CAIA vs. FRM: Everything You Need to Know

In the finance world, two common designations are CAIA^® and FRM^®. If you’re thinking about becoming a financial analyst or working with investments, these are two designations that could advance your career. So, what’s the difference and which is right for you? Let’s take a look at CAIA versus FRM.

What Do CAIA and FRM Mean?

CAIA is an acronym for Chartered Alternative Investment Analyst^SM. The CAIA Charter designation, offered by the CAIA Association, is recognized globally as the benchmark for analysis, application, and standards of practice in the alternative investments arena.

Alternative investments include real assets (e.g., real estate, infrastructure, natural resources, commodities, intangible assets), hedge funds, private equity, and structured products (e.g., collateralized debt obligations, credit derivatives).

In other words, alternative investments are not stocks, bonds, and cash.

FRM stands for Financial Risk Manager. Offered by the Global Association of Risk Professionals (GARP), FRM certification sets you apart in the global marketplace and gives you a strong understanding of the underlying risk management concepts in today’s ever-changing financial markets.

It also lets employers know that you take risk management seriously and that your knowledge has been validated by international professional standards.

Similarities Between CAIA and FRM

Both designate professionals who are knowledgeable in finance and capable of analysis. For each, you must pass two sets of exams (CAIA Level I and Level II; FRM Part I and Part II). You can’t move to the next level or part until you pass the first.

In addition, their exam topics intersect slightly. A topic of the CAIA exam is risk and risk management, and the FRM Exam has questions about hedge funds.

The exams for each require a great deal of study, practice, and commitment to learning and analysis.

Note: It is possible to hold both a CAIA Charter and an FRM certification.

Differences Between CAIA and FRM

The focus of the CAIA Charter is on the world of real assets, hedge funds, private equity, CDOs, credit derivatives, and other structured products. That’s different from the FRM designation, which is related to managing exposure to operational, credit, market, foreign exchange, volatility, liquidity, inflation, business, legal, reputational, and sector risk.

Another difference is the exam format. Level I of the CAIA exam is multiple-choice, but a portion of Level II has constructed response. FRM Part I and Part II are both multiple-choice.

Are you thinking about earning the CAIA charter? Read this ebook before you sit for the exam.

CAIA and FRM Requirements

To earn your CAIA Charter, you need to:

• Take and pass the CAIA Exams. There are no degree or work requirements for taking the exams.

• Earn or finish earning a bachelor’s degree or equivalent and have at least 1 year of professional experience or complete a minimum of 4 years of professional experience without a degree.

• Join CAIA Association (which costs $400 and requires you to abide by their terms and conditions).

• Submit two professional references to CAIA Association.

Considering a career as a Chartered Alternative Investment Analyst? Download the free Before You Decide to Sit for the CAIA® Exam eBook.

To earn your FRM certification, you need to:

• Take and pass the FRM Exams. There are no degree or work requirements for taking the exams.

• Work full-time in a financial risk role for 2 years.

• Demonstrate your experience to GARP by describing your professional role in financial risk management and submitting it to GARP within 5 years of passing Part II.

Exam Topics, Formats, Fees, and Pass Rates

In a discussion about CAIA versus FRM, people are most likely to be concerned about the exams. Here’s what you need to know.

CAIA Level I Topics:

• Professional Standards and Ethics

• Introduction to Alternative Investment

• Real Assets

• Private Equity

• Private Debt

• Hedge Funds

• Digital Assets

• Funds of Funds

CAIA Level II Topics:

• Emerging Topics

• Universal Investment Considerations

• Models

• Institutional Asset Owners and Investment Policie

• Risk and Risk Management

• Methods for Alternative Investments

• Accessing Alternative Investments

• Due Diligence and Selecting Managers

• Volatility and Complex Strategies

Both levels of the CAIA exam are given in March and September. Level I is multiple-choice. Level II has a multiple-choice portion and a constructed response portion. There is a one-time enrollment fee of $400. The fee for each level ranges from $995 to $1,395 based on the exam and when you register. If you want to retake the exam, the fee is $795.

The all time average CAIA exam pass rate for Level I is estimated to be about 60%. However, only 40% of candidates who begin the program actually earn the charter. You can greatly improve your odds of success by learning from other candidates’ experiences and avoiding common study mistakes.

FRM Exam Topics

• Foundations of risk management

• Quantitative analysis

• Financial markets and products

• Valuation and risk models

• Market risk measurement and management

• Credit risk measurement and management

• Operational risk and resiliency

• Liquidity and treasury risk measurement and management

• Risk management and investment management

• Current issues in financial markets

Both Part I and Part II of the exam are offered in May and November. The cost ranges from $550 to $750 (USD) for Part I based on when you register. Not included in that cost is a $400 (USD) enrollment fee.

The fee for Part II ranges from $550 to $750 (USD). The pass rates for the May 2021 FRM Exam were 43% for Part I and 59% for Part II.

Preparing for the Exams

Another similarity between the two designations is that the exams are nearly impossible to pass if all you do is last-minute cramming. So, whether it’s the CAIA or FRM exam, you should start studying early.

To prepare for the CAIA Exams, CAIA Association recommends more than 250–300 hours of study for each level. The Level I exam tests your knowledge of alternative investment concepts and tools. Level II evaluates your ability to apply those tools to analysis and investment.

To pass both CAIA levels, exam technique is as important as understanding the curriculum concepts and topics. Therefore, it’s a good idea to enroll in classes, but you should also practice answering questions by taking mock exams.

To prepare for the FRM Exams, plan to study a minimum of 200–240 hours for each part. The basic strategies you should follow while learning the FRM curriculum include being aware of the big picture and knowing the main concepts.

Exam preparation for FRM Part I Classes and FRM Part II Classes are recommended, as is focused study. Take as many practice exams as you can. Save one for the last week before the exam.

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CAIA vs. FRM: How to Choose

Deciding which designation to pursue really depends on what you want to do as a financial analyst. If you’re more interested in specializing in unconventional investments, such as hedge funds or private equity, then the CAIA Charter is right for you.

Certified FRMs typically hold managerial and executive-level positions that concentrate on risk and investment risk. So, if you’re interested in specializing in analyzing risk as a credit risk manager, market risk manager, regulatory risk manager, or operational risk manager, then the FRM designation is a better fit.

Of course, you don’t have to choose at all. As we mentioned at the beginning of this article, you can hold both designations. Alternative investment analysts, by the nature of most of their investments, have to understand investment risk.

So, it makes sense for a CAIA Charterholder who wants to focus on risk management to become a Certified FRM^®. In addition, earning the FRM certification, and then the CAIA Charter, opens doors for risk managers who want to specialize in the risk aspects of portfolio management.

No matter which path you choose, there is a wealth of information out there that can help you earn the credential or credentials you need. You can get started here.