Front Office vs. Middle Office vs. Back Office in Investment Banking: What's the Difference?

Investment banks are a type of financial services company that completes financial transactions on behalf of clients, such as corporations or individuals. These organizations require different professionals to operate successfully. In this article, we discuss what the front office, middle office and back office of a company are and compare differences and similarities among the front office versus middle office versus back office in investment banking.

What is the front office of a finance company?

The front office of a finance company or investment bank is the department dedicated to helping the organization make money. This office includes corporate finance and sales personnel. They service clients directly to offer financial products for clients to purchase or trade to generate revenue for the organization. However, there are some front-office professionals who handle mergers, acquisitions and equity that don't generate revenue or require client interaction.

The front office may include departments or divisions such as:

• Capital markets

• Investment banking

• Research

• Sales and trading

• Wealth management

Some duties for professionals in an organization's front office may include:

• Creating pitch books and financial models

• Handling pre-trade work and execution

• Investigating potential investment opportunities or markets

• Managing client assets

• Trading in debt securities, derivatives or equities

Related: What Do Investment Bankers Do? Definition and the Role of Investment Bankers

What is the middle office of a finance company?

The middle office of a finance company or investment bank provides risk management services to support the front office. This office exists because of the increased complexity of financial transactions handled by the front office. Middle-office professionals assess risks and track and calculate profits and losses. They may also evaluate the legal compliance of a transaction and ensure the transaction aligns with agreements.

In some organizations, the middle office is also responsible for information technology. These professionals ensure the proper functioning of IT resources and software used daily and manage software systems used by the front-office and back-office professionals. Some organizations have middle offices that are available 24 hours per day to ensure optimal support and capturing and monitoring of market data.

Related: Risk Management: A Definitive Guide

What is the back office of a finance company?

The back office of a finance company or investment bank handles the day-to-day operations of the organization. This generally includes administrative, payment and support services. However, back offices vary for each organization based on its needs and structure.

Some examples of departments that the back office of a finance company may have include:

• Accounting

• Clearances

• Human resources

• Records maintenance

• Regulatory compliance

• Settlements

• Technology

Related: A Guide to Investment Banking

Differences between front office vs. middle office vs. back office in investment banking

Here are some differences between front-office, middle-office and back-office jobs in finance:

Revenue generation

The front office leads the investment banks' efforts in generating revenue. The back office may perform tasks that support the front office and generate revenue. The middle office, however, has no role in generating revenue aside from assisting with risk management.

Qualifications

The qualifications for individual jobs at specific financial companies or investment banks. However, front-office positions often require the highest level of qualifications. Individuals working in the front office typically have master's degrees, and many also have additional professional certifications. Similarly, professionals in the middle office generally have at least a bachelor's degree, and some of them may have a master's degree.

Qualifications for back-office positions vary greatly based on the specific roles and the departments within an organization's back office. Some positions in the back office may only require a minimum of a high school diploma. However, if the back office includes departments like human resources, for example, the professionals may have a minimum of a bachelor's degree.

Related: How To Get Into Investment Banking

Responsibilities

Front-office, middle-office and back-office professionals each have unique responsibilities that affect the success of the organization. The front office is primarily responsible for customer service, marketing and sales operations, and they make deals and complete sales and trades. The middle office handles a variety of IT, compliance and risk management tasks. The back office is responsible for a range of operational concerns mostly related to administrative tasks and clerical work, and some back offices also provide technical support.

Age of department

Most financial companies always included front-office and back-office positions. However, middle-office positions are newer. The middle office formed as a result of increasingly complex financial transactions and related activities.

Client relations

Front-office positions are the most client-facing positions. They consistently work directly with customers. Back-office and middle-office positions rarely interact with customers.

Related: Commercial Banking vs. Investment Banking: Definitions and Differences

Work-life balance

Working in the front office often requires working long hours in a high-pressure environment, and some front-office workers regularly work up to 80 hours per week. Middle-office workers also work longer hours, but they typically work between 50 to 60 hours per week. Back-office positions typically offer the best work-life balance, as these professionals work 40 hours or only slightly more per week.

Similarities between front office vs. middle office vs. back office

Here are some similarities between front-office, middle-office and back-office jobs in finance:

Collaboration

The back, front and middle offices all support one another. However, there is a specific hierarchy to how the departments support each other. The efforts of the back and middle offices support the efforts of the front office, and their functions may sometimes overlap.

Effects of technology

Advancements in technology continue to affect the back, front and middle office. Some investment banks rely on computers to complete tasks previously performed by back-office professionals, and other investment banks or financial companies now favor using electronic trading practices. However, the increase in technology may benefit the middle office, as it handles information technology and risk management.

Importance

The back, front and middle offices are all important for the successful operation of an investment bank or financial company. The operations of each department affect how effectively the organization can generate revenue and avoid risk. The efforts of the back and middle offices enable the proper functioning of the front office.