Asset management firms have to look after clients’ wealth, ensuring it is managed responsibly. Enterprises and individual investors depend on them for money management and advice on better investment opportunities. As these firms grow, they require sustainable middle offices.
The “middle office” is a common term in the financial services sector, and middle-office operations are essential for the survival and growth of financial services firms.
Understanding the concept of the middle office
We are familiar with front and back offices. A middle office consists of operational teams engaged in risk management. Middle-office employees handle the IT requirements of the front office. The middle office may be considered to be a department within the financial services sector responsible for assisting with front-office operations. Risk managers and the IT team constitute the middle office of a financial services firm.
A middle office is a must if a financial services firm wants to scale up, especially if it depends on technology for operations. Front-office employees interact with customers directly and rely on technological solutions. If there is no one to meet the IT requirements of the front-office employees, customer satisfaction levels would drop.
Advantages of the middle office
With time, financial services companies face attrition, reducing productivity. If this is not addressed, increasing competition could leave a company behind. A middle office that helps with running business as usual helps it not only to stay competitive, but also to stand out.
A financial services firm would also not need to hire more employees to handle operations relating to assets under management. The middle office would help it adopt a “follow the sun” model, enabling it to complete trade-related tasks before the market opens.
Front-office employees may be required to produce annual risk reports, but this could take time, as they also need focus on core competencies. The middle office could help reduce turnaround time.
Financial services firms rely on technology to complete regular operations. For example, an asset management firm may rely on equity analysis algorithms to determine the best investment opportunities. Similarly, a firm may use financial analysis platforms to help clients find the right opportunities. Middle-office operations include working on such technological solutions.
There are recruitment and training costs involved in on-boarding middle-office employees. These could be saved if middle-office operations are outsourced to a reliable third party.