Risk management is an indispensable pillar of the finance world. It’s up to these professionals to prevent or mitigate losses and damages to firms, and therefore the economy, as well as overall integrity within business and the finance industry. It takes brains and the ability to think out of the box in this game!
Risk management in a nutshell...
Risk managers deal with all sorts of different areas of risk, spotting the dangers through a mixture of investigations, industry and market research, data analysis and calculations and coming up with ways to best manage it. They constantly have to adapt to new challenges posed by changes in industries, new regulator requirements and legislation and the individual needs of their clients.
They could handle risk types such as operational risk (risk associated with a business’s internal processes or procedures and staff), credit risk (the risk that lenders won’t be able to pay back instalments on a debt agreement, for example) or market risk (risk associated with movements in the financial markets and their potential impact for businesses and their clients).
Analysts, consultants, managers, quants & actuaries…
The risk management division forms part of advisory services within a professional services firm. As a consultant in risk management, you could work with clients in the private sector or public sector. Many specialise in a particular area of risk from the early stages of their career, such as operational risk or risk management for financial services.
Risk consultants carry out audits, often in small teams, to assess possible risks and their levels, perhaps on an individual project or potential investment, or a wider business issue, and provide written reports on findings. They have to work closely with their clients, on-site, for some parts of their projects.
These roles provide the opportunity to work with companies across a whole variety of sectors and even the chance to travel to visit clients abroad to carry out consultations and assessments. You may have to pick up new skills and qualifications in order to head into certain environments to carry out your investigations for some projects.
In banking, risk management is part of the middle office. When an order (instruction to buy or sell an asset) is received by the front office of an investment bank, the details will first be sent through to the risk management team (quants, analysts and risk manager specialists) to carry out various risk management checks to ensure it will be safe to proceed with the trade. They will also tackle things like regulatory compliance. Risk managers at asset management firms will also perform fundamental duties, carrying out tests, checks, applying mathematics and devising statistical models. They feedback these findings to portfolio managers to help them diversify their portfolios by investing and selling in different asset classes, and discovering new investment opportunities accordingly.
In pensions and insurance companies, actuaries are responsible for using their mathematical and statistical abilities to work out the likelihood of eventualities occurring, and devising programmes and models to help them calculate for insurance premiums (prices for insurance packages), amendments to agreements and pension schemes.
Though risk management may not quite offer the stereotypical glamour of a front office role in banking, it’s so, so important for the financial industry as a whole. It’s not necessarily the most lucrative area to get into compared to some wealth management roles or front office investment banking, however City roles, particularly as a risk management quant or actuary, could still bring in six-figure salaries in senior roles.