Job at time of interview: Vice President, Strategy & Analytics/ Senior Quantitative Business Analyst Manager, Citizens Bank
I am responsible for identifying and evaluating opportunities to improve pre- and post-default performance on several consumer loan portfolios. I analyze historical data and apply integrative thinking to identify trends and make business recommendations. I build predictive models to optimize our collection activities to mitigate risks arising from loan defaults. Credit and operational risks are my primary concerns.
I started my career as an actuary in the life insurance industry. Initially, I calculated reserves and priced various life-insurance products. Then, I progressively moved on to building asset-liability models. I even worked for a major actuarial consulting firm, providing ALM software for the insurance industry. After over 10 years working as an actuary, I switched to the banking and investment industries, where I was securitizing mortgages into mortgage-backed securities. I later moved on and worked at various firms, working in analytics and building prepayment and default models, price optimization models, marketing models and scorecards. I even worked as an independent consultant and built a loan-level risk projection system for one of the largest auto-finance companies in the world. Prior to my current job, I was working in model validation for a major bank.
One of my previous employers – a boutique consulting firm specializing in modeling complex derivatives and providing risk consulting to banks and investment companies – encouraged and even required all of their consultants to take the FRM Exam. When I worked as an actuary in the insurance industry, it was standard practice that all the actuarial analysts take the actuarial exams and obtain at least the associate level. Therefore, this requirement from this employer made a lot of sense to me. We were specializing in financial risk consulting, and the FRM curriculum was exactly the core knowledge that we needed. Our clients also put a lot of value on the FRM designation.
The biggest challenge was finding the time to study. I was working full-time and also traveling to client sites when I took the FRM Exam. I made it a point to set aside time every day after work to read the materials and do the practice questions. I timed myself as to how long it would take to finish a sample question and set my goal at two-to-three minutes per question.
I read and studied all the reading materials and the handbook. I also took the practice exams and timed myself simulating exam conditions. I took a lot of notes. The FRM Exam is comprehensive and the complex, multi-step solutions cover multiple topics. The volume of the material is huge. It tests a candidate’s deep knowledge of the various subjects and problem-solving skills. So, mastery of the whole material is needed, not just specific topics. I think this is one of the characteristics that differentiates the FRM Exam from other exams. If an exam covers only a specific topic in isolation, it doesn’t test the application of that topic in other areas. The volume of the material needed to pass is less and the exam becomes easier to pass. In the case of the FRM Exam, any question could come from any topic and the various possible combinations of those topics. That reflects real-world (multi-disciplinary) risk problems.
My master’s degree is in pure mathematics and my undergraduate degree is in applied mathematics, covering various areas such as differential equations, numerical methods, finance math, actuarial science, operations research and mathematical statistics. Computer programming skills, statistical computing and data mining were also included in my education. I’ve been doing programming for a long time now, and I realize that I learned SAS on a mainframe using punch cards! Having both the theoretical and applied mathematics background allows me to not only do quantitative work in the broad financial services industry but also understand the various white papers and cutting edge research currently being done. My actuarial background and insurance experience gave me a solid foundation in the insurance industry. The knowledge and skill set of an actuary is applicable and portable to the banking and investment industries as well. The risks and techniques are very similar. The FRM gave me a solid foundation in the banking and investment industries. I think I may be one of the few actuaries who have the experience in both the insurance and banking industries.
Think of the FRM as an investment. The time and effort to get the FRM designation may be great, but the rewards are for a lifetime. In the actuarial profession, you can’t do actuarial work – such as providing actuarial opinion and performing insurance rate filing – unless you are a certified actuary. Most, if not all, actuarial jobs require the attainment of an associate actuary designation at a minimum. More advanced positions usually require fellowship. In the investment arena, the same trend is happening – e.g., many jobs in the fund management industry now require CFA. On the other hand, in the risk arena, many jobs now specify that FRM is a plus. I do not see why it shouldn’t be a requirement in the future.
The FRM curriculum is deep, comprehensive and rigorous. The FRM Exam tests a candidate’s knowledge and competency in all areas of risk. It tests one’s understanding of financial instruments; the techniques for managing a variety of areas of risk; and knowledge and competency in Basel II and other regulations. It allows me to take a holistic view of risk. For instance, in my current job in strategy and analytics, I use concepts in the FRM curriculum specific to credit risk; operational risk; default risk; market risk; credit migration models; PD and LGD models; model risk; simulation; probability; statistics; and risk modeling techniques. My work also impacts other areas of the bank, so it is critical that other areas of risk and regulations are addressed as well. The FRM is very useful in this regard.
The knowledge gained in the course of obtaining the FRM is extremely valuable, especially in the banking industry. All banks are exposed to the various types of risks studied and mastered by Certified FRMs. I think all banks and investment firms should support and encourage – if not require – their employees working in risk to pursue the FRM designation. Again, using the actuarial profession as analogy, actuaries take the same exams, go through the same rigorous certification process and speak the same “language.” Insurance companies will fail if risks are miscalculated and mismanaged. One of the primary responsibilities of actuaries is to make sure that the insurance company remains solvent. So, I perfectly understand the standard by which actuaries are held, especially in the certification process of its members. If an actuary does not adhere to the strict code of conduct and by-laws, including but not limited to using the wrong methods in his/her work, he/she can be subject to disciplinary action and possible removal from membership. In my view, the risks faced by the banks are great, if not greater, in all aspects of their operations. How many banks have lost billions of dollars because their valuation models were wrong? Who validated those models? Who certified the modelers, who certified the validators, etc.? Remember the subprime meltdown? GARP ensures that its certified members adhere to high ethical standards, and it is beneficial to have such a professional organization oversee risk management certification, because it guarantees a rigorous qualification process. This will only help in maintaining the soundness of the banks and the industry in general. HR professionals and hiring managers working within banks should be made aware, perhaps by GARP and by current FRMs working in the banks, about the skills and knowledge Certified FRMs bring to the organization.
Having the FRM has given me the tools needed to tackle the various problems faced by banks, not only in risk but in its operations in general. The FRM curriculum is broad and rigorous, and I can say the same thing with my actuarial credential. I couple that with my hands-on experience in various areas of the greater financial services industry – from insurance, mortgage securitization, banking, analytics, software development, price optimization, model development and validation to risk consulting and even sales roles in data and analytics. I see myself progressing into bigger responsibilities and perhaps contributing more in the risk management area in general. So, if my employer reads this, they might take notice. Thank you in advance!
Yes, I have participated and am continuing to do so. I believe it is a must for risk professionals to keep up with the dynamic nature of risk, and GARP’s continuing education program is very beneficial to me.