Working as a Risk Manager in a Financial Institution - dummies

Working as a Risk Manager in a Financial Institution

By Aaron Brown

Being employed in a financial institution offers some attractive benefits. Whether you’re a risk manager in the middle office, or a salesperson in the front office, the pay is pretty high, and nobody dies if you screw up. The work is challenging enough to keep you interested, but moderate skill can produce consistent tangible benefits.

You can wear expensive clothes and work in a fancy investment bank, if that’s your thing. Alternatively, you can binge-work fuelled by energy drinks all night in your sandals, shorts and Hawaiian shirt at a hedge fund; or you can choose from plenty of options in between.

Within financial institutions, the big choice of where to work is front, back, or middle office:

  • Front office means direct revenue-producing departments such as sales, trading, portfolio management and investment banking. These have the highest pay and the most glamour; also the worst hours and job security. The front office is a place best suited for ambitious, competitive people who think life is work and work is life.

  • Back office is the transaction and information processing parts of financial institutions including accounting, operations and IT departments. These jobs offer good quality of life, decent pay and hours, promotion based on ability rather than politics or luck and generally a friendlier atmosphere than the front office. On the downside, workers in these departments tend to get less respect (but often more pay) in financial institutions than in non-financial companies.

  • Middle office is risk management, and certain treasury functions including funding and capital management. Traditionally these jobs require front-office skills but they don’t generate direct revenue. Middle-office jobs tend to attract people who started in the front office but were more thoughtful and less focused on immediate revenue than their colleagues, and people who started in the back office but had a more theoretical bent than the average worker there.

Just to make things confusing, risk managers can be found in the front office, middle office and back office. In the 1990s regulators decided that risk had to be an independent function, and that all risk managers should report through the middle office to the chief risk officer. The result is that you can find anything from front-office to back-office levels of pay, excitement, respect and life quality as a risk manager.