Understanding the Back Office of Financial Companies

The back office of a financial company consists of support staff handling tasks like settlements, record keeping, and IT services. It originated from early office layouts where client-interacting roles were in the front and non-client-facing roles like accounting were in the back.

Basics

The company's back office comprises administration and support staff who don't interact with clients. It handles tasks like settlements, record maintenance, compliance, accounting, and IT. In a financial firm, there are three segments: front office (sales, marketing, customer support), middle office (risk management), and back office (administration and support).

The back office constitutes the operational backbone of a company, encompassing all business functions. Despite their unobtrusive presence, back-office staff perform vital functions. Often categorized as "Operations," these roles empower front-office personnel for client interactions.

The back office is integral to any firm and is also used to define roles not directly revenue-generating. Its inception as a term dates to when early companies physically divided customer-interacting associates in the front and non-interacting ones like accounting clerks in the back.

Back-Office Roles Today

In today's landscape, most back-office roles are positioned outside a company's headquarters to manage costs, often opting for cities with lower expenses and available workforce. Cost reduction strategies also involve outsourcing or offshoring, with technology enabling remote work that trims rent and boosts productivity by accessing talent across regions. Some companies incentivize remote work; for instance, a financial firm might offer a $500 monthly housing subsidy to CPAs working from home, yielding an annual saving of $6,000 compared to the $1,000 monthly cost of office space. However, transitioning to remote work could entail lower salaries for employees shifting from central Front Office roles.

Front-Office Collaboration

The front office is responsible for managing client interactions, which includes attracting new clients and serving existing ones. In contrast, the back office supports front office transactions without direct client interaction. Essentially, the back office's "client" is the front office itself.

Even though back-office staff members do not directly engage with customers, they actively collaborate with front-office teams. For example, a salesperson for manufacturing equipment might ask back-office staff for accurate inventory and pricing information. Real estate marketing professionals often work with sales agents to create attractive marketing materials. IT experts regularly interact with all company divisions to ensure smooth system operations.

Many business school students from non-target universities often see back-office roles as a way to gain experience and advance to front-office positions. However, back-office work differs significantly from front-office responsibilities, and aside from corporate credit risk roles, it might not provide the necessary experience for such transitions, although this varies among firms.

Conclusion

The back office supports the front office by handling tasks from customer trades to the bank's trading operations. It confirms trades and handles settlements, clearances, records, compliance, accounting, and IT. The front office relies on the back office, and their collaboration is vital. Behind the scenes, the back office is crucial for front desk tasks. As a cost-saving move, many financial firms are transitioning to remote work for their back office teams. With technology enabling remote work, companies can access talent across regions and trim rent costs.