Risk Management Career Profile
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.
To work in risk management, a bachelor's degree is the bare minimum, but more typically 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. Courses in risk management are increasingly common at both the undergraduate and graduate levels, and some institutions offer degrees in risk management.
Prior Work Experience
A primary concern for risk managers in securities firms tends to be potential mark to market losses on inventories of securities held by trading desks. As a result, prior experience as a trader or trading desk assistant can be invaluable for a risk manager in a securities firm. For this very reason, when Merrill Lynch led the industry by establishing the first such position on Wall Street in the wake of the 1987 market crash, the firm tapped a senior trader for this role.
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:
- Futures contracts
- Options contracts
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.
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 work weeks that far exceed 40 hours. Moreover, during periods of high market turbulence and financial uncertainty, risk management personnel may be constantly on call.
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.
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.
The Bureau of Labor Statistics (BLS) combines risk managers with other categories of financial managers. Follow the latter link for details on pay. Within the financial services industry, however, pay packages for risk managers often far exceed the averages for financial managers in general.
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