Intro: What's "risk management" and would it be the right career for you? Read on to find out!
If you've looked into internships at banks or insurance companies, you've most likely seen come across internships in roles like "risk management," "risk analysis," "risk control" or "risk engineering."
What do these terms mean and what would a career in this field look like? Let's dive in!
✨ "Risk management" defined
🛡️ What do risk managers do?
❓ Why do risk managers exist?
🌈 What are the different types of risk?
💼 What do risk analysts (junior risk managers) do?
👍 Best parts of working in risk
👎 Worst parts of working in risk
⚖️ Work-life balance
🌱 Learning & development
💵 Pay
📈 Career progression
🔀 Exit options
3. Where can I find internships?
Risk management is a field focused on uncovering and addressing potential problems before they occur to ensure projects, businesses, or any planned activities run as smoothly as possible.
Imagine planning a road trip with friends; risk management would be the behind-the-scenes work that helps you foresee and deal with any hiccups to make sure your journey remains enjoyable and on track.
Now let's imagine for a second that you got a professional risk manager to prepare for any risks on your road trip. Here's how they'd tackle this situation.
Why do risk managers exist in the world of business? And why are they so crucial to financial services institutions?
Risk management, as a formal role, might feel like a modern addition to the business world, but the practice of managing risks is as old as business itself!
In medieval times, seafaring nations distributed cargo onto different ships as a hedge against storms and pirates, while fire societies were formed to secure goods from burning houses.
By the middle of the 20th century, the practice of identifying potential problems ahead of time and figuring out ways to avoid or deal with them had become a key part of planning big projects and running businesses.
While risk management roles can be found in many sectors, they're especially critical to financial institutions. In fact, 90% of companies in this space have designated "Chief Risk Officers" (CROs) – a percentage that's higher than in any other industry.
Why is risk management so important in the financial services industry?
Let's imagine your bank gave out loans without carefully checking if borrowers could pay them back. If many of those borrowers failed to repay their loans, the bank would lose a lot of money ... and you could lose all your savings!
This situation actually happened to some extent before the Great Financial Crisis in 2008.
In sum, when financial institutions – basically the backbone of any economy – ignore risks in pursuit of rewards, everyone suffers.
So far, we've mainly covered one type of risk (the risk of someone not paying back a loan). Financial institutions actually face many kinds of risk. Here are the main ones you'll need to know about.
This is not to mention all sorts of other, more general risks that threaten businesses in any industry – think: war, natural disasters, pandemics, a climate crisis, etc.
What you'd do as a risk analyst depends heavily on what type of risk you're managing and what kind of institution you work for.
A market risk analyst, particularly one who works on the trading floor of an investment bank, plays a crucial role in managing the risks associated with market fluctuations that could affect the securities (like bonds or stocks) traded by the bank.
To get an idea of what market risk analysts do, you can check out this video. To sum up, this risk analyst's main tasks are:
Staying informed: This involves regularly reading up on financial news from sources like Bloomberg to understand how various factors, including economic data (like inflation rates), geopolitical events (such as wars), and central bank policies, might impact the markets.
Monitoring & testing: Analysts spend time overseeing the bank's trading positions to ensure they're not too risky. For instance, they'll run stress tests to simulate worst-case scenarios (like a sudden drop in stock prices) to understand possible losses.
Analysis: This involves conducting various analyses that could range from preparing weekly presentations on current market conditions to embarking on quarter-long research projects on lesser-known market segments. These projects are aimed at expanding the team's knowledge and uncovering hidden risks.
Regulatory compliance : A critical, though less thrilling, aspect of their role involves helping the bank comply with regulations like the Comprehensive Capital Analysis and Review (CCAR). This involves simulating financial shocks to the bank's trading positions to ensure it has enough capital to survive tough times, a process necessitated by the financial crisis of 2008.
According to the risk professionals above, here are the best parts of working in their field.
On average you're probably looking at around 40 to 60 hours per week working at an investment bank.
The hours will really vary. Sometimes when the markets are just going crazy and it's all hands on deck you might have to stay later to finish very urgent work, but I would say 95% of the time, I would go in at around 7-8 and leave around 5-6 in the afternoon and I never once had a work on the weekend.
Learning and development is a part of your job in risk management, since you need to keep learning to keep on top of all the risks your employer might face.
Because Risk Managers are not always on call I would say the last 15% of my time was spent simply learning and exploring my curiosities. This was heavily encouraged by my previous company and they frequently had extra training programs and seminars to develop our presentation skills, learn about different markets, learn how to code and much more.
And this is really great because I was literally paid to develop my skills and expand my knowledge in whatever direction I wanted.
I've noticed that in this job you have to understand the market side of things but it's also very beneficial for you to understand the tech side of things which is why coding and learning how to automate tasks was heavily encouraged so "Broadening your knowledge and skills" was literally part of the job description.
Previous MGI research projected that risk-related jobs will grow twice as fast as all occupations in the United States. In 2021, the US unemployment rate for compliance officers was less than half the national unemployment rate, the sign of a tight market.
Risk encompasses a wide range of careers.
Here's how much entry-level risk analysts make in different sectors, according to Glassdoor.
| Sector | Total pay for risk analyst with 0-1 years of experience |
| Financial services | $65k - $96k |
| Insurance | $68k - $100k |
In general, pay in risk has been on the rise.
According to the RIMS 2021 Compensation Survey, risk professionals across the United States – of all levels and responsibilities – saw an average 14.4% increase in base salary in 2021 compared to 2019. In 2021, the median annual base salary for these practitioners climbed to $135,000 – up from $118,000 in 2019.
Analyzing compensation for risk professionals across several positions, industries and regions, the survey found that U.S. directors of insurance and risk management, or executives with similar responsibilities, saw the biggest salary jump – with a hefty $19,000 increase in two years.
With this vast array of knowledge, you could easily leverage this into a lot of specialist consultancy roles.
A good friend of mine started in IB [Investment Banking] Credit Risk and moved into Private Credit, was making $300K by 28. Has some bad days but rarely works more than 50 hours a week, gets to fly to Europe frequently, all around great. Not like IB Hours at all and the Private Credit space is currently exploding. You see a bunch of former bankers and IB Credit analysts moving into it.
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