Investment banks are huge, multi-national corporations, so they need an army of employees to keep the business going. In its simplest form, an investment bank’s employees are broken down into three categories: front office, middle office and back office. Though there are a lot of different roles within each category, these broad divisions will give you clues as to whether a certain position is client-facing, deals with internal policies or is tasked with making sure the bank’s image is maintained in the media.
The front office is the face of the investment bank or fund. They meet with current and potential clients, execute the trades that make money and determine the direction of the company. The roles considered part of the front office include:
Sales: Salespeople are responsible for speaking to their various clients, suggesting trades for them and communicating orders to the trading desk. Salespeople can deal with individuals, companies, investment funds and even hedge funds. All of their clients are called the “buy side” because they are the ones buying the securities. The investment banks themselves are considered the “sell side” because they are the ones that are selling investments. Sales people need to be able to multi-task and listen to various conversations at once. For example, if your traders are talking about a great deal or something in which they have a great price, you need to be paying attention to that conversation while at the same time thinking about which of your clients might want in on that trade. You will also need to keep up on the markets and know what’s going on in the world at all times including political, social and economic issues. Many salespeople write daily roundups about their thoughts on certain markets and events and spend lots of time on the phone as well. There are many salespeople out there, but the successful ones maintain strong relationships with their clients by suggesting creative and lucrative trades that neither the client, nor competing salespeople have thought of.
Traders: Traders, of course, make the trades based on the orders from the salespeople and clients. But traders don’t just do what they are told by the salespeople! A trader’s main aim is to keep the investment bank liquid (make sure that assets are not tied up and can be sold easily with minimal loss. The most liquid asset is cash), so they will also perform trades where they make some profit on the spread. This means that they will buy (bid) a security at one price and sell (ask) it for a higher price, keeping the gain from the bid-ask differential. Obviously traders need to be good with numbers and be able to do quick calculations in their head. Though many traders focus only on one or a small section of markets (for example gold or cocoa) they nonetheless need to be able to multitask and pay attention to the tiny numbers changing on several screens at once. Traders also need to have the ability to make hard decisions very fast – if it looks like a trade may be costing money, but you’re not sure whether or not to get out of it, a few minutes’ indecision could see millions wiped off your book. If you are trading in international markets, be aware that you may be in for some long days and also have to trade from home in the middle of the night in a market on the other side of the world.
Research/Analyst: This is also considered a front office function. Basically, researchers research! They read tons of data, articles, and anything else they can get their hands on to help salespeople and traders make good calls about the markets. They also use their data to suggest trades and help guide the direction of the investment bank by constructing financial models. Analysts in the corporate finance department help with IPOs, specifically gathering the information for pitchbooks. Though not as client-facing as sales and trading, the research staff can be involved in client meetings from time to time. Analysts do have contact with all positions in the bank and often work closely with managing directors. The MDs main job is to cultivate various relationships with clients so they do not have time to know everything they need to know for a specific meeting or IPO pitch, and that’s when the analysts come in. MDs and associates depend on the researchers to provide them with the information they need to make successful deals and approach the right kinds of clients. They may not get much of the glory, and may be involved in several all-nighters, but it’s a fact that an investment bank would cease to run without the research department.
MDs: The managing directors of the bank are the head honchos but usually have worked their way up through the bank. Their main job involves maintaining relationships, networking and trying to impress potential clients.
Corporate financiers: Corporate finance sits a bit apart from the other sales/trading divisions of the bank. They are not trading and making markets, but rather helping companies with certain financial situations. They act as a broker or consultant when companies need to raise capital, are looking to merge or buy another company or want to issue debt – all of which may enhance the value of their company. This can include helping to manage investments or even suggesting a mergers and acquisitions (M&A) strategy. In this instance, the corporate finance people at the investment bank will help the M&A deals go through. Corporate financiers must not only know what’s going on in the finance world, but also have clear philosophies on investing, stocks and how to value companies. You can use your creativity here by listening to what your client wants to achieve and then suggesting interesting and potentially groundbreaking ways they can go about making their thoughts a reality. Yes, the corporate finance team gets a lot of the glory and while salaries can go sky high, you’ll have to work hard for it.
Investor relations (funds only): IR staff is responsible for PR as well as keeping all investors and shareholders abreast on what’s going on in the bank. Regular work can consist of putting together reports and setting up meetings and events for potential investors. IR work can also be unpredictable and involve lots of crisis management. Markets move very fast and this can impact funds positively and negatively and the investor relations team needs to make sure that they can answer any potentially uncomfortable questions that may arise.
Like the name suggests, the middle office bridges the gap between the front and back offices. These are the kinds of roles that look into what is going on in the front office and makes sure it’s not negatively affecting the bank overall. The middle office is comprised of:
Risk management: The biggest part of the middle office is probably the risk management team. These people make sure that the traders are not taking too much risk and that they’re not doing things like leaving their positions exposed overnight. Risk people also have the ability to cap how much traders can actually trade, if they feel that they are taking on too much risk. Employees in the risk department must not only be good with numbers but must also have the guts to stand up to traders who are being careless with their books.
Compliance: Another important role in the middle office is compliance. This should not be overlooked as investment banks are now being scrutinised more than ever; making sure every trade is done by the book is just as important as making money.
The back office consists of all of those nitty-gritty roles that keep the place running smoothly. This includes:
Operations: The operations people are the ones who check over every trade to make sure the numbers are correct and the trading desk has bought or sold what they were supposed to (if the trade was to buy USD but instead the ticket says selling USD, well then, you’ve got a problem). They also constantly reconcile trades and open balances with banks and other financial institutions. These are the editors and the proofreaders who make sure the execution is flawless. This is another role that may be overlooked by people on the outside, but any investment banker knows that a bad operations team can cause unnecessary headaches and completely mess up a profitable, well-working team. For an operations role you’ll need to be comfortable working on a variety of IT systems or at least learning them quickly. Of course, an eye for detail is extremely important as is good listening skills. If a trader asks you to check something urgently, they will be very upset if they have to repeat it. The operations team also communicates, usually by phone, with other operations teams as well as salespeople at the other banks who are doing business with them, so you’ll need a good rapport with people, especially when lots of money is on the line.
IT: Another increasingly important role in an investment bank that is considered part of the back office is the IT department. No longer just fixing desktops that are slow, IT departments in investment banks are now in charge of complex computer networks, trading platforms, and communications systems. They may also be tasked with developing bespoke software to facilitate the bank’s trades and content management. And not only the upkeep is important, but also the security of those systems as well. If any sensitive information gets out, it could spell real trouble for the bank. Nowadays practically all trading is done electronically and sensitive information is also kept electronically. Investment bankers are also always looking for easier and faster trading and content management systems so it’s up to the IT staff to suggest possibilities and implement them. Traders are also now increasingly set up to work from home so that they can trade out of office hours, another thing IT will have to look after. No one can do their job if the system goes down, something investment bankers will not tolerate, so the IT staff needs to be proactive in systems upkeep as well as suggesting cutting-edge technology that will give the investment bank a clear edge over the competition.
Investment banks deal with a wide range of financial instruments and clients, and therefore have tons of different roles to fill. The work is high-pressure and days can be extremely long, but it can also be satisfying, interesting and the paycheck usually makes all that hard work worth it.
Download your free copy of our guides: What's Investment Banking? and Top Investment Banking Employers, 2012 editions.