Back-office operations

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The unsung heroes of investment banking.

The operations division is also known as the 'back office'. Unlike the traders, sales people, capital markets bankers and corporate financiers of the 'front office', operations staff don't liaise with customers to generate revenues and profits for the bank. Instead, the division is a support function - operations professionals support people in the front office to make sure everything works smoothly and the bank gets paid.

The operations division is at the core of processing every transaction at the bank. It links risk management and control processes to help protect the bank's assets and reputation. Operations staff work closely with the other divisions - trading, sales, technology, market risk, credit, compliance, tax and legal - as well as external clients to help facilitate business and provide guidance and direction, especially with new products.

"We're an important link between the revenue producing divisions and our clients," says Toni Icevski, ECM and institutional settlements leader at Goldman Sachs JBWere. "You may not be dealing directly with the client but you are dealing with all their requirements and that means you play an important role in any successful outcomes."

Every banking arm has back-office support teams. Back-office functions are so broad that operations staff typically specialise in only one of these areas. Typical functions include settlement of securities and derivatives including FX and commodities, reconciliations, issuance of new securities through Initial Public Offerings (IPOs), and processing of asset servicing. At its centre is the core function of clearing and settling trades.

Clearing trades involves looking at the records made by the bank's traders when they buy and sell shares or other financial products, and checking that they match the records kept by the people from whom or to whom the shares were bought or sold (the counterparties).

People who work in settlements 'settle' trades or ensure the stocks or shares bought and sold by the bank's traders are exchanged for the correct amount of money. Settlements covers everything from preparing the documentation required for a sale, to making sure the bank has been paid for all the shares it has sold and bought.

Trends

The operations division may not be where banks make their profits, but it is certainly where they can lose them. The more efficient a bank is at conducting its business, the greater the percentage of revenues that will feed into the bottom line. Errors in the processing of a firm's transactions can be particularly costly, which is why the risk management and control functions performed by the operations team are so critical.

Banks have belatedly realised this and are now looking for a higher calibre of person to work in operations.

In Australia, many of the lower-end back-office operations are moving offshore, largely to Asia and India, which has resulted in less growth. But there are still opportunities, particularly in niche areas such as product control and office operations in the financial markets, where specialist knowledge is needed.

The move offshore has been parallelled by increased use of technology. Twenty years ago, clearing and settlements were labour-intensive businesses involving a lot of form filling and large filing systems. Today, they are mainly dominated by computerised settlements facilities that transfer financial products electronically. None of this bodes particularly well for jobs in operations, which are taking a hit, as processes are electronically streamlined and business moves offshore. The good news, however, is that the jobs left behind tend to be more interesting and higher paid.

But the back office has had a huge boost from its compliance and anti-money laundering activities. Not only must these positions stay onshore, they have also brought excitement and forensic glamour to the back office.

One of the most interesting areas of operations is hedge fund operations, or so-called 'prime brokerage'. Prime brokers act at the back office for hedge funds, offering everything from clearing, settlement and custody facilities to helping in managing relationships with investors and assistance with raising new funds. Prime brokers are a lucrative part of large investment banks.

Key players

There's no such thing as a key player in the operations world - all banks have operations divisions. However, some are more efficient than others. Every year, research company Z/Yen ranks banks' operations departments in terms of their efficiency and accuracy at confirming and settling trades and managing data. In Australia, the largest organisations for back-office operations is at UBS, and Merrill Lynch, which offers some client portfolio management roles.

Prime broking in Europe is dominated by Goldman Sachs, Morgan Stanley, Credit Suisse, UBS and Deutsche Bank.

Roles and career paths

Roles in operations are continually evolving. As markets and the products being traded continue to change, so must the skills of operations professionals who are at the core of processing each transaction.

Electronic systems have vastly increased the speed with which simple vanilla trades are processed. Derivative trades are newer, more complex and are still evolving, so the industry continues to develop the most effective ways to confirm and settle these transactions. The large number of documents required for derivatives transactions creates roles for documentation specialists who work closely with the legal departments to help develop standardised documentation in this space.

Whether you work with derivatives or not, most operations roles also have a strategic element - banks use operations staff to continually analyse ways of making processes more efficient, and project managers implement their suggestions; the more senior you become, the more likely you are to be assigned to this kind of strategic or project management role.

Goldman's Icevski says operations is a place where graduates from all backgrounds can contribute to the success of the organisation. "Operations is really at the core of the firm. All new products and markets, and completed transactions, run through operations. Because of this, you get exposure to nearly all business divisions from across the firm, which gives you a fantastic range of experience and allows you to carve out a long-term, influential career within financial services."

Pay

As non-revenue generating staff, operations professionals earn less money and lead a less glamorous existence than the highly paid corporate financiers, sales people and traders who inhabit the front office. Operations staff are a cost centre and banks are mindful of this. Unlike traders or successful sales people, who can receive a bonus equal to many multiples of their salary, people working in operations typically receive a fraction of their salary as a bonus. Nevertheless, back-office pay has improved in the past few years and is likely to keep rising as these jobs become more complex.

At a management or head of operations level, you can earn up to AU$100k. Operations staff also have two things in their favour - they usually go home before 6pm and they rarely work weekends.

Skills

· Kellie Sterling, head of recruitment and careers strategy at ANZ: 'We look for a broad range of competencies such as your analytical and problem solving skills, your interpersonal skills, your ability to work in a team environment, your focus on the customer and your ability to work with others from diverse backgrounds. Once graduates start working with ANZ they get exposure to different facets of banking on the job that allow them to broaden their experience and progress their career.

· While many roles have been streamlined by technology, Mathew Gowan form Hays says that there are still a range of different operational roles that require specialised skills. "You could work in treasury, or in stockbroking, and use skills that cover account management and tracing transactions from an accounting and administration sense," he explains. "While it can be a good field to enter, at the moment in Australia it can be hard to progress. It's a very specific skill set which can make it difficult to change roles."

· Goldman Sachs JBWere's Icevski: "You're a problem solver. You're dealing with many different people, organisations and procedures and you are the one that works with the business to find and implement the solution. You also need to be a good communicator, in terms of communicating the solution. The ability to prioritise and be good with time is important. Above all, you need strong attention to detail."

Click here to find out about global trends in operations.

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