ADD ADVICE TO FAVOperations
Investment banking has traditionally been split between the front and the back office; or, as it is sometimes differentiated, between income-generating and non-income generating roles. Traditionally, the former has had much more prestige than the latter. The increasing importance of technology and overseeing the front office is changing things, however.
’The traditional revenue-making business units aren’t the only place to build your career,’ says Joanne Scott, Co-Head of European Campus Recruiting at Morgan Stanley.
’There are good prospects wherever you decide to specialise. Infrastructure areas are recruiting large numbers of graduates, and students are recognising the importance of developing a career with a firm rather than a specific division. All other things being equal, we would always prefer people who already have invested in Morgan Stanley to someone from outside.’
The back office can be divided into three main functions – IT, operations, and the auditing and compliance function – and there are developments in each.
IT trends
The main trend in IT is for this function to become increasingly integrated with the front office. ’What has happened is that technology from the back office has become integrated with the front office, mostly in the capital markets area,’ explains Anand David, Global Head of Recruiting with Swiss investment bank UBS.
’Because investors were risk-averse in recent years, and in order to get at the margins and make the profits in the capital markets when there is not a lot of trading being done, we had to find new ways to make money.
’One way is putting value at risk through proprietary trading. Another way is to look at efficiencies created through technology. IT has become so important that it is now integrated into the business. IT specialists sit with the traders on the trading floor trying to help them with their day-to-day jobs. This is a huge difference compared with four or five years ago.’
Job descriptions
Operations support
Operations provides all the logistical and infrastructure support required to keep the bank going; indeed, it is the catch-all term for the back office.
Operations includes areas such as human resources and public relations, but, in terms of its core business, the role of operations is to make sure that the relevant administration is carried out once a trade has been completed and to ensure that the money has been received. This is known as clearing and settling trades.
The work of an exception manager
One of the main roles in this area is exception management. An exception manager gets involved when a trade has been made, but the bank and the other party (the counter party) disagree on some aspect of the deal.
An exception manager might see up to 60 trades per day that are failing in this way, and it is his or her job to prioritise them according to value and risk, and then to resolve them.
Contrary to the idea that back office staff never interact with clients, sorting out these problems necessarily involves talking to clients, so diplomacy, as well as attention to detail, is a required skill in this area.
Cost cutting
Clearly, operations is a vital area of work in an investment bank. However, those at the top of an investment bank will look at two key statistics on a day-to-day basis – revenue and costs – and the more people it has in the back office in terms of a simple head count, the higher the cost/income ratio will be. Like other businesses, investment banks are constantly looking for ways to lower their cost/income ratios in order to improve their investment grade and stock price.
A number of cost-cutting measures are currently being considered, including the outsourcing of jobs to Ireland, India and China. Combined with ever-increasing developments in technology, this is something that could potentially have a huge effect on operations in the coming years.
The downside may be that there are fewer jobs (although this has yet to happen, with recruitment into operations remaining strong); the upside is that those jobs that remain will be more interesting, more demanding and consequently higher in status (and potentially, salary).
Auditing and compliance function
The aim of the auditing function is to make sure that deals do not place the firm at risk, for example, by allowing undesirable loans.
The other matter of concern is making sure the bank is in compliance with the regulations and, as these are forever increasing in complexity and stringency, compliance is a growth area. Anyone going into compliance needs to be strong but diplomatic, as it is the work of colleagues they will be checking.
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