Risk Management Career Overview: Within the financial services industry, risk management involves assessing and quantifying business risks, then taking measures to control or reduce them. Risk management often is part of the compliance function, but also may be part of specific business units, such as securities trading desks or loan origination departments.
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Education: To work in risk management, a bachelor's degree is the bare minimum, and often an MBA also is required. Strong quantitative skills are a must, and thus a background in management science and in the development or use of predictive models can be very helpful.
Certification: There are several formal risk management certifications. They are required by a growing number of employers, and may help start or advance a career in the field with other firms, but a majority of companies do not yet demand them. In any case, experience in law, accounting, compliance, insurance and/or operational areas of the financial services industry are important credentials. For example, risk managers who oversee securities trading should have intimate knowledge of trading practices and procedures, knowledge that is best gained from prior experience as a trader or as a trading desk assistant.
Duties and Responsibilities: Risk management is concerned with identifying and measuring the risks faced by the firm. Risk managers either may be generalists who cover several different areas, or specialists who concentrate on a single one. Within the financial services industry, the major categories of risk include, but are not limited to:
- Defaults on loans extended by the firm
- Losses on securities inventories held by traders
- Losses on investment securities held for the firm’s own account
- Counter party risk (another financial firm failing in its obligations to yours)
Risk management personnel develop, implement and enforce rules and procedures designed to mitigate these risks. For example, the value of inventory held by a securities trader might be strictly limited.
Risk management personnel also employ various financial instruments and contracts to control risks, such as:
Data breaches and identity theft are growing problems in all industries, not just financial services. The potential exposures, from both monetary and reputational perspectives, are increasing exponentially. Accordingly, the best risk management departments and risk management professionals take active roles in setting policy regarding data security, in close partnership with their respective firms' information technology groups.
Typical Schedule: The time commitment is highly variable, dependent on the firm and the position. Since risk management is a vital function, risk managers can expect to put in workweeks that far exceed 40 hours. Moreover, during periods of high market turbulence and financial uncertainty, risk management personnel may be constantly on call.
What's to Like: Risk management is a crucial function, and thus has a great deal of intrinsic job satisfaction. Additionally, positions in this field are well-paid and well-respected. The work can be fast-paced and stimulating.
What's Not to Like: The flipside of working in such a critical field is that the demands of the job can become overwhelming in turbulent periods for the industry or the firm, when weighty decisions may have to be made on a moment's notice. Also, the "policeman" aspect of risk management can create an unpleasant adversarial relationship with some categories of producers, especially securities traders. Moreover, the psychology of power is such that influential people in the firm, such as members of executive management, are likely to resist playing by the rules.
Salary Range: The Bureau of Labor Statistics combines risk managers with other categories of financial managers. As of May 2010, the median annual salary for all financial managers was $103,910 and the top 10% earned over $166,400 (the latter figure having increased by $34,400 or 26% since 2006). Within the financial services industry, however, the salaries for risk managers often far exceed these figures.
Other Related Categories: You may want to browse our extensive library of articles on these other aspects of financial careers:
- Financial Career and Job Profiles
- Leading Employers in Finance
- Education, Training and Certifications for Financial Careers
- How to Manage Your Career
- Pay for Financial Jobs
For More Information on Risk Management: Follow the links below for more detail on jobs related to or interacting with risk management, in addition to especially useful background knowledge.