Front office vs middle office vs back office jobs in investment banking

Front office vs middle office vs back office jobs in investment bankingMost people think of hotel receptions when they are asked what “front office” means. And “back office”? Isn’t that the rather remote and unglamorous place where administration and accounts people sit? OK, “middle office”? Who knows!

If you are planning to apply for a job in investment banking (IB), you should surely know much better. These terms are not what they may be elsewhere.

What do they mean? What are the functions of the front office, middle office, and back office? What are the jobs there?
 

Investment banking jobs in front office vs middle office vs back office

 

‘Offices’ explained

The front-office of an investment bank is the division that makes the bank money—that is, it brings home the bacon, as someone said. It serves clients, both individuals and corporates, directly, offering them financial products that they can buy or helping them trade in these products.

The front office may consist of the departments of IB, capital markets, wealth management, and sales and trading. Equity and merger/acquisitions research departments are also considered front office though they don’t bring revenue or interact with clients directly. They are considered part of the front office as they work closely with investment decision-makers who face clients.

The middle-office supports the front office in the areas of technology, compliance, law, and risk management. It checks whether deals negotiated by the front office conform to the agreements and also tracks profits and losses. With the increased focus on compliance and risk management following the financial crisis, the middle office has risen in stature as the “voice of reason.”

The back office is involved in settlements, clearances, records maintenance, accounting, human resources, technology, and regulatory/organizational compliance. It helps organizations function smoothly, and is the “engine room” of an investment bank: payments get processed in settlements; bank personnel get their salaries through accounting; technology ensures that systems are working, and organizational compliance ensures that employees are not trading in forbidden securities, explains efinancialcareers.com.

Investopedia gives a simple explanation of the functions of the three “offices”: A financial services company will have a front office with sales, marketing, and customer support personnel; a middle office with risk-management and compliance professionals; and a back office with administrative and technology support staff.

A blog on mergersandinquisitions.com points out that while the front office generates revenue, the middle office supports functions related to revenue generation (e.g., risk management) and the back office (e.g., IT and HR) must exist regardless of revenue generation.
 

Roles

If you’re a front-office professional, you may work in one of three primary divisions: IB (raises capital for clients), sales and trading (buys and sells trade products from commodities to specialized derivatives), and research. You may also be part of other wings such as commercial banking, merchant banking, investment management, and global transactions banking.

Front-office professionals create pitch books and financial models, and look after all pre-trade work and execution. They trade in equities, debt securities, derivatives, and provide merger/acquisition and leveraged buyout advisories.

The front office is the most client-facing of divisions at investment banks. Front-office professionals are experts in wealth management, sales, trading, private equity, investment, and research. Front-office careers also include financial trader, commodity broker, and corporate investment banker. They are adept at making investments that fetch the highest returns, raising capital for corporate houses from various markets, or buying and selling financial products such as stocks, bonds, and commodities for their clients.

The middle-office supports the front office, looking after risk management, corporate treasury, finance control, and strategic management. You may also work in the information technology department, an integral part of the middle-office, where jobs range from managing contracted systems to designing software.

Some people look at the middle office as just an extension of the back office. Others feel it links the front office and the back office. Some include only risk, credit, and strategy management under the back office; some others also bring operations, corporate treasury, and risk and strategy management into it.

Like the middle office, the back office, too, supports the front office. Back-office professionals may not trade or meet with clients, but they provide vital support to their front-office colleagues. Functions of the middle office and the back office often overlap. Typical role categories are accounting, operations, HR, and IT (designing systems, maintaining databases).
 

Qualifications

In IB’s initial days, functions used to be split between the front office and the back office. Front-office personnel usually had college degrees or an MBA and back-office personnel only high-school diplomas. But with the development of technology and increase in complexity of transactions, some back-office functions were separated for forming a middle-office, now staffed by graduates and MBAs and other postgraduates, many of them tech people. Middle-office associates have bachelor’s degrees; some have MBAs as well.

These days, new investment bankers have better academic qualifications than the older generation, though banks have never been really rigid about formal qualifications, says a blog on efinancialcareers.com. The early investment bankers required better connections than qualifications, arguably. However, things changed with the financial crisis, and the importance of college education for bankers has been realized.

Now, candidates for top jobs in IB need multiple internship and Master’s in Finance or MSc in Finance, and levels of the CFA (Chartered Financial Analyst) qualification. As many as 34 percent analysts and 28 percent associates have Master’s in Finance or MSc in Finance, according to a survey.

MBAs have more or less been marginalized in analyst recruitment, because banks have started training non-MBA recruits as analysts or perhaps because MBAs have themselves turned away from IB. Only 11 percent analysts and 20 percent associates have MBAs, according to data from efinancialcareers.com.

Although CFA Level 1 is a popular qualification among job candidates, it is not such a common qualification among IB professionals. Just 19 percent of analysts and 20 percent of associates have at least one CFA level.

Accounting qualifications are not a sure-fire route to the front office: just 3 percent of analysts and six percent of associates have an accounting qualification.
 

Moving from Back office to front office

Back-office jobs, such as those in settlements, may not be an exciting line of work as day-to-day activities can be repetitive. In many organizations, computers are now doing back-office jobs. Many back-office employees yearn for a transfer to the front office.

Although popular wisdom has it that back-office work as an intern may get you access to front-office roles, this may not be the case always. If you are from the back-office, you may not be considered by banks for front-office jobs, as they may see you as someone with little experience because you have only done non-finance work such as after-trade documentation. They would rather recruit graduates with front-office experience.

Moving from the back office to the front depends on a quite a few factors, according to askivy.net. Your chances are bright if you are a fresh graduate with a year’s experience and a shining academic record.

If you have been in the back office for two or three years, you can practically bid goodbye to your hopes, since your skills would have become more and more irrelevant to the front office. If you have CPA (Certified Public Accountant), CFA (Certified Financial Analyst), or ACCA (Association of Chartered Certified Accountants) qualifications, you stand a chance.

Again, if you have been able to network with front-office executives or clients, you will be noticed. If you are a top performer in the back office, if it is company policy to move top people from back office to the front, or if it is a bull market when the front office needs more people, you hold an advantage.

Finally, if your efforts to move from back to front are not bearing fruit, you could consider going to a topnotch business school for an MBA or Master’s in Finance. An MBA or MSc in Finance from a lesser-known school may not yield results.

All said, it is better to start in the front office in a small firm than in the back office of a big firm if you feel the front office should be your destination.
 

Salary

The average annual base salaries at a few top investment banks in the US for various posts in November 2017 were as follows, according to Glassdoor:

  • Analyst: $70,325 (Goldman Sachs, GS), $76,416 (Morgan Stanley, MS), $73,127 (JP Morgan, JPM)
  • Financial Analyst: $76,414 (GS), $66,266 (JPM)
  • Investment banking analyst: $83,463 (GS), $80,482 (JPM)
  • Associate: $112,482 (GS), $109,516 (MS)
  • Trading associate: $125,161 (GS), $124,304 (MS), $123,535 (Credit Suisse)
  • Investment banking associate: $134,559 (GS), $119,478 (JPM), $123,349 (Bank of America)
  • Vice president: $166,542 (GS), $155,319 (MS), $132,023 (Bank of America)
  • Compliance analyst: $57,609 (GS), $50,915 (JPM)
  • Compliance associate: $90,235 GS, $70,668 (JPM)
  • Intermediate finance associate: $202,951 (GS)
  • Vice president, finance: $150,223 (GS), $123,676 (Citi), $123,362 (Bank of America)
  • Secretary: $45,742 (GS)
  • Administrative assistant: $64,181 (GS); $45,941 (Wells Fargo)
  • Internal audit analyst: $62,000-$89,000 (GS), $62,800 (JPM), $84,461 (Barclays)
  • Internal audit associate: $99,789 (GS), $81,548 (MS), $60,039 (PricewaterhouseCoopers)
  • Vice president, operations: $145,605 (GS), $119,556 (JPM), $108,201 (Bank of America)

The average annual total compensation and base salary range for three of these positions are as follows (for more about salaries, see the Glassdoor link, Reference No. 14, below):

  • Analyst: $98,386, $44,230-$115,818 (GS); $98,556, $40,000-$127,000 (MS); $87,568, $36,431-$154,686 (JPM)
  • Associate: $162,168, $51,000-$210,579 (GS); $144,180, $43,312-$190,153 (MS)
  • Vice president: $242,064, $88,000-$386,390 (GS); $200,199, $82,499-$257,810 (MS); $162,256, $65,000-$254,000

 

Work-life balance

In the front office, long hours (over 80 a week is not uncommon) and high-pressure work (big deals are to be made in quick time) that burn out professionals.

If your priority is good work-life balance, then a back-office job might suit you better, with its regular timings that close at 6 or 7 pm. You may even be able to work from home as many companies are trying to make their back office work remotely to save on office rental expenses. Banks are using this as an incentive to attract talent.

It is not too bad in the middle office either. Many middle-office professionals work a maximum of 50-60 hours a week and make a very decent living. Some find risk management the best middle-office role in banks where the middle office is considered as good as the front office.
 

Pros and cons

Front-office jobs may be more glamorous and may pay more, but they are challenging roles that come with long hours, high pressure, and less stability.

Middle office is not a laggard’s holiday-home either. Professionals have to convince the front office to stay within risk limits while enabling it to make the most out of lucrative deals. This means tough negotiations with heavy responsibilities.

Back-office or support roles are non-revenue-generating and non-client-facing and have many disadvantages, says a blog on mergersandinquisitions.com. They have lower pay and bonus compared with analysts and difficulty shifting to the front office. They have to put up with repetitive work (though this may be true for analysts and associates, too) and endure a lack of respect from colleagues in other divisions.

But from a long-term perspective, back office role may work very well, indeed. Among advantages are more spare time for yourself (for hobbies, networking, studying for another degree); more chances of promotion (because other back-office personal may not be very competitive); and better pay later as director or managing director in a support role.

Among pros of the back office at bulge-bracket banks are the international dynamic that these organizations maintain as they coordinate their operations across cities. Administrative services keep a bank functioning smoothly; the tech people ensure that communication links are seldom lost; HR recruits the best possible candidates; and marketing builds the firm’s brand and image.

Well, with all these pluses, the back office doesn’t seem half bad at all.
 
Also read:
Asset management vs investment banking
How to get into investment banking
How to get into asset management
How to get Hedge Fund jobs after MBA
Buy-side vs Sell-side jobs in investment banking
 
References: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14


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Sameer Kamat //
Sameer Kamat
Founder of MBA Crystal Ball. Author of Beyond The MBA Hype & Business Doctors. Here's more about me. Connect with me on Google+ | Twitter | Facebook | Linkedin

5 Comments

  1. Honey Jain says:

    Hi Sir,

    I have a 3 + years of Work Ex with Amazon, good grades in Undergrand. I am planning for an MBA via GMAT. But will it be a good option to quit my job and join a NGO to find time for studies ?

  2. Pratyush says:

    I have completed my Btech in electronics and telecommunication in the year 2013.Since then i am preparing for competitive (govt sector) jobs.But i am unable to crack it.I have taken MBA exams and have fared really well.But i dont want to join Indian MBA colleges as i fear i would not be placed in a good company.I want to ask that is it possible that i can pursue my MBA in Germany even if i am having no job experience.Please help me out,i need your help.
    thankyou.

  3. Aritra Choudhury says:

    Hello Sameer,

    My 10th Marks: 81%, 12th Marks: 86%, B.Tech: 87%

    I have been working in IT industry for last 3.7 years. Currently I want to change my stack and want to pursue Executive MBA to excel in the field of management. Also like I cannot leave my job and pursue MBA.

    Your suggestion Please.

    Thanks

  4. Prachee says:

    Hello Sameer Sir,
    I have a BMS degree in 2018 and I got my results and my CGPA is A grade from Mumbai University.
    I’m working currently as a business development executive this month I will be completing 3 months.
    I want to do MBA from Harvard University.
    Can you please answer my questions.

    Which exam shall I give Gmat or Gre and when shall I start preparing for that?

    I want to leave my job and start my own YouTube channel…does this count as a experience?

    How can I make my profile very strong which Harvard requires?

    In which year I shall apply in Harvard?

    Is there any chances I can get admission in Harvard University?

    Please help me answer all these questions.

    Thank you.

  5. Sameer Kamat says:

    @Honey: If you’re doing it just to impress Adcoms, it’s a bad idea.

    @Pratyush: Getting a job abroad is tougher than in India. And it gets worse when you have no experience that international employers can use. Be aware of that before you junk those good Indian MBA options in hand.

    @Aritra: Sure, you could consider Executive MBA programs. That’ll allow you to work and get a degree at the same time. But keep in mind that the value of part-time programs is not very high.

    @Prachee: Starting a Youtube channel is quite easy. So that step alone won’t prove anything. You’ll need to do something bigger with the channel if you really want to show it as an alternative to a regular job.

    You’ll find more on what Harvard looks for in this article: https://www.mbacrystalball.com/blog/2016/01/18/how-to-get-into-harvard-business-school/

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