Define: Front Office, Middle Office, Back Office?
We get asked this all the time from inexperienced and experienced candidates alike…and sometimes clients! Here , Fionnán O’Sullivan, Director at Barden Financial Services outlines a definition for each…
Why is it so unclear?
Because the lines are blurred. All these offices work together to provide services to the firm’s clients and so it’s not an exact science, however it is an easy way to explain the machine parts behind the product and what they do.
In addition, firms working in financial services can be structured differently while still providing similar services. One function may be classified as back office in ‘FS Company A’ while the same function may sit in a middle-office function in ‘FS Company B’. Terminology can be confusing in any industry as there’s no ‘one size fits all’. Having said that, there are a few rules of thumb.
Three Main Groups
There are lots of categories at large asset managers/investment banks, financial services providers and banks, but they’re often placed into three main groups: The “Front Office,” the “Middle Office,” and the “Back Office.”
Front Office roles generally generate revenue and often have significant client interaction; the classic examples are investment banking and sales & trading. Some of the support functions will sit here (IT for trading tech, EAs, researchers) but generally front office is a commercially focused environment. Generally, in these Front Office roles, you advise clients on deals or help them trade securities, and the clients pay fees to the firm based on the monetary returns.
The difference between Middle and Back Office roles is not as easy to define, but the following is a general rule of thumb:
Middle Office roles support processes close to revenue generation; examples include risk management and treasury. Middle office also feeds information up and down. Some MO functions have client contact in the form of Investment Manager contact who generally are working on behalf of a client themselves. The Fund Manager becomes the MO client representative and so in reality it’s a dotted line to the ‘money’. In any case, the FM is the MO’s client.
FS’s firm doesn’t make money directly from risk management, but as a result of risk management, the firm can provide their service more effectively, thus increasing efficiency & profit.
Back Office roles relate to processes and systems that must exist regardless of revenue generated; examples include: Fund Accounting, Transfer Agency, Risk & compliance, Financial Reporting & accounting, (Support services: IT and HR.)
Many FS companies don’t officially use these terms, and certainly the line between Middle Office and Back Office can be blurred or even non-existent in support function environments, however in Ireland, generally we are experts in BO & MO functions.
In addition, we are now seeing many back office functions becoming project-based rather than process-based, as those functions are being outsourced oversight is becoming more and more prevalent as a key back office skill.
· Revenue-Generating Roles: Investment banking, sales & trading, and equity research.
· Risk-Related Roles: Anything where you manage credit, market, or operational risk
· Support Roles: FA, TA, FR, Operations, compliance, settlements, accounting/finance, IT, etc
Check out our recent “Back Office: Pros & Cons” blog
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