If you're thinking of applying for a graduate job in an investment bank, you've probably come across the terms, 'front office', 'middle office' and 'back office' as descriptors for the kinds of jobs banks have to offer. You may even have heard 'back office' jobs referred to pejoratively. Should you care?
What's the front office in an investment bank?
Front office investment banking jobs have traditionally been the easiest to define. "Historically, front office jobs in investment banks were those trading on behalf of the bank, or directly working with clients or creating products, research or analysis for them," says John Craven, a former director of structured products and capital markets at Bank of America Merrill Lynch who now runs upReach, a social mobility charity.
Another ex-senior banker agrees. He says front office jobs were always any that involved, "direct interaction with the client and customer - be that an individual or a corporate client."
Which jobs were those exactly? Well, M&A jobs were usually considered to be in the front office - even though you spend most of your analyst and associate years working all day and all night on spreadsheets and will probably only see clients in the context of carrying bags for senior bankers. Capital markets jobs where you help client companies raise money are client-facing too. So were sales, trading and research jobs.
What's the middle office in an investment bank?
As per its name, the middle office of an investment bank is situated in the middle: somewhere between the front office and the back office.
"The middle office is comprised of all the people in the business divisions that directly support the front office," says one senior banker. "They're directly supporting the people who are interfacing with clients." The emphasis here (ours) is on the word 'directly.' - According to the traditional definition of the middle office, the people here support the front office in the interaction with clients. They don't help with the downstream effects that result from those interactions.
Risk management jobs are usually considered to be in the middle office. So are compliance jobs. So are finance and accounting jobs (for example product controllers which work out traders' profits and losses). And so are technology jobs - although you might have technology jobs which support the back rather than the office, so it's a bit confusing.
"It's perfectly possible for a risk person to be either in the middle office or the back office," says one senior banker. "You might get a risk professional sitting on the trading floor, in which case he or she would be a middle office person. And then you might get a risk person miles away in the corporate centre, in which case they'd be in the back office."
What's the back office in an investment bank?
And then, traditionally, you had the back office in an investment bank. This referred to all the functions behind the scenes (and which are now offshored to places like Bangalore, far from trading floors in London and New York). Back office professionals work in settlements, making sure that payments for trades are processed. They work in human resources, making sure bankers get paid, or hired, or fired. They work in technology, making sure that banks' central systems are running correctly.
Back office jobs in investment banks are often considered uninteresting and undesirable. Banks do their best to make these roles sound interesting, but there might be something in their historic lack of appeal. "I worked in trade support covering settlements for a French bank in London," says one operations analyst. "It was all very static and process driven - I spent all day analyzing exception queues from various systems and analyzing trades to make sure they were settled properly. It was a repetitive job with very slow career progression." It doesn't sound great.
How the back, middle and front offices in investment banks are changing
What's outlined above, is how things used to be with the back, middle and front offices in investment banks. These days, however, things are changing. And technology is to blame.
As banks try to automate as much as they can, and as trading takes place electronically using computer algorithms, human beings are becoming far less plentiful in the front office. Goldman Sachs, for example, famously replaced the 600 equities traders it had in the year 2000 with electronic trading systems. Now, Goldman says it only has two actual human traders left. Overall, one third of the bank's staff are now software engineers and Marty Chavez, the former chief financial officer and former chief information officer, who left the firm last month, frequently said the old divisions between front, middle and back office were becoming meaningless. This is because engineers building computer systems which are taking over the jobs formerly occupied by traders and salespeople and risk professionals and compliance experts.
Goldman Sachs' Marquee system is a case in point. Marquee is effectively a digital store front where Goldman's clients can come and access the bank's pricing and risk information directly, instead of talking to a Goldman trader or sales trader who acted as an intermediary. Suddenly, traders and sales traders are less important and the people programming Marquee are at the top of the pile.
Stephen Scherr, Goldman's CFO highlighted the extent to which old-fashioned concepts of the front, middle and back office in banks are being undermined earlier this year. Goldman wants to keep investing in Marquee, said Scherr and it wants to keep automating sales and trading. As it does this, it wants to shift 7,500 technology and operations jobs into the "business," which sounds a bit like they're joining the front office. And yet Goldman wants to get more of its tech staff out of New York and out of London and into places like Bangalore.
Confusingly, too, some trading jobs at all banks might not be front office at all. What about quantitative traders on central risk desks for example? They aggregate risks for the whole bank and hedge against them. Are they front office? Not really because they don't interface with clients, but they're very important even so.
"The front, middle and back office are a dated concept, and if you're thinking in those terms you work for a bank with cultural issues," says one senior banker. "Nowadays, you're all in it together to drive performance."
Photo by Ioana Cristiana on Unsplash
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