Module 2, Summary

Summary
Lesson 1 of 1

Summary

To better understand the structure of the investment industry, in this module we explored
where investment firms sit relative to each other, how their departments are categorised, and
what roles are commonly held by their professionals. We first focused on buy-side versus sell-
side firms and then looked at front, middle, and back o ce functions.

Sell-side firms primarily provide investment products and services, such as

investment banks, brokers, and dealers. Institutional investors, who are considered
to be on the buy-side, purchase these investment products and services from sell-
side firms. Buy-side firms include firms that manage portfolios for clients or
themselves or both.

Sell-side firms organise their activities into front, middle, and back o ce
functions. The front o ce consists of client-facing activities that provide direct
revenue generation. The middle o ce includes the core activities of the firm, such
as risk management, information technology (IT), corporate finance, portfolio
management, and research. The back o ce houses the administrative and support
functions necessary to run the firm, including accounting, human resources,
payroll, and operations.

The terms front o ce, middle o ce, and back o ce are

generally not used when describing buy-side firms, but the
main departments of buy-side investment management firms
are similar to those of sell-side firms. These typically include
such departments as sales and client relations, investment
research, and portfolio management, trading, compliance,
accounting, and administration.
Next, we went a level deeper into the types of positions and associated responsibilities that exist
in the investment industry, from leadership roles to investment sta .

Typical titles that exist within a firm’s leadership include but are not limited to Chief
Executive O cer (CEO), Chief Financial O cer (CFO), Chief Investment O cer
(CIO), Chief Operating O cer (COO), Chief Compliance O cer (CCO), Chief Risk
O cer (CRO), Chief Audit Executive, Chief Accountant (also known as the Finance
Controller), Head Trader, and General Counsel. Depending on the firm’s size, some
people may hold multiple titles and responsibilities.

Firms in the investment industry employ many types of investment professionals,

including portfolio managers, research analysts (buy-side, sell-side and
independent firms), research assistants, traders (buy-side and sell-side), sales
managers, salespeople, sales assistants, client service agents, and account
executives or account managers.

Lastly, we looked at two main financial institutions, banks and insurance companies, to
understand the role they play in the investment industry.

Banks collect deposits from savers and transform them into loans to borrowers,
which is also why they are referred to as deposit-taking or depository institutions.
They may also raise money to make loans by issuing and selling bonds or stocks.
Banks vary in whom they serve and how they are organised, and they may have
di erent names in di erent countries.

Insurance companies are not only financial intermediaries that connect buyers of
insurance contracts with providers of capital who are willing to bear the insured
risks, but also among the largest investors.

Module Glossary

In this module, you learned the following terms (in order of appearance):
Lesson 1: Structure of Investment Firms
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Sell-side firms: Typically, investment banks, brokers, and dealers that provide investment
products and services.

Buy-side firms: Institutional investors and investment managers who purchase investment
products and services from sell-side firms.

Front o ce: Client-facing activities that provide direct revenue generation, such as sales,
marketing, and customer service activities.

Middle o ce: Core activities of a firm, such as risk management, information technology,
corporate finance, portfolio management, and research.

Back o ce: Administrative and support functions necessary to run the firm, including
accounting, human resources, payroll, and operations.

Lesson 2: Investment Firm Staff and Leadership

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No new terms introduced in this lesson.

Lesson 3: Financial Institutions

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Financial institutions: Financial intermediaries, such as banks and insurance companies,

whose role is to collect money from savers and to invest it in financial assets.

Banks: Financial institutions that collect deposits from savers and transform them into loans
to borrowers.

Deposit-taking institutions: Financial institutions that take deposits, such as banks; also
called depository institutions.
 Insurance companies: Financial institutions that help individuals and companies o set the
risks they face as well as among the largest investors.

Fraud: Intentional deception, such as deliberately causing or falsely reporting losses to

collect insurance settlements.

Moral hazard: Tendency of people to be less careful about avoiding losses once they have
purchased insurance, potentially leading to losses occurring more often when they are
insured than when they are not.

Adverse selection: Tendency of people who are most at risk to buy insurance, causing
insured losses to be greater than average losses.

Up Next

Now that you understand the structure of the investment industry, in the next module, you will
explore the variety of services o ered in the investment industry and how they fit within the
larger financial services industry.