“Andy used to want to be in the heat of things, sealing deals and wooing clients, but now he’s destined to be support staff.
Holla back, office?”
Ah, the back office. Should you go there? Is it worthwhile? Are there any exit opportunities?
Front Office vs. Back Office
There seems to be some confusion over what constitutes “Front Office” vs. “Back Office” (and then there’s that netherworld of “Middle Office” in between the two), so let’s be clear on terminology.
“Front Office” refers to any group that generates revenue for the firm – investment banking, wealth management, private equity, and sales & trading are all examples.
“Back Office” is anything that does not generate revenue – IT, accounting, HR, risk management and compliance are examples.
You might consider some of these “back office” roles – such as risk management and compliance – to be “middle office.” But let’s make things simple and just go with “back office” for now.
As you might surmise, groups that don’t bring in revenue are not viewed favorably in a culture where greed is good.
But why specifically should you not work in the back office?
1) The Front Office Doesn’t Care
This might be the biggest misconception that prospective financiers have: that it’s “easy” to transition from back office to front office.
In practice, it’s very difficult and I’ve rarely, if ever, seen it done. In cases where it does happen, usually it’s moving from “middle office” areas such as risk management rather than jumping from IT to M&A.
Often, engineers who want to move into finance are “sold the dream” on joining IT at a large bank, thinking that they’ll be able to break in at some point in the future.
But you know what? Out of every single engineer friend who graduated with me several years ago and went to work in IT at a bank, not a single one has successfully transitioned over – even though they all want to.
2) Top Business Schools Don’t Care
Business schools classify candidates into 3 categories – the “prestigious job” (finance / consulting) crowd, the “average job” (IT consulting / accounting / product management) crowd and the “did something completely different” (became a monk in Tibet / started a company / became a wandering bard) crowd.
Or as Alex Chu over at MBA Apply so eloquently puts it, the “Blue Chips,” “Average Joes” and “Vagabonds.”
Banks and other financial services firms recruit primarily at the top 10 business schools; these schools have very few students who took the “average job” path, and by doing back office work, you put yourself in this category and therefore reduce your chances of getting into one of these top schools.
Don’t believe me? Take a look at what Alex has to say on the topic:
“The difference with HBS, Stanford and Wharton is that you’ll see far more Blue Chips and Vagabonds (and by extension, less Average Joes) than you’ll see at other schools, and particularly at HBS and Stanford.”
Needless to say, HBS, Stanford and Wharton are some of the top business schools for finance recruiting.
3) The Buy-Side Doesn’t Care Either
This one mostly applies to hedge funds, but doing back office work at a large bank is not a good way to break into the buy-side.
Some people get the idea that working in trade execution support might be a good way to network with hedge funds and eventually break in.
While this logic almost makes sense on paper, in practice it’s much better to get actual experience doing trading or investing if you want to work at a hedge fund – even a small “prop shop” or smaller hedge fund would be a much better strategy for getting into SAC or Citadel one day.
And Steve Schwarzman really doesn’t care that you did IT work at a bank – so don’t expect a great reception in private equity, either.
4) Goodbye, Models And Bottles, We Hardly Knew Ye
Don’t expect too much pay in back office jobs, let alone the models and bottles you lust after (if you’re female just think of male models here).
You’ll likely be earning slightly less than what investment banking analysts make as base salary ($60K), so probably $40-50K in your first year with a very small bonus (5-15% of base salary).
It’s hard enough living in New York or London on this kind of base salary, but to barely get a bonus either… that’s like pouring salt in the wound.
5) Respect, I Never Get Any Respect Around Here
There are myths about how bankers don’t respect lawyers when working on deals, but in my experience this is rarely true; no matter what you say behind their backs, no one directly insults or disrespects lawyers.
But back office folks are directly insulted. I’ve seen MDs yell at risk management and compliance staff because of draconian restrictions, and I’ve seen even lowly Analysts get into arguments with IT staff who are told “FIX IT NOW!!!” repeatedly.
Once again, those who don’t generate money in a culture of money are not very well off.
6) It’s A 9 To 5 Job
Yes, this is a bad thing. The problem with standard (or almost standard) hours is that learning and advancement opportunities are also very limited. If you value peace of mind and a stress-free environment more than the potential to advance, then back office work might be for you.
But I’m guessing most of you don’t fall into that category.
This type of work is more appropriate if you want to have a secure, stable job with little in the way of either downside or upside.
7) The Work Itself
Finally, the work you do in the back office is almost uniformly boring and even more repetitive than spreading comps, creating pitch books and pulling all-nighters to fix broken printers.
While you could argue that investment bankers are overpaid paper pushers as well, they actually bring in revenue via deals. And at the senior levels they focus on relationship-building, which is far more interesting than monitoring employee trades.
Ok, But Is It Really That Bad?
There are a few exceptions. As mentioned above, if you are simply seeking a low-stress environment while still being able to claim that you “work in finance,” then the back office might be for you.
Another exception: internships. It’s not necessarily the end of the world if you end up in a back or middle-office role in a summer internship, but you should try to transition out as soon as possible – it’s much easier to move over as an intern than as a full-timer.
“Ok,” you might say, “But if I can only get back or middle office roles at bulge bracket banks what should I do?”
Simple: Go smaller. It’s far superior to do banking or trading at a boutique than to do back office work at a large company.
Sure, you might not have the same exit opportunities as your friends at Morgan Stanley IBD, but you’ll still be much better off than your friends at Morgan Stanley IT.
Boutiques are still hiring, even in this market, and are often the best strategy for those who are transitioning into finance from other careers.
…if you can find me a single example of someone who successfully moved from back office to front office.
In the meantime, focus on doing client-facing work anywhere you can – that’s always better than being the IT guy (or girl).