Front vs. Middle vs. Back Office: Which Investment Banking Path Should You Cross?

Avadhut |
October 16, 2020

You probably had read or heard gazillions of stories of how the front office is always better than the middle of the back office.

These stories probably had played thousands of times in your mind; to the point that you just accept that they are true.

But, is this really the case?

Before we jump to conclusions, let’s have first a closer examination of the differences between each department.

What is the difference between the front middle back office analyst?

A front office analyst is someone who is a revenue – generator for the firm. For example, those analysts that are in trading and sales, investment banking, private equity, and even wealth management are all front room analysts.

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They are the ones who create models and pitch books. Also, they are the professionals talking with banking clients.

Usually, front-office analysts are into sales, marketing, investment banking, and research. All pre-trade and execution activities are done by front-office associates.

The front-office is where the banks assist clients to raise money from equity or debt markets.

Their advisory services cover M&As and LBOs to name a few. They also do the trading of equities, debt securities, derivatives, etc.

All else are backroom or middle office associates.

Back office meaning the analysts provide support services to the front room associates. They are not directly engaged with trading nor talking with clients.

Some of the examples would be accountants, operations group, regulatory compliance, human resources personnel as well as IT professionals.

What is the middle office?

The middle office is composed of professionals working in the departments of compliance, presentation centers, and risk management. These professionals can somehow be categorized under the back office.

Employees that manage risks are oftentimes regarded as part of the middle office. They also calculate profit or loss of each deal transacted by the front office.

The middle office also includes corporate treasury, financial control, and strategic management.

Middle office and front office usually work together on some deals in order to ensure that the bank is not taking on risks that are above what the company strategies allow.

Middle office associates at least have bachelor degrees, but some of them have MBAs as well.

Does Back Office earn less than the front office?

Yes, even at the analyst level.

The reason is that most of the work in the back office (e.g. support systems) are less technical or are less related to banking than the tasks done in the front office.

For example, in NY, banks would pay around $60,000 per year for back-office associates.

Their front room counterparts, on the other hand, would earn around 20% more basic compensation.

You can find banks whose starting salaries for both offices are not that far from each other. However, as the years of experience accumulate, the pay gap widens.

Based on data crowdsourcing Emolument, some of the worst paying jobs in UK investment banking back offices earn around 40,000 Euros (around USD41,000) per year. Some examples are job positions for cash management and operational risk management.

Why should I work in the back office jobs?

If you want a work-life balance, working in a back-office role could be a good fit for you because it allows you to work a regular day shift that ends at 5 or 6 pm.

If you want not so head-breaking tasks, back-offices tasks are perfect for you. Tasks would be repetitive and you don’t need to use much complex analysis to complete your job.

If it’s just an internship, accepting back-office roles might be a good move. Why? It is because accepting such roles will give you access to front office roles.

This is not recommended for full office positions, though.

Why should I NOT work in the back office?

By applying in back-office positions, especially as an intern, you might lessen your chances of being hired for full-time front room associates.

The reason is that most of the students, especially from the top business schools, usually have experienced front office jobs.

Since this is the case, banks will, by logic, choose students with relevant experience for a full-time front room position.

If your experience is solely in the back office, you will definitely be at a very big disadvantage.

It’s always better to work at small firms in a front-office role than in a big bank in a back-office role.

Back office support positions won’t also help you much in hedge funds or private equity funds.

You won't also get special attention from investment banks or financial firms just because you have back-office experience.

They will view you as someone with no enough experience in investment banking.

Moreover, if you work on non-finance related positions such as IT, don’t expect to be considered at all.

Back office jobs are not part of the investment process. You won’t be working on valuation models in back-office positions.

Much of the jobs are about after-trade paper works and documentations. If you don’t like it, then, you don’t fit in the back office.

Many back-office positions are not located in the main building of banks. Thus, you'll find it hard to connect with the right people in case you want to transition to the front room later on.

There are lots of back-office positions that are outsourced by banks especially in IT and HR.

By nature, lots of tasks in these departments are process-driven and repetitive. Most repetitive tasks might already be automated, though.

If you would like to work on a dynamic job, stay away from back-office positions.

A lot of analysts also observed that career advancement in the back office is generally slower than in the front office.

Which is the best: front, middle, or back office?

Front Middle Back Office

There is no definite answer.

It all depends on what YOUR goal is.

If you aim for the highest pay possible, even if it means working long hours, you must target working for the front office.

The front office would generally be the one which could give you the most experience in terms of investment banking.

If you prefer having more free time than money, go for a back-office position.

The back office is also the way to go if you want to be exposed to the finance industry but do not necessarily want to do trading or client meet-ups.

If you want a balance (though not guaranteed) between money and free time, a middle office position might be the best for you.

How much is the difference between the compensation of front office and back office associates?

For junior analysts, the difference is somehow small, about $10,000-$20,000. But, as both analysts gain more experience, the salary gap would also widen.

Aside from that, bonuses would also be very different.

In front office positions, one could get up to twice the annual salary as a bonus, but, for backroom associates, bonuses could only be around 5-15% of the annual salary.

You might find it hard living on a back-office associate’s salary especially if you’re working in a bank in a big city like London or New York.

How to transition from back office to front office?

It’s not easy to transition from back office to front office, especially in Investment banking.

Especially if you come from a field not closely related to finance such as engineering or IT. It’s almost impossible.

Out of the few who successfully transitioned, almost all came from middle office departments like risk management and presentation centers.

Do not go for positions that are totally not IB related such as IT and HR.

There are lots of articles that tell you cannot move from back to the front office.

However, if you really want it, go for it! You need a lot of patience, though.

There’s a lot of creativity involved. You must get the right education and be employed by good investment banks. Going for smaller banks could help you move from back to front office roles.

Your years of experience in the back office and your skills (such as communication skills) will be vital to your transition from back to the front office.

Don’t take your job for granted. Learn how to highlight your relevant back-office skills in your resumé.

If you’re working closely with traders, network with them. Observe and listen to how they work. Over time, you will gain knowledge that is useful in cases you get invited for interviews.

It would also help a lot if you can network with people who had been able to jump from back to the front office. One of the best ways to find them is to ask your friends and colleagues.

You can also use LinkedIn to find these people. Have a chat with them and get tips on how you can do the shift also.

You can also get an analyst's certifications that are relevant to your target job.

No one can really say how, you can only get some good tips, just like here. You have to figure out the way yourself.

Even if you come from a totally unrelated field like engineering or arts, you’ll never know if you can unless you try hard.

On a final note, if you really want to jump office, start planning now. It takes a lot of preparation before you reach your goals.

Help! How do I decide where to work?

After all this information, you might be getting an information overload.

There’s a lot to consider, thus, you cannot decide with finality which path to take on.

Start with this question: “What do I want my career to be in 10 years?”. Envision the perfect scenario for you.

Do I want to be a respected trader of securities? Or maybe an M&A authority? Do I want a job that is somehow laid-back and would allow me to have work-life balance? Do I want to be a manager of the tax department? Compliance?

After you determine what professional you would like to be in 10 years, reread this article. By doing so, you’ll get a good idea of the plan you should make.

Careful planning and patience will always bring you far.

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