Why Does Everyone Downplay Risk?

Seems as though risk is extremely unappreciated on the forum and is unfairly grouped with ops and compliance as "No Man's Land" at a bb. I've noticed the pay is decent compared to some other finance jobs and that they have become quite the necessity post-2008. @IlliniProgrammer" and @SSits" seem to give good insight but I see that pretty much besides ops all other BO roles are rarely talked about in AMAs.

 
Best Response

A few factors at play here. To list some (non-exhaustively):

  1. Investment banks have a heavy focus on revenue generation, which means bringing in and executing deals. You're a BSD if you're bringing clients/deals, hence generating money that pays bonuses. Risk is generally pretty distanced from this revenue generation activity, has a less valued skill set/role and consequently seen as a cost centre that burns cash generated by the front office. Of course, there would be no front office generating fees of Risk wasn't managing regulatory compliance, regulatory capital etc, but that role is not highly valued (until something goes wrong and the front office's ability to generate revenue is negatively affected).

  2. The hours and pace of work in Risk are generally (but not always) lighter and more regular than IB teams, where juniors are pulling all-nighters and rarely see a completely free weekend. It can be a little galling to see the Risk team heading home at 6 - 7 when you're in the lobby collecting your Seamless delivery, looking forward to a late night of pitchbook production after cancelling your Tinder dates. This produces a mixture of resentment and cognitive dissonance that usually exhibits itself in conscious or unconscious contempt. Even when a front office guy moves up and gets better hours, that feeling of contempt sticks. Contempt for Risk is a soothing balm for the pain that comes from realising you've sacrificed the better part of your life for... for what? Well, at least you're not as lame as those Risk guys, right?

  3. There is always a tension between the front office (incentivised to generate revenue, not incentivised to think too hard about risk) and Risk (concerned about short and long term risks that accompany revenue generating activities). In the best set up, there will always be a healthy tension. If that tension is missing and front office always sees eye to eye with Risk, then either front office is being too risk-averse or Risk is being too lax. Risk is generally perceived as a non-value adding deal-killing hurdle to revenue generation, an enemy to be beaten or evaded in order to generate revenue. They are the people who can kill your deal after your weeks of work because they call out some issue you either never heard of, or you have thought about and don't consider important. You've been working on this deal non stop for 5 weeks and these guys kill it after only spending half a day on it? Who the fuck are these arseholes who are killing your deal, why are they blowing a hole in your revenue budget and why are they destroying your client relationship because of some theoretical risk that you've spent the last 5 weeks convincing yourself will never happen? It must be because they are dumb and just don't get it. Fucking Risk, man...

  4. Some Risk areas don't really take that much intelligence, or require the sort of intelligence (eg knowing how financial regulations work) that front office guys generally don't value and don't see as revenue generating. This is closely connected to 1, probably even just repeating the same point.

  5. In some banks, Risk can be largely mindless process bureaucrats who have a tick-the-box approach to deals. If your deal is slightly quirky, these types of Risk teams may refuse to consider it from first principles, but instead will kill it because it's too much trouble to think about it when the deal doesn't match their deal approval script. I think this happens more in large banks that have large deal flow - ie where Risk has a lot of volume to process and didn't have the time/is not incentivised to stop and spend time thinking about bespoke stuff.

  6. Some Risk functions (eg internal audit) are a (necessary) pain in the arse. You are thinking about the next deal and how to make budget this year, but this IAD Risk guy is chasing you about whether or not you have an email from someone that shows you has proper approval to go risk-on for a deal 2 years ago.

In my case, I spent 9 years in front office IB after starting my career as an M&A lawyer and shifting across in my late 20s. I changed continents and moved to Risk in my late 30s because I could see a combination of regional macroeconomic and business cultural factors, the positioning of my IB and my personal skill set meant that I was likely 2 years out from getting fired (which turned out to be correct, as there was a round of mass lay offs less than a year after I jumped). So I've seen it from both sides.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 

Risk get bonuses, but generally not as lucrative as front office.

Risk bonuses also tend to be less volatile and less tied to the revenue coming out of deals an individual has worked on. Which makes sense, as a bank wants Risk to be reasonably independent and less driven by the dollars involved in specific deals they are looking at.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 

BillBelelichick37 already knows my thoughts, and I agree mostly with SSits. However I would like to point a few points out that should be made.

SSits:
It can be a little galling to see the Risk team heading home at 6 - 7 when you're in the lobby collecting your Seamless delivery, looking forward to a late night of pitchbook production after cancelling your Tinder dates.

I work in risk and the average day at my bank ends by 5:30. During stress testing and on occasion we will have work until 7-8 / on weekends, but it is so little it barely matters.

SSits:
4. Some Risk areas don't really take that much intelligence, or require the sort of intelligence (eg knowing how financial regulations work) that front office guys generally don't value and don't see as revenue generating.

Key words here and I added some "front office guys in IBD generally don't value". You can take your risk experience to the BIG4 and become a partner in advisory pulling over $1M/year. Risk and regulation are here to stay and there is a lot of opportunity in the area.

Two more points that I think are worth adding-

1.) Risk involves financial modeling, discounting cash flows based on various assumptions, extensive balance sheet and income statement knowledge, capital market knowledge, and knowledge of regulation. The similarities that could be drawn between risk and FO IBD are significantly more than more WSO members might be willing to admit.

2.) Total compensation does not match that of a FO IBD analyst/associate. However first year risk analysts at my bank clear total comp of 100K and only work 40 hours a week. Before 30 they can clear 150-200K and still only work 40-45 hours a week. (The numbers range depending on what part of risk you are in)

 

Just would like to add that some Risk roles are closer to FO than others, i.e. some do risk mgmt after a deal/trade is already on the balance sheet/conduit, and others do risk mgmt before it is closed. Other areas do risk management on the risk management process (like model validation, internal audit, etc…).

As a general rule, the closer to the money you are, the higher your bonus. FO is the closes to the money because they bring it in so they get the highest compensation (as everyone knows), but that rule also stands within risk teams; a risk guy who meets and talks to clients, participates in due diligence meetings and approves transactions before they happen usually gets a higher compensation package than a risk guy whose job is to look at old MonteCarlo models and make sure the code is doing what it is intended to do. Both guys would work ~45 hours a week, though.

 

I'd love to add a few cents to this one.

I work in risk mgmt consulting and it's FO all the way. Work is great. We specialize in hedging advisory, so we assist the clients with hedging their cash flows with otc derivatives. We do all the pre-deal stuff (from negotiating ISDA and CSA to cash flow analysis), our quant team is preparing the quant stuff, we do agency trading for them and all the post-trade work like monitoring their exposures etc.

Things are great. We generate the revenue for the company, we work for some big names with closing the deals and we get some decent relations with the FICC trading floors.

 

I forgot an obvious one - money. In this soulless era where we know the price of everything and the value of nothing, we use salary + bonus as the benchmark of value and a person's worth.

Risk generally gets paid less than front office. Just like front office execution roles get paid less than relationship roles, as the latter are the ones landing clients and bringing in revenue generating deals.

If it helps put things into a broader perspective, my experience is that pretty much EVERYONE in a broader investment bank context (eg sales and trading, funds management) has some degree of antipathy to the IB division. IB teams are generally perceived by other revenue generating divisions as money salesmen with an inflated sense of their smarts, conducting themselves with unjustified swagger. This sense gets more acute as some other divisions become more profitable than the IB division and giggle gleefully as they watch the IB BSDs go through an existential crisis upon realising don't have the most zeros behind their compensation packages.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 

There's nothing wrong with risk. I think the average person going into IBD is more ambitious (be it for millions of dollars, power, or just "to win"), but risk is a great lifestyle and a good job. IBD has a higher ceiling but that doesn't mean it's the be all end all career.

 

I understand what your saying with the average person being more ambitious, and I agree. I am just saying it seems like people on WSO demonize people for doing risk, even when these people can be extremely smart but just more of a work/life balance to pursue other interests/hobbies.

 

It's a matter of perception. A person X may like risk and praise it while a person Y may not and criticize it. Totally depends on what you want in life, how much stress you can take, whether you want a balanced family life, and so on

 

During my BB FO internships, I experienced a massive disparity between both the competency and the willingness to work hard between the FO people and Risk. Many FO people I spoke to also feel that people in risk tend to follow the checklist, without putting to much thought in how to actually make deals happen (thinking in problems, not solutions).

 

Nothing's wrong with that type of job making $300-400k (I have absolutely no clue if that's what you'd make in that role by the time you're 40 but assuming it is). And plenty of people who start in IB will end up being happy with a similar career because they realize the 70-100 hour work week isn't for them (and it doesn't really go away if you choose a long term career in IB, PE, HF's, law, etc, you just work those hours differently and the stress becomes greater because you're responsible for revenue generation in the client service businesses and for investment profit on the buyside) and it's very difficult to move up the ladder and make a lot of money in any of those fields. It's not a given that you're going to be an MD baller at GS raking in millions just because you stick around. It's really tough work and very few people make it.

If that's what you want do, go for it. Your best bet would be to find this type of job that's not in NYC or the general area (or SF, Boston or LA) because although you'll be able to live comfortably at that rate, the dreams of sports cars will be a 10 year old Cayman and not an Italian (unless you want a 30 year old one that breaks down more that it works). The COL is just so high in the NYC metro area between housing costs, state income taxes and real estate taxes that it takes a huge chunk of your income. $300k after tax ends up around $15k after tax if you're head of household with 2 kids and you live in the metro area and not in NYC itself (http://www.paycheckcity.com/calculator/salary/), then you'd want to live within a reasonable commute of NYC itself. A town like Montclair in NJ (or similar towns in NY State or CT, and in reality CT's out because the more affordable places in Fairfield Co would be an awful commute) is nice but not over the top (so it's not Short Hills or even Summit on the NJ side and not Greenwich or Darien in CT, or Chappie in West Chester) and a place you don't have to incur the cost of private school. I just pulled up a random real estate listing but it's easy to spend $800k in a place like Montclair and not even come close to going over the top (check out a similar listing in Short Hills or Greenwich and you'll spend signficantly more so the Montclair house at 2500 SF, which is nice but not insane by any means is a $3k mortgage and has about $1700 of property taxes monthly so nearly a third of your post tax income is going to a nice but normal house. Food's more expensive (at the grocery store and going out), car insurance is more expensive, public transport's more expensive and so on so that while you can live ok, that $300k will take you so much further anywhere else. Finance jobs are in greater concentration around NYC but you could find those jobs in Chicago, Charlotte, Atlanta, Philly, etc and probably live for half the price when it really comes down to it (because you don't have to live in 1 of 5 suburbs for schools that are within an hour commute of your job). I think the only reason to purposefully live in the NYC area (or SF, and maybe throw LA and Boston in there) is if you're goal is to make tons of money and be the MD in IB/PE or a tech exec. Otherwise they're outrageously expensive places to live and the COL adversely affects your QOL.

 

Risk is a really well balanced job. Good pay, good hours, depending on what kind of Risk you're in (i.e not Operational risk) you can have a reasonably interesting job which requires you to think about finance stuff. Couple of things which I think makes people downplay it (apart from those already mentioned by others),

1) Most ambitious people wouldn't go either not go to risk in the first place or wouldn't stay there for long. Ignoring prestige side of things, the progression in risk is slower than front-office and the ceiling is lower whether you want to stay in banking or venture outside it.

2) The people. There's no correct answer to this, but would you rather be around the people in risk or in M&A? For some risk would be better, as the environment in risk is much more laid-back and nicer. For others, and I'd say the people who are more aspiring, they'd want to be around those in M&A. In general from my experience, the IBD guys are smarter, harder-working (obvious), much better soft-skills, more ambitious, etc. (I think you get my drift).

 

Ambitious people don't go into risk? lmao now I see why you made a junk account. There are not very many complacent people working at a GS/MS etc. and most people in risk at BBs come from ivy-league schools. Anyone with half a brain knows that getting ANY job at a BB is an accomplishment.

 

Ambitious in a relative sense. Obviously you have to work hard to get in and continue to do well once you get in. But yeah given the choice between IBD and Risk, we both know what a very ambitious person would choose.

 
BDmanny:

the IBD guys are smarter, harder-working (obvious), much better soft-skills, more ambitious, etc. (I think you get my drift).

I disagree with the ‘smarter’ part of your comment. A lot of risk guys have degrees in physics, mathematics, statistics, engineering, etc… It depends on your definition of “smart”. The average risk guy would dismantle the average IB guy in things related to modeling and programing, whereas the opposite would happen in anything related to emotional intelligence.

 

They have much more power than pre-08. Also in bear markets there many trading desks hire associates/vps from their risk teams as it can be expensive to hire from the market for no guaranteed return. So in a bear market, going to risk is not a bad decision.

One thing i'd add to the detailed posts above is - I hear at the director evel comp is pretty great at risk, specially if you compare to the rest of the world (i.e. non finance). you'll probably be paid as much as the similar level at consulting firms and much more than corporate because

There was a good post here sometime back where it compared Ops MD to F500. ops MD had easier job less hrs more pay because of the high base salaries.

The problem is it takes a long time to go from analyst to director and it's not a certain route. the ratio of analyst to md is way higher than FO. In my opinion risk is a great move for a mid-performing mid-level trader as they get to skip the queue. (although i think is not good for the bank itself - shows you how little mgmt cares about risk divisions no matter what they say)

Risk to FO is the most common "upgrade" in trading though, so yes it is more it is "better" than ops compliance etc.

 

Yeah but its up or out in front office.

The guy who's stuck as a VP in trading/IB/PE will get fired at some point, but he has the additional optionality to go into risk. The guy who's stuck as VP in risk is just stuck.

This is the 'catch' and answer to why people go to IB->F500 instead of just joining risk and taking it easy.

Quants have better exits.

 

lol @ the fucking morons judging people by their career. This seems to be especially prevalent in finance too.

I can think of too many people around me who are more than smart for any bullshit finance jobs yet have chosen a different career path.

I suppose internet is always a safe place to fall back to shit on other people's career. I can only imagine how fucking deformed their face would have been by now if they had the guts to say the same shit in real life.

If you have to choose a career based on how other people think instead of what you enjoy doing, you need to sit the fuck back and re-evaluate your life.

 

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