The role of financial planning, actuarial and risk management

Money doesn’t like risk. Not one little bit. More clearly than ever, the recession has shown the need to properly assess, identify and manage risk to avoid financial catastrophes.

Enter your financial planners, actuaries and risk managers. These are the characters that help individuals and companies avoid the many financial pitfalls out there.

Financial models, mathematics and stats rule the roost here. However, uncertainty is part of the game and predicting the possible financial outcomes of different situations is the norm.

What is the difference between a financial planner, actuary and risk manager?

Financial planners usually work with individuals in a similar fashion to wealth management professionals. They provide advice on a variety of financial issues, from tax and estate planning, to retirement, risk management and insurance planning.

Actuaries are responsible for assessing risk in finance. They are the darlings of the insurance and pensions sectors, given the constant need to predict future events and their financial implications.

They analyse the possibility of certain outcomes and the financial disasters that could occur. Once this is assessed as accurately as possible, they will assist in calculating how much customers should be charged for insurance, where pension funds should invest and so forth.

Risk management does exactly what it says on the tin. Financial risk analysts are responsible for legislating against the many things that can damage a business and ensuring that companies do not expand beyond their means. The threats to the health of a business are many: rising costs, lack of credit, market fluctuations and operational changes alone keep this department extremely busy.

What are the responsibilities of a financial planner, actuary or risk manager?

Nobel Prize winner, Niels Bohr, once said “prediction is very difficult, especially about the future.” This certainly applies to the complexities that face people working in this subsector.

Financial planners must advise individuals on money issues regarding future events, actuaries must assess the financial impact of future uncertainty and risk management is all about ensuring companies are not setting themselves up for a fall further down the line.

If you’re part of the financial planning department of a large company, you will be likely to spend the majority of your time assessing the business environment. You will be involved in confirming the company’s vision, identifying the resources required to achieve this, calculating the costs and devising accurate budgets.

Much the same process is used when working with people on an individual basis. You assess what they are looking to achieve financially and work out how best to achieve it.

Actuaries carry out expert assessments of the financial implications of different situations. With insurance, that would mean considering all sorts of eventualities from hurricanes and terrorist attacks, to the more straightforward day-to-day issues.

If a company is prepared to insure an individual for £100,000 in the eventuality of them breaking a leg while skiing, they need to know what the likelihood of them doing so is. Moreover, they need to know how much to charge to ensure that they make a profit at the end of the year. There are lots of ‘ifs’ and ‘buts’ in this game, but it all comes back to one golden rule: make sure we make more money than we spend!

Risk management careers follow much the same principle as actuarial work. You will need to know the potential issues you are facing and legislate against them in case they happen.

Working in this area can provide graduates with a fantastic grounding and insight into the business world, as you are required to shine a light into its murkiest areas. No stone is left unturned here, so it affords an excellent opportunity to understand what affects a business and how to legislate against it.

Sound good? If so, you should probably consider applying for a job in the financial planning, actuarial and risk management subsector! If you’d like to read more about the industry, take a look at our sister site AllAboutFinanceCareers.

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