Financial risk analysts are commercially aware communicators who can spot the potential risks to a project or business
Financial risk analysts identify and analyse the areas of potential risk threatening the assets, earning capacity or success of organisations in the industrial, commercial or public sector. As a financial risk analyst, you'll be responsible for predicting change and future trends, as well as forecasting cost to the organisation.
There are high degrees of specialisation within the profession. Risk analysts may work in sales, origination, trading, marketing, financial services or private banking, specialising in:
Financial institutions are required to manage market and credit risks daily. Risk analysts are therefore increasingly tasked with responsibilities touching all four key areas.
An alternative but similar role to financial risk analyst is that of a credit analyst, in which the creditworthiness of a business is calculated and a probability of payment determined. Risk analysis is considered by many to be advanced credit analysis.
Types of financial risk analyst
A financial risk analyst's role is to formalise the process of risk management in an organisation. This involves business decision-making and enabling the process of risk taking.
- Credit risk specialists analyse the risk to the company of its customers not paying for goods or services or defaulting on loans.
- Market risk specialists analyse the risk of outside factors that may affect the share price or the market. They typically work closely with traders to calculate the risk associated with specific trading transactions.
- Operational risk analysts look at the likelihood of risky events, such as system breakdowns and employee fraud.
- Regulatory risk analysts look at the impact that new legislation may have on the company.
As a financial risk analyst, you'll typically need to:
- make recommendations to reduce or control risk, which may involve an insurance strategy
- work with traders to calculate the risk associated with specific transactions
- liaise with underwriters and insurers
- forecast and monitor market trends
- consider proposed business decisions
- conduct research to assess the severity of risk
- conduct statistical analysis to evaluate risk, using software such as SPSS and SAS/STAT
- review legal documents
- present ideas via reports and presentations, outline findings and make recommendations for improvements
- purchase insurance
- analyse a bank's market position and running figures through complex modelling techniques to find value at risk (VAR) measurements
- carry out quantitative analysis
- use financial packages and software, including portfolio management software
- study government legislation, which may affect a company, and advise on compliance
- protect the organisation's assets and public image
- develop contingency plans to deal with emergencies.
- Typical starting salaries for risk technicians are around £21,000 to £23,000.
- Salaries at risk analyst level, with up to six years' experience, are between £29,000 and £44,000.
- At management level (seven to ten years' experience), you can expect to earn in the region of £46,500 to £74,000.
Salary levels depend on the size and type of the organisation you work for.
Most organisations also offer benefits packages, including bonuses which can increase your overall income.
Income data from discoverrisk.co.uk. Figures are intended as a guide only.
Working hours typically include regular extra hours, although not weekends or shifts.
What to expect
- The work is mainly office based, although you may need to travel to visit other organisations.
- Jobs tend to be available in cities and large towns.
- Once you've got considerable experience, there are opportunities for self-employment or freelance work on a consultancy basis.
- The job involves working under pressure to meet deadlines.
- There may be opportunities to work overseas, particularly if you're employed by a large international company.
Although you don't need a degree to enter the profession, many financial risk analysts are graduates. The following subjects may increase your chances:
- risk management
Employers are increasingly looking for degrees in finance, mathematics or statistics. Specific degrees relating to financial risk management are available, including:
- BSc Finance, Investment and Risk - The London Institute of Banking & Finance
- BSc Investment and Financial Risk Management - CASS Business School, City, University of London
- BSc Risk Management - Glasgow Caledonian University
- BSc Actuarial Science and Risk Management - Queen's University, Belfast
- BSc International Security and Risk Management - University of South Wales.
Entry without a degree or HND may be possible, but larger employers tend to prefer graduates. Without a degree, you'll need experience in finance or insurance, along with professional qualifications.
A postgraduate qualification, such as an MSc in financial-related risk management or financial markets, can improve your employment prospects, particularly if your degree is in an unrelated subject.
You can also get into financial risk analysis through a graduate training programme run by many of the larger finance organisations. Specific risk management training is sometimes included in these programmes.
You'll need to show:
- strong numeracy, analytical and strategy skills
- good research skills
- planning and organisational skills and problem-solving ability
- IT competence and computer literacy
- negotiation skills
- written and oral communication skills
- the ability to explain complex issues and present technical information clearly
- commercial awareness
- the capacity to work independently and cope with pressure and responsibility
- a professional approach to work, integrity and respect for ethics
- the confidence to relate to a range of people and to challenge people when necessary.
Pre-entry experience in a finance or insurance setting is useful. Commercial experience will also be an advantage.
Risk is a growing area of employment with good career prospects. You can work for a range of organisations, predominantly in the private sector.
Opportunities exist in the risk management departments of:
- investment companies
- insurance companies
- banks and other financial institutions
- other medium to large-sized commercial and industrial organisations.
Competition for jobs is usually intense. Enhanced regulations and a more risk-conscious banking sector means organisations are investing more heavily in their risk functions, creating more jobs in this area.
Self-employment and freelance work is an option once you've gained considerable experience and built up your expertise.
Look for job vacancies at:
- The Association of Insurance and Risk Managers (AIRMIC)
- Institute of Risk Management (IRM)
- Insurance Jobs
- Risk Management Jobs
Some recruitment agencies specialise in finance and risk management posts, but you'll usually need experience.
Training is typically on the job and involves a mix of in-house and external courses.
Graduates on a risk graduate scheme will usually spend 12 to 18 months getting experience across the different risk functions before specialising in a particular area such as risk analysis. This provides you with an understanding of the whole range of risk functions.
Financial risk analysis is constantly evolving and you'll need to undertake continuing professional development (CPD) to keep up to date. Employers will often support you in taking relevant examinations leading to industry-recognised qualifications. These include:
- Global Association of Risk Professionals (GARP) - financial Risk Manager examinations leading to financial risk manager (FRM) certification
- CFA Institute - program leading to the chartered financial analyst (CFA) credential
- Institute of Risk Management (IRM) - the International Certificate in Financial Services Risk Management, and the International Certificate and Diploma in Enterprise Risk Management
- Chartered Insurance Institute (CII) - a range of insurance and financial planning qualifications.
To gain certification with GARP as a FRM, you'll need to pass a rigorous two-part exam and have a minimum of two-years' full-time work experience in finance or a related field (e.g. risk consulting, auditing, trading). Once you've gained FRM certification, you're encouraged to undertake GARP's CPD programme to further develop your skills.
Many professionals choose to undertake both the FRM and CFA certification, demonstrating their combination of risk and financial management expertise.
Risk is a growing area with good career prospects. Progression rates and routes vary according to the type and size of employer you work for and you may need to move between organisations to progress. There may be a more structured career route in large organisations with opportunities, for example, to move into a management role.
A typical career path in a large financial institution might be:
- credit risk analyst
- senior credit risk analyst
- risk manager
- senior manager or managing director.
Risk consultancies offer the opportunity to move into the lucrative area of consultancy and many offer graduate programmes in risk management.
Opportunities also exist to move from risk into more general finance roles.
Corporate governance initiatives and a more restrictive and expensive insurance market have given risk analysts a higher profile within organisations. The importance of the role of risk professionals is increasingly being recognised, with risk managers gaining places at senior management level and as board members.