Emerging Markets like India where positions for RIsk Management, Quant and Trading profiles generally get filled up with those pursuing MBA from IIMs and/or Engineering Degrees from IITs. This move would also open up opportunities in Statistics and Actuaries domain, alongwith Risk Management.

Whats ur view on this - many people in India pass the FRM exam, but dont get placed on a Risk Management job. If they do then its after a lot of search.

Can you provide us some tips on career Management after FRM. And David its time to diversify Bionic Turtle by posting RIsk Management Opportunities too. I am sure you will be able to attract the Right Employers in Risk Management and offer double Bounty for all BT users

Fingers crossed for FRM 2009 Study Guide and the next move from PRM

Cheers,

Shyam