The Financial Services Industry
Financial services are the industry that comprises of all companies and people who provide a service to manage money and help individuals, businesses and institutions make investments. This includes a wide range of industries, from banking to insurance to investment funds and beyond. It also encompasses the payment system, which facilitates payments through cash, cheque and electronic means, as well as credit and debit cards.
The broad financial services industry is made up of three overlapping components: financial enterprises, which include banks; financial markets, including bond, equity and foreign exchange markets; and the payment system, which encompasses the cash, cheque and electronic payments. Financial services are essential to the economy, as they allow for the efficient and effective allocation of capital, support economic growth and enable individuals to meet their financial needs and aspirations.
Providing depository services, financial institutions accept deposits and offer checking and savings accounts that earn interest. They also extend credit to customers by lending them funds through loans and credit cards, assessing their creditworthiness and determining interest rates in return. They also invest in securities, manage financial risks and oversee the payment systems that enable money transfer.
In addition, some financial services firms provide advisory and wealth management services to their clients, helping them make better investment decisions. They may also provide reinsurance to reduce the risk of loss from catastrophic events. Other financial services providers include private equity and venture capital investors, who supply investment capital to companies in exchange for ownership stakes or profit participation. Angel investors, for example, are independently wealthy individuals who seek out small businesses and startups to invest in. In return, they often demand a significant share of the company and exert influence over its operations.
At the federal level, financial services include central banks that control the amount of money in the country and manage inflation by adjusting repo rates and participating in open markets. They are also responsible for regulating the nation’s liquidity by purchasing and selling government assets. At the state level, financial services include insurance companies that protect their customers against financial loss arising from death or injury (e.g. life and health insurance) or against property damage and theft (e.g. home and automobile insurance).
Financial services also include brokerage firms that connect buyers and sellers of securities, such as stocks, mutual funds and bonds. Brokerage firms charge both parties a fee for their services, called a commission. They also advise and provide research to their clients.
A career in financial services can be stressful, with long hours and high pressure to perform. It’s not uncommon for people in certain roles to work 16 to 20 hours a day. In the long run, this can lead to burnout and a lack of work-life balance. In addition, many financial services positions are subject to heavy regulations, which can hamper growth and innovation. However, if you’re passionate about your career and are good at multitasking, working in this field could be the right fit for you.