Is Finance the back office of society?

Hear me out. On WSO and finance circles, We always talk about front office, mid office, and back office roles in finance usually with varying degrees of "prestige." The guys in the front office get a good laugh at the expense of the guys in the back office because of some perceived differential in "status" and all that jazz. But deep down, is finance not the back office of the world? All the great goods, services and tech the world has to offer: cars, planes, pharmaceuticals, consumer devices, healthcare, etc aren't fabricated by financiers. We're just the guys allocating the cash to people who have these bright ideas, who execute their plans, and produce things of actual value. Sure, we're a crucial part of the machine, and some historians attribute humanity's progress in part to an efficient financial system that has allowed great projects to see the light of day. BUT, we're not getting our hands dirty (just like most associates), we're just enabling others, which is great, but also humbling. We're important but if I had to pick a profession to disappear between engineers, doctors, bankers, police officers, fishermen etc... bankers and HF managers would probably go first. Is that naive of me?

Point is... We're important and we sometimes do challenging work but truth is there are way more impactful careers out there :P Thoughts?

Comments (56)

 
Oct 20, 2020 - 6:43am

Maybe if you're talking about the 1% of society (the few people within various fields that have made a serious difference to society). However, I don't think this argument holds when comparing to the other 99%.

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  • Intern in IB-M&A
Oct 20, 2020 - 1:03pm

I personally think you don't understand the importance of a robust financial system, especially as it pertains to the facilitation of specialization and exchange. 
 

Without a strong financial system, we'd still be getting around on horses. Abraham Lincoln could travel no faster than Aristotle. We'd have no medicine, infant mortality would still be extremely high in developed countries, computers wouldn't be around, you'd have no cellphones... etc. 

 

Financial intermediaries facilitate specialization and exchange, which allows for rapid innovation. If you think the role of banks/finance isn't important then look at the 2008 financial crisis when the collapse of banks caused a worldwide economic meltdown. 

 
  • Intern in IB-M&A
Oct 20, 2020 - 1:44pm

You can argue that the greed + corruption + lack of foresight that caused the financial crisis was value destruction, but no, banks are a value add.

 

The point of my comment at the end was that banks are an integral part of society. I'm not here for a pissing contest on whether the banks causing a financial crisis was a bad thing. 

 

Without banks, you'd still be spending a majority of your time farming and trying not to die from typhoid.

 
  • Intern in IB - Ind
Oct 20, 2020 - 6:07pm

The last point highlights the importance of banks for a functioning society. Without properly functioning financial system, the world collapses as such during the Financial Crisis. Perhaps, if we went back centuries before banks came to be, then the value of finance could be limited, but so much of the world is built around finance, that it has become one of the most important industries to everyday citizens, governments, and corporations, which I consider to be great value-add. Especially in the U.S., people's lives would be so different without finance. 

 
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  • Analyst 1 in IB - Ind
Oct 20, 2020 - 1:33pm

I actually very much understand the essential nature of the financial system as it frees up / directs capital to projects and investments that develop crucial technologies, goods, services. The parallel that I am trying to draw is that like the back office in finance, the financial system's work is to give the real producers the means to produce. Just like IT's work is to create an environment in which the front office can do its' job, the financial system's work is to create the right financial conditions for businesses, gvts to do theirs. 

 
  • Intern in IB-M&A
Oct 20, 2020 - 2:02pm

While you create no physical products, banks are constantly adapting and changing to meet the needs of customers. You might not be creating the next widget but you are creating the next product that allows the widget to be made. People need funding in the same way they need cell phones. You don't eat it, but it does facilitate the activities that allow you to eat. 

 

By your description, the people who created Zoom are the back office of the world because they don't actually create a crucial technology. People lived without Zoom for thousands of years and they could've survived for many thousands more without it. You don't eat it, it doesn't save your life, but it DOES facilitate your 2am team calls so you can do your job. It's not even at the forefront of innovation. We had cellphones and Skype. What about refrigerators? Those facilitate the storage of food. Cars facilitate travel. All of these things give producers the ability to produce more.

 

All products are created to facilitate life in some way, so by your narrow viewpoint, everything is a back office role. Financial products facilitate funding/saving/spending. Just because it's not as tangible of a product doesn't mean it's not innovation.

 
Oct 22, 2020 - 3:44pm

I think the logic you're using is pretty flawed in the sense that every job fundamentally enables someone else to do something by freeing up/ directing capital to other things. Doctors treat us to allow us to live longer and keep producing (or reproducing), police officers prevent crime to allow non-criminals to do the same fundamentally. I think all these jobs are not too different in this sense.

I see society as quite cyclical so therefore BO and FO being used to describe jobs as pretty nonsensical. But my opinion is of course biased, due to my belief in the impact of financial services (otherwise I wouldn't be working in the industry).

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  • Intern in IB-M&A
Oct 20, 2020 - 3:27pm

On a macro level yes, micro level no. No one benefits from a billion dollar M&A deal but restructuring over leveraged companies, sovereign debt and enforcing change through intense negotiation is a net benefit to society in the long run. If there was a way for an EB to actively control the financial system in corrupt countries, change it and enable citizens to rise from poverty then that would be more valuable then a doctor or engineer. 

 
  • Analyst 1 in IB - Ind
Oct 20, 2020 - 3:46pm

Back office does not equal not beneficial. It means it's role is to set others up for success. In this context you restructure a business to allow its c-suite to run fruitful operations, you restructure sovereign debt to set up a favorable financial climate for production. All of these are very important but are support roles.  Also you compared the entire effect of an industry to one singular doctor or engineer which isn't totally fair. 

 
Oct 20, 2020 - 3:55pm

This is an interesting topic. I think, if you look at the way goods/services companies are set up, yes, finance is the back office. I guess that could translate at the societal level of business, since business at the macro level does the same thing as it does at the micro level. IBD and S&T teams are in the front office because they're technically considered sales within the context of a banking/financial services firm.

 
  • Intern in IB-M&A
Oct 20, 2020 - 4:10pm

Interesting question. I don't think there is such thing as a front office of society. You seem to be equating front office with whoever does the most valuable thing, or whoever produces the end product. Sure, the finance industry creating anything tangible, but it provides a valuable service by allocating capital to its most efficient uses. The same can be said for all of those industries you mentioned. At its best, the automotive industry just provides a valuable service for people who need to move around quickly. Healthcare provides valuable medicine to people who need it. At the end of the day, each industry serves to make someone else's life better. The products they produce are only as valuable as how much better off they make someone else. Just because finance directly impacts every day consumers less than other industries doesn't mean they are somehow not "front office". 

 

Front office just means revenue generating. It makes sense that in the context of a firm, there is a revenue generating division and then divisions that support the front office. If you zoom way out, society doesn't produce revenue- revenue generated by one industry is an expense of another. There is just a happy cycle of people specializing and adding value to others. 

 
  • Intern in IB - Ind
Oct 20, 2020 - 6:21pm

I'd argue finance is one of the most important industries as it directly impacts the success and progression of all of the other industries. It also has a huge impact on the lives of people in so many different ways.  

1. Credit - people finance their transactions through banks for a set standard of living. No banks means no mortgages, auto loans, credit cards, etc. The lives of the majority would be very different without credit provided by a bank. Same is the case for corporations. 

2. Innovation - every technological advancement requires capital to grow and be successful. Without financing, an idea remains an idea. 

3. Money Management - financial markets and institutions allow people to grow their wealth (savings, investments, retirement). Especially after your working career, excess money becomes very important to survive. PE/HF careers allow pension funds and endowments to grow their capital. Not to mention, people need banks to put their money (deposits/savings)...can't rely on stuffing cash under a mattress.

 
  • Analyst 1 in IB - Ind
Oct 20, 2020 - 6:28pm

It is without a doubt extremely important. Not disagreeing with that. "It directly impacts the success and progression of all the other industries" is kind of the point I wanted to make. We finance, we enable others to operate, to produce, so we are like a support role in society (doesn't mean we are less important.) We enhance the economy. 

 
Oct 20, 2020 - 9:34pm

Banking is literally the second oldest profession in the world (you can Google #1 if you wish). 

Like it or not, bankers can and do make more than engineers, doctors, police officers, etc. We're obviously supplying a demand that's there and always will be. Some may even say we're "doing God's work". Ideas aren't worth shit if you can't get capital to execute. 

I chose banking so I don't have to get my hands dirty and so I get every single BS holiday off. Halloween, here I come! 

 
  • Prospect in PE - LBOs
Oct 22, 2020 - 6:15pm

Everyone is back office to someone else. Lawyers are back office to Bankers - just facilitating the legal processes of each deal. Bankers are the back office of buy-side - just ensuring a constant state of deal flow to be picked apart and ultimately executed upon. PE is the back-office of LPs - who just pay the guys in suits to get them a good return on their retirement funds.

 
Oct 23, 2020 - 6:36pm

I've had MD's from MM banks kids recruit for on this site call me to ask us to be part of roll-ups they were hired to pursue. 

 

Back when I was an analyst i might've interned or worked for one of these guys. Now when i get them on the phone, i tell em to pencil something in with Becky at front desk and it's on my schedule. 

So yes -- they're very much back office. 

 
Oct 24, 2020 - 12:34am

Just depends on the view you take on society. If you consider the production of actual goods and services as the bread and butter of society, then yes finance is back office since it is the industry which keeps the money available in different forms to allow the companies of the world to move forward and grow. But if you look at it from the "finance is all" perspective, one could make the argument that because of how crucial finance is, it is not "back office" (read: supporting role) in the world given the crucial industries would grind to a halt without it. My two cents is that don't look at your industry whether you're in finance, tech, manufacturing or whatever this way as it is easy to see yourself as more or less important than others - something which can mess with you or cause some kind of inferiority complex if you think too much about it.

 
Oct 24, 2020 - 1:01am

From my view, there are two things that finance does better than any other industry:

1) Efficiently allocate the limited resources of an economy

2) Facilitate the transaction between the past and present using information from the past

Without these things, you couldn't have modern society. So in many ways, yes. Just like FO couldn't do their work without BO, however. One lays the foundation that the other builds upon.

 
Oct 24, 2020 - 2:51am

Finance is the lube in the engine of life.
 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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