Finance Career for Engineers

For a long time, I had been grappling with the thought of moving from IT to “something” in finance. Suddenly I realised that finance was “the” thing and given the amount of financial “engineering” that is done in the markets I thought it would be a logical step for an engineer like me.

I was working in an IT company on a risk management project and when I expressed my desire to work in the domain side as a risk consultant, It was gently vetoed by my project manager who did not want a non-finance person to talk to the finance guys from the client side.  Time went by and I joined an MBA program. The MBA program taught me a lot about marketing, HR, finance and operations. I thought that doing an MBA would automatically make me eligible for the world of finance and I can easily get into pure finance jobs. The reality turned out to be quite different. An MBA with an IT background will always find it difficult to enter into the world of finance even though she might have majored in finance.

#-Link-Snipped-#Then I decided to find out that “something” which might “signal” my desire to work in finance and at the same time prove my competence in the same. The most difficult interview question an IT grad faces when she sits for an interview for a finance job is how she can prove her interest in finance. No amount of good grades and interest in stock markets passes muster.  You need to have something else, a much stronger signal for your interest and competency, something that differentiates you from others. After much counsel and research I came to the conclusion that a professional certificate might come to my rescue because I did not have any prior work experience in the financial markets.

The next problem was to select a certificate which was recognised internationally and which carried lot of value. There were many which were issued by different bodies and on different subjects. I was able to broadly classify the certificates in two areas – financial accounting and financial engineering. Invariably, any certificate either involved interpretation of income statement, balance sheets, cash-flows or else required understanding of mathematics – correlation, probability distributions etc.

After identification of these two broad streams, I ventured out to find out the best certificates in this area. My requirement was that the certificate should have high recognition in the industry and should be manageable with my MBA. After more deliberations with industry experts I finally zeroed in on three of them –
(i)    Chartered Financial Analyst, CFA®
(ii)    Financial Risk Manager, FRM ®
(iii)    Professional Risk Manager, PRM.

All of them are not mere certifications, but are charters. You can use them after your name as a designation (think of something like a Dr albeit with the difference that it is suffix and not a prefix). Let us try to understand them in brief.

CFA® is the oldest one and has become the gold standard in the world of certificates from the accounting side of finance. CFA® was started in 1962 with a purpose of standardising the equity research on the Wall Street. A CFA charter gives you instant recognition in the world of finance. To earn the charter one has to clear three levels of exams and have appropriate work experience.  All the exams are held in June every year throughout the globe and the first level is also held in December. For those who want to work in the world of balance sheets and income statements this is the charter to achieve. It is ideal for people who want to discover a hidden gem (read an undervalued company) amongst the mines of stock markets. I never had any inclination towards balance sheets and income statements. Maybe it was because of my engineering background. I was more inclined towards the mathematical side of finance. Part of my interest must have been fuelled by knowing that the hedge funds use mathematical models in finance and they are the most powerful force in the financial markets and they make the maximum money.

The search for a professional charter in mathematical finance culminated in two charters – FRM® and PRM. Although they both have “Risk Manager” in their complete form their scope of application is very wide. One has to realise that any transaction in the financial markets will involve some risk or the other. Broadly these risks can be classified in three categories
(i)    Credit  Risk – the risk that a counterparty will default and not make payments
(ii)    Market Risk – the risk that any investments in the market will lose value e.g. stocks
(iii)    Operational Risk – any failure in process, technology, fire etc.

Both FRM® and PRM deal with all these three risks and they try to understand and quantify the risk involved in any transaction. Unlike CFA® which tries to read meaning in accounting statements, both FRM® and PRM try to understand the risks through the lens of mathematics. If you take a look at the syllabus for both of them you will find that they are almost identical. They both have portions on quantitative techniques, derivatives, market risk modelling, and credit risk models. Though it might appear that it involves a lot of mathematics but being an engineer I can tell you that the major emphasis is on probability and statistics which is taught in the management schools. Fortunately, it does not require solving second order partial derivatives equations!

Unlike CFA® which requires minimum of one and a half years, FRM® or the PRM charter can be finished in six months or even less. In fact, you can write PRM on any day of the year and it is quite flexible in its approach towards the examination.  FRM® exam is held once in a year and the dates are very rigid. From 2010, the FRM® exam would become a two level exam but still it would be inflexible and have to be given on a certain date. For working professionals, it might become a problem. PRM has four exams which can be taken on any day of the year over a period of two years.  This makes it easier to handle as compared to either CFA® or FRM®. Please keep in mind that PRM is easier only because t gives you the flexibility to take one exam at a time.

“Of late, both FRM® and PRM, require their candidates to be aware of the recent happenings in the financial markets, especially in the wake of the current financial crisis. If you look at their syllabus you will find that more case studies have been added. You can perceive a marked tilt towards understandings of the market. I think that candidates will have to interact with different market professionals on a regular basis to gain such an insight”, according to Pawan Prabhat of Pristine, the only company in India which is the authorised training provider for both FRM® and PRM.  According to him the number of people registering for these courses is growing at an exponential rate and there are professionals taking these examinations from the finance industry and the IT industry.

Having gathered such information, I am strongly of the opinion that an IT professional who wants to move into finance should definitely write one of these examinations and earn a charter. It is better to gain the charter before doing your MBA as it can prove your interest and capability during the internship and final job interviews.

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About the Author
The article is written by Pawan Prabhat. Pawan is a director with Pristine and alumnus of IIT Bombay and IIM Indore. He can be contacted on pawan@edupristine.com.
Pristine (EduPristine: Classroom and Online Training for Certifications) has a Topic Expert Model (TEM) and engages industry professionals with relevant work experience for the trainings and workshops. It is an authorized training provider for CFA, FRM and PRM in India and is focused on creating world class professionals in the area of finance and particularly financial planning, risk management & investment banking. It has been started by team with significant experience in the field of risk management/ Private Equity/Consulting and Investment Banking, with educational background of IIT/IIMs and SIBM.

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