GARP and PRMIA: Two Years After the Split?
By Janice Rosenberg
Two years after the events that led to its formation, leaders at the Professional Risk Managers’ International Association (PRMIA) staunchly maintain that they were right to leave the Global Association of Risk Professionals (GARP) and set up their own organization. Those at GARP affirm that problems did exist when the split occurred in July 2001. Since then GARP has undergone a sea change, and its leaders wonder just a bit wistfully why those who left won’t come back into the fold.
“GARP always has taken the position that there should only be one organization,” says GARP CEO Rich Apostolik from headquarters in Jersey City, N.J. “But there’s no real reason to make an issue out of it. Both organizations have determined where they want to go. At this point the marketplace can decide [which organization] offers better value.”
For his part David Koenig, chairman of the board of directors of PRMIA in Minneapolis, says that the industry is served very well by many organizations besides these two. “I do believe that it is not an accurate characterization to portray our organizations, first, as being the only two representing financial engineers and second, as being combative,” Koenig says.
Ancient HistoryThe GARP breakup is old news to those who were in the industry at the time, and mostly irrelevant to those who were not. Briefly, GARP was founded in 1996 by Marc Lore and Lev Borodovsky. A year later the two introduced their Financial Risk Manager (FRM) exam and certification as a seal of approval for those in the profession. The association, originally created to serve the networking needs of risk managers in New York City, grew along with the profession beyond its founders’ wildest expectations. In July 2001, with 15,000 members in 34 countries, a group of regional managers began to question some of the founders’ intentions.
Debbie Williams, group vice president of capital markets and corporate banking at Financial Insights in Boston, who was among the first group of regional directors to resign from GARP and is now Boston regional director for PRMIA, remembers long conversations in which GARP’s owners, Lore and Borodovsky, and the regional directors tried but failed to come to terms about organizational goals. Led by Koenig, the managers departed and began the grassroots effort that created PRMIA, a group where, Koenig says, “the members own the association collectively and each member contributes something to make it better.”
Left without a strong base of managers, GARP was eventually resuscitated by a transitional board of experts from banking, academia and other relevant industries. David Shimko, now a GARP board member and president of Risk Capital Management, a risk management consultancy in New York City, was one of the board members who negotiated with GARP’s founders and set it back on track. Shimko says the transitional board made several overtures to the departed GARP managers, pointing out that the problems that led to the split were resolved and that having two organizations for one profession seemed redundant. But the managers were not interested in regrouping. “It was an issue of pride on the part of the regional managers who departed and they used the mismanagement of GARP as a reason not to come back,” Shimko says.
After a last attempt to merge with PRMIA in February 2002, GARP’s transitional board disbanded. The first election of a new board, held in September 2002, led to the inauguration of 22 board members “representing some of the biggest and best organizations globally,” Apostolik says. The board adopted a mission statement: “...to be the leading professional association for risk managers, managed by and for its members dedicated to the advancement of the risk profession through education, training and the promotion of best practices globally.”
So What’s the Difference?
Although Koenig prefers not to compare the two groups, their histories, competing certification exams and other commonalties nevertheless provoke comparisons. GARP remains the larger organization with more than 31,000 members representing about 4,000 organizations worldwide. The majority of GARP members are professional risk managers who pay dues of $100 per year. The association has certified 3,250 individuals with its FRM exam, held at 53 sites internationally.
Since its founding PRMIA has grown rapidly and now has approximately 7,500 members in more than 100 countries with membership growing at six-to-eight percent per month. The association charges no dues. Rather its programs are funded by sponsors such as Barra and Sungard Trading and Risk Systems.
If there is any differentiation to be made between the two associations, Elias Demetriades who teaches finance at the Illinois Institute of Technology Stuart Graduate School of Business in Chicago, sees it as an intense effort on the part of those involved in PRMIA to make theirs a practical organization with a strong emphasis on enhancing the relationship between those in the risk management industry and those in the academic community. Demetriades, a member of PRMIA’s Chicago steering committee who has been with PRMIA from the beginning, says he and fellow PRMIA management team members work hard to maintain an absolute transparency in their operations so as to avoid the kind of conflicts that GARP faced in 2001.
GARP’s Shimko sees the differences between the groups as twofold: First, PRMIA relies on sponsors to support its events and therefore there may be a “subtle undercurrent that they are being run for the benefit of the sponsors,” he says. Shimko neglects to mention, however, that GARP employs its own small sales force in New York and London to promote its own advertising and sponsorship opportunities.
Second, PRMIA’s membership includes a heavier concentration of consultants. “A consultant might insert himself into an event as a participant or speaker, to use it as a forum to promote himself, not the organization,” Shimko says.
In response to the first issue, Williams says publicly disclosed bylaws at the PRMIA Website reveal how the sponsors’ money comes in and how it is used. Having corporate sponsors, she says, allows PRMIA to work without dues, and that dues would be counter to the spirit of the organization which is, “You know something about risk; I know something about risk. Let’s get together and talk about it.”
As for the consultant vs. practioner issue, Peter Van Amson, vice president in charge of product management at Bancware in Boston, and an active member of that city’s PRMIA chapter, says 90 percent of those who attend meetings of the Boston chapter are not consultants, but rather work for financial services firms.
What ’s In It for Members?
Both groups provide regional forums for their members. For instance, GARP’s Chicago chapter serves the Midwest with several meetings each year. According to GARP Chicago chapter head Richard Heckinger of Deutsche Boerse, typically about 30 of the 300 Midwest area members attend gatherings to hear speakers like derivatives expert Janet Tavakoli. Meetings include question and answer periods, refreshments and conversation.
PRMIA’s Chicago chapter is an online community consisting of 950 members who participate in Internet forums and live meetings. Jonathan Frye, from the Federal Reserve Bank in Chicago, attracted a crowd of 120 at the August 2003 live get together.
“It’s a point of pride that the organization has taken off against all odds,” says Chicago regional director Rizwan Kadir. “We didn’t think we had a chance to get where we are today, but word of mouth spread the news and people came forward.”
Each association offers a certification exam. Early on the quality of GARP’s FRM exam was uneven, says Philippe Jorion, professor of finance at the University of California at Irvine. Today substantial resources are being devoted to the development of the exam in terms of the people who write it and double check it – a committee made up of university professors and practitioners.
The PRMIA Professional Risk Manager program was developed in 2002 by experts in the industry and the academic community. According to the group’s Website, the exam “tests a candidate’s knowledge and ability to apply the essentials of financial risk management to everyday, real-life situations in the workplace.”
PRMIA’s goal in creating its own exam was to make it more reflective of the field overall, encompassing topics outside the pure mathematical modeling that at the time dominated GARP’s exam, Williams says.
Can They Co-exist?Finally, does the creation and continued existence of two such similar organizations have any lasting effect on those working in the industry?
“Members look to groups for ways to network, to find out what others in the profession are doing, and to offer conferences and meetings,” says John Birge, dean of the McCormick School of Engineering at Northwestern University in Evanston, Ill. “As long as those things are possible, I don’t think the membership will see much of a conflict.”
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