Both as a word and a concept, risk has an interesting history. It came to us from the Italian riscare, meaning 'run into danger'. It must have served as a warning; who would deliberately run into danger? That impression grows stronger upon discovering that the noun expanded into verb usage, primarily for commercial reasons. By the early 16th Century, people used 'risk' to describe the "potential loss of a ship, goods or property", You can see, then, how risk became associated with finance.
Still, everything from singsong sayings like 'nothing ventured, nothing gained' to the bluntness of 'no risk, no reward' points to the obvious truth. Risk is inherent in every venture, not the least in financial ventures. The point - some might say the art of finance is minimising risk while maximising reward. That's the risk specialist's mission. If you want to take on that challenge, you need to know:
- the personal qualities you need to become a risk specialist
- what type of businesses risk specialists work in
- what a risk management expert does
- the steps you take to become a risk specialist
- how much a risk specialist earns (if only to mitigate risks to your future earning potential)
In life and finance, we might be able to hedge against risk - protect ourselves from its worst effects, but we cannot eliminate it. Finding the best ways to do that is by doing what risk specialists do: developing the skills, traits and attitudes that make them so good at hedging. Note that there is some debate about what type of personality makes for the best risk specialists; the risk-averse or the risk-tolerant? Regardless of that part of the risk specialists' profile, you need to know about the job before you can picture yourself doing it.
Where Risk Analysts Work
As risk is inherent in every finance venture, risk analysts work anywhere finance plays a role. In some concerns - corporations and the like, risk analysis falls under the finance manager's job description. It's a sure bet that every corporate finance department has a team whose sole function is risk assessment. Consulting firms would obviously need a few risk analysts. Their job is to present the best options for whatever event or condition their clients seek advice on.
Such firms wouldn't be in business for long if they advised their clients to run headlong into danger, would they? Neither would trading firms, another type of financial services centre with risk analysts on staff. Wholesale trade firms maintain an inventory of stock to ship to retail outlets or other wholesale ventures. Business-to-business (B2B) firms are far more in number, though. Think about all the satellite factories that supply car parts to car manufacturers. They need risk analysts, too.
Of course, risk analysts work in all the obvious places where finance plays a role. Commercial and investment banking, insurance firms, and anywhere else that delivers financial services all have a need for risk analysis. These specialists often collaborate with their firm's credit analysts to ensure a perpetually healthy bottom line for their company and clients.
Risk Analyst: Job Description
As a risk analyst, your job entails identifying and analysing the possible risks of (and to) a company's investments - in growth as well as other financial ventures. You then have to find ways to minimise those risks. For example, if you're tasked with analysing a stock portfolio and discover that a particular stock is highly volatile, you might recommend investing in more stable companies to hedge against the unstable stock's potential crash.
That's just a general description of what a risk analyst does. Various types of risk analysts have other duties. For instance, a credit risk analyst examines the potential for clients to default on loans or not pay what they owe for goods and services. An operational risk analyst goes over a business's operations to find anything from waste to employee fraud. After they discover the potential of a system failure or product malfunction, they help find ways to reduce the risk of such a condition affecting the business in the future.
A regulatory risk analyst studies the impact of current and future laws on their company and finds ways to minimise any negative impacts. They must ensure compliance with all political edicts regarding their industry and plan for operational changes that won't hurt the company's bottom line. Regulatory risk analysis is a growing field because of climate legislation but market risk analysis remains one of the hottest jobs in finance. It calls for a focus on financial markets to monitor for downturns and other negative events that might adversely impact the company's stock.
Compensation for Risk Analysts
Considering that a company's fortune quite literally rests on analysts' ability to anticipate risk and minimise the firm's exposure to it, you'd think they'd earn handsomely, wouldn't you? The rich Wall Street Bloke memes don't apply to risk analysts, though. Their pay scale is closer to what any other white-collar worker might earn.
How much a risk analyst earns depends on the same factors as any other job in any other industry. The job candidate's level of education and experience, the type and size of the company they work for and the scope of their duties all factor into their pay. If an applicant does have prior experience, the extent of that experience and how it might correlate to the work expected of them in the new position matters, too. Finally, personal qualities and transferable skills like leadership and problem-solving could hike a newly hired analyst's base pay up a few pounds.
Unlike brokers and other prominent positions in finance, the average risk analyst's salary is quite decent but not spectacular. That's because it's a salaried position, not a commission sales job. Risk analysts may be awarded bonuses, like any other member of the management or administrative staff. Still, with a base compensation of just over £35,000 per year, their earning could not be described as stellar.
Required Education
At the very least, to land even an entry-level position as an analyst, you have to have a four-year university degree in maths. Other degree plans you might choose that could carve a path to such a job include Actuarial Science, Finance and Statistics and Business Administration, among others. For management-level positions and higher, a Graduate or PhD is required.
As the finance industry is constantly evolving, viable candidates should demonstrate their commitment to continuing their education. It's not enough to earn your degree and leave learning behind. Earning your certification as a Financial Risk Manager, Chartered Financial Analyst and/or Professional Risk Manager would score points in your favour with any firm's hiring manager. Note that these same courses boost financial planning job candidates' chances of being hired. So if you're uncertain whether risk analysis is for you, you'll still be well-qualified for work in other parts of the finance industry with that course of study.
An internship would give you a bit of experience in the field. If firms in your area have internship programs, find out if they employ the type of risk analyst you want to be - credit, market, operational or regulatory. It likely won't hurt you to dabble in another field of risk analysis. However, if the point of interning is to gain experience, wouldn't it be more worthwhile to intern doing the type of analysis you prefer?
The Makings of a Good Candidate
Knowing what job you want and having the educational background to qualify puts you only two-thirds of the way towards landing the position. You must also have a good balance of transferable skills and personal characteristics. As previously mentioned, transferable skills include effective communication and leadership skills; critical thinking and problem-solving skills. Any good Business Management course should teach those or, if you're still at university, you can hone them in the course of your studies. Other avenues to cultivate those talents include workshops and seminars; even roundtable events have proven beneficial.
As you become a better listener and problem-solver, you should also develop the personal traits all risk analysts need. The ability to perform root cause analysis will help you determine the causes of risk and failure. Having a strategic mindset will ensure that you always come to the desired outcome in the shortest path. As my friend who works as a budget analyst reminds me: you must constantly operate with the highest of ethical standards. Anyone who works in finance must be highly ethical.
Being aware of your weak points - preferring field operations to examining reams of data, for instance, and working hard to improve on them will ensure your place as one of the most versatile agents for risk mitigation on your team. Add a can-do attitude and a sunny, open disposition to make yourself a highly sought-after job candidate. Indeed, your attitude would be a valuable asset because you will likely work with a team of other analysts.
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