When you think of financial services, you might picture banks, stock brokers and mortgage lenders. But financial services encompass much more than these three categories. They also include financial advisors, investment firms and Wall Street. These professionals help small businesses, large companies and even nonprofit organizations manage their finances. They handle things like investing capital, raising debt and advising on mergers and takeovers.
A lot of people think that financial services are just about money and credit. While they do have a huge impact on those two areas, financial services actually encompass a whole lot more. The term financial services actually refers to the entire finance industry, which is composed of thousands of depository institutions, providers of investment products, insurance companies and other credit and financing organizations. It also includes the critical financial utilities that support these activities, such as global payment systems and credit card networks.
The financial services sector is so important that when it fails, the entire economy can suffer. For example, if interest rates start to climb and lending dries up, consumers can’t buy goods and services, which can lead to a recession. In order to keep the economy healthy, central banks lower interest rates and try to stimulate lending.
Another crucial role that financial services play is providing protection for investments and assets. This is done through various types of insurance, such as life and property insurance. It is also done through brokerages, which allow individuals to shop around for the best rates on investments and insurance. Underwriters, who assess risk and approve or deny insurance applications, are also part of the financial services industry.
There are also many other types of financial services, such as family offices, which provide wealth management for high net worth individuals and families. These firms offer advisory, transactional and other specialty services, such as valuation, investment due diligence, M&A consulting, real estate consulting and structured finance. Investment banking, on the other hand, provides underwriting and capital market advisory services to public and private corporations and institutions that need to raise capital.
Other specialized financial services include venture capitalists, who invest in startups and other new businesses. They typically look for companies that are growing rapidly, have a unique product and a good business plan. Angel investors, on the other hand, are independently wealthy individuals who make personal investments in smaller companies and startups. These individuals often demand a stake in the company and may seek to acquire a controlling share of the firm. Financial services also include the accounting profession, which helps small businesses keep track of their finances and file taxes. They can also help businesses find the best credit cards for their needs and help them recover from bad debts. They can even help companies and individuals set up retirement plans. All of these services are provided by members of the financial services industry, which is overseen by independent regulatory agencies. These are designed to ensure that all financial services providers operate fairly and treat their clients honestly.