Difference Between Middle Office Finance and Back Office Roles
It is pretty clear on what Front Office roles are, but it isn't exactly clear what constitutes Middle Office.
For example, Wikipedia lists Risk, Control, Compliance, Treasury and Corp Strategy as Middle Office roles. But isn't Control and Compliance more like Back Office?
So what exactly are Middle Office roles?
Also, how difficult is it to break into MO jobs as compared to FO jobs. Do you need to go to a target school to break in MO type jobs.
Finally, how is compensation compared to FO and BO?
Thanks.
Middle and Back Office Roles
In another thread on this topic - user @iBankedUp" shared a good comparison between front, middle, and back office:
Front office sells the products to clients.Middle office does the ancillary items in support of the sale (i.e. reconciliation of records, compliance and controls)
Back office supports the underlying development of the product (i.e. budgeting, resource management, developing/maintaining systems)
- Front Office: Investment Banking Analyst, Sales and Trading Analyst, Equity Research Analyst, Private Equity Analyst, Management Consultant, etc.
- Middle Office: Risk Analyst, Compliance Officer, etc.
- Back Office: IT&S, Accounting Analyst, etc.
Middle Office Definition and Functions
While the definition of middle office is a lot more ambiguous than the definition for back office, our users helped define the roles of middle office. Generally speaking, middle office roles directly support the revenue generation process.
Legitimate middle office roles are pretty respected by the FO and includes roles like risk management (market and credit), corporate strategy, corporate treasury, quant analytics, certain types of research, etc. These are critical roles that may not generate revenue directly (front office) but nonetheless directly support the revenue generation process and are essential to the bank. I interviewed for two of these (risk and treasury) and liked both.
Middle Office Compensation
Real MO analyst positions like risk or treasury will usually have the same 70k base as FO (whereas BO is usually a bit less). First year bonus could be anywhere from like 10k to 40k (I'd guess 15k-25k) depending on the BB and MO position. Obviously if you make it to a senior position you will make a lot of money, not FO IBD/ST money but enough to be considered "rich" (maybe 400-700kish all in, could be more).
User @dublin", a corporate development manager, shared a different experience:
Disagree slightly on comp - when I started in MO (I was in finance, but my program also had people in treasury, risk, etc), base was 60 with bonus about 8-10 (annualized), while in that same year, IB analysts were at 70 base with typical 40-60 bonuses
Back Office Definition and Functions
The back office is the section of a firm responsible for functions related to the running of the company such as:
- Settlements
- Compliance
- Accounting
- IT & Other Technology
The back office is an essential part of any firm and the job title is often classed under ‘Operations’. At investment banks, the back office will also be in charge of completing the administrative tasks associated with trades such as settlements, regulatory compliance and position clearing.
You can read more about Back Office roles in the WSO Finance Dictionary.
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Why do you care whether something is MO or BO?
There are two kinds of "middle office" IMO.
One is the legitimate middle office which is pretty respected by the FO and includes roles like risk management (market and credit), corporate strategy, corporate treasury, quant analytics, certain types of research, etc. These are critical roles that may not generate revenue directly (front office) but nonetheless directly support the revenue generation process and are essential to the bank. I interviewed for two of these (risk and treasury) and liked both.
The other "middle office" (more common on these boards) is really just back office positions (finance, P/L, compliance, operational risk, tech, etc.) that claim to be middle in order to differentiate themselves from ops when in reality they are BO. I've even seen some ops guys claim to be middle office (yeah right). Nothing inherently wrong with back office at all but its kind of annoying to see MO/BO get lumped together because of this latter group that is always claiming to be MO but in reality is totally BO.
Thank you. Any idea on compensation compared to FO and everything else that is not MO and the difficulty of breaking in?
I go to a non-target and want to work in a MO role someday.
Hmmm, any idea what type of MO position? Real MO analyst positions like risk or treasury will usually have the same 70k base as FO (whereas BO is usually a bit less). First year bonus could be anywhere from like 10k to 40k (I'd guess 15k-25k) depending on the BB and MO position. Obviously if you make it to a senior position you will make a lot of money, not FO IBD/ST money but enough to be considered "rich" (maybe 400-700kish all in, could be more).
Breaking in to a real MO position is a lot harder than the BO, as many smart people genuinely want to do something like risk or treasury or quant analytics (as opposed to the back office which I don't think anyone actually wants to do). The main advantage of the MO is interesting work and decent pay with a much better quality of life, so some very qualified people will want this route. Def easier on average than IBD/S&T though. I will say for my risk and treasury interviews most of the kids were from targets or semi-targets, though I was non target and there were a few others as well. However, some MO positions (like market risk) will have candidates on average who are much "smarter" than FO people (think MFS/PhDs from Ivys). Keep this in mind.
I agree somewhat with your differentiation, but what would you call someone supporting traders, cacluclating P&L, working on BO issues on a desk? These areas are where "middle office" titles come from for BO work....basically it boils down to the proximity to the action.
In my opinion, anyone involved in the process with front office BEFORE a trade/investment is made can count as middle office (risk, quant, live p&l) or like Severus pointed out, those involved in overall firm strategy, treasure, client servcice etc. Anyone that is working on issues unrelated to revenue generation (settlements, payment, breaks, recs etc) should not really call themselves MO
I though, that many many more people claim middle office then should. If you have never had a conversation with a FO employee, you are probably not middle office.
Seriously? Corporate strategy gets respect? At one of the firms I interned with, the corporate strategy group basically spent the majority of their time in meetings with other divisions and regulatory groups trying to convince them that what they did was important. My impression (which may be incorrect) was that it was a group made up of people who didn't have the resume to get a job at a consulting firm.
You are basically an internal consultancy for a Wall Street bank, seems pretty cool to me. At my BB many of the corporate strategy guys are ex-MBB and have MBA's from HWS. Heck, I'd personally much rather be in BB corporate strategy than any FO finance role.
Sorry about that, just reread my post and realized it came off a bit wrong. It's not a bad position at all, but that does not mean that it gets respect.
Meh-- the corporate strategy group at my BB only takes people with I- Banking experience, and their associates/VPs are constantly in meetings with the CEO of the firm. Corporate Strategy is actually a really sweet gig.
i don't think there's a universally agreed-upon differentiation line, but in my mind (having worked in MO), the main difference in most people's understanding is that back office includes functions that are mostly processing (ie ops), whereas middle office includes the support functions that require more analysis and decision making (risk, treasury, finance, strategy).
Yeah, I was wondering about real MO like Risk and Treasury, but I get it now. Thanks a lot.
disagree slightly on comp - when i started in MO (i was in finance, but my program also had people in treasury, risk, etc), base was 60 with bonus about 8-10 (annualized), while in that same year, IB analysts were at 70 base with typical 40-60 bonuses
Interesting. Was this a BB? I know that at one of the BBs I interviewed at for risk (did 2) the analyst base was 70k and bonus was around 20-25k (a a fair number of risk people there had been former FO). Other had 70k base as well but no idea what the bonus was. Place I did my treasury interview at also had a 70k base too I believe, not sure what bonus was but I heard it wasn't bad. These were all pretty recently so don't know if the timing had anything to do with it.
IMO the obsession on this board of FO vs everythingelseomggross is kind of silly (I'm an SA in FO). I mean technically PWM/Private banking is FO, but would most people seriously consider PWM to be more "prestigious" than MO roles like quant, parts of prime brokerage, risk management, corporate strategy, legal (actual legal NOT compliance), etc? Doubt it.
Having worked in MO (risk), the analysis is actually more difficult than FO (imo) and the FO uses your analysis during client meetings, etc. That said, I enjoyed what I learned in MO but the move to FO is difficult without good connections or network. The pay is pretty good for the hours you work, but the MO positions will likely pigeon-hole you if you stay too long in it.
Here's a quick and dirty way to tell the difference between MO and BO: a BO person will call himself MO, while an MO person won't give a shit what you call him, because he's getting paid similar to a FO person.
A second way to tell is that a MO group has people moving back and forth to FO all the time, while BO does not.
The last way to tell is if FO people roll their eyes when they talk about the role.
ya it was a top BB - maybe things have changed though
Do you need to major in something highly quantitative to be in Risk or will a Econ major(without too many Math courses) suffice?
What kind of risk? Credit risk (what I interviewed for) is kind of a mix of banking and research in terms of work and econ/finance/accounting will all be helpful. Market risk on the other hand is more similar to trading and requires quantitative expertise so you'd need some hardcore math stuff for that
I applied for MS Strategy & Execution (which is more of a mix of banking and strategy but decidedly MO) and didn't even get an interview. This was actually my first choice overall, out of every app I submitted. I'm now in IB at a peer BB. Some MO type jobs are highly sought-after and extremely competitive. I know kids from my school that went to Risk and Research for example that are way smarter/finance-knowledgeable than me.
That said, the statement about how BO folks will claim to be MO is spot-on. Pretty much everyone I know from Tech to Ops and Compliance claim to be in the middle-office. I lost it when someone put HR into that category. Under their definition, I guess the only Back Office folks are like, Facilities and Security.
I do find this whole F/M/B O segregation concept kinda silly. I know several people that did banking, went to B-school, and chose to work in an MO role for MUCH better hours at a slight pay cut. I was FAR back-office (think Audit, Control, Compliance) last summer and both the Manager and Director above me (they didn't use the IB rank scale) had MBAs AND CFAs. Lots of very intelligent, motivated people in these positions, even if the work is boring.
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Somehow dug this up..how did you make the transition from BO SA to IBD FT?
I think MO in a bank can be a really rewarding career. It get's shit on a lot, but my former boss is now the head of market risk at a large bank (he's in his late 30s) and he's making like 600K per year, working under 50 hours a week.
If it effects or interacts with FO it's MO. If it's a process that has to be done but has no baring on the FO function it's BO.
there is only one office - the front office
what about Risk Tech, is that MO or BO?
I always viewed middle office as trading/sales assistants and risk. Actual treasury as well. At BB firms treasury tends to encompass a lot of jobs, so the litmus test of do they tell the trading desk what they can and cannot do applies.
The notion of supporting revenue generation is not very good in my opinion because every job at the bank is created with the intention of increasing profits. If trades don't settle the desk is liable to miss out on opportunities or lose money. If people are not compliant the firm faces legal penalties which can be very costly. If the firms technology sucks(relatively speaking, all bank technology sucks :) , they offer an inferior service.
Honestly, i would go with starting salaries to determine whether a role is considered bo, mo or obviously fo.
It's even more confusing nowadays....There's a lot of non-processing roles in operations nowadays, and at many banks, all support, middle office roles, etc roll up into "operations and technology."
I was working on strategic projects and performance metrics groups while I was in ops, even though I never processed a trade in my life. (I think this is were you have people claiming to do middle office work even though they're in ops).
In the end, middle and back office have no real meaning anymore, and were terms created when banks functioned very differently. Ops used to be bullshit reconciling and moving paper around work (which is where the bad reputation came from), all that work has been mostly offshored, so now it's more project and management based. That said, the pay still suck compared to FO.
Better to think of a bank as: Revenue Generating (ER, IB, S&T), Risk (credit and systematic), and support (ops, compliance, confimrations, projects, etc)
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