Financial services is the industry that allows people to spend, save and invest their money wisely. It includes banks, brokers and mortgage lenders among many others. It also encompasses companies that provide credit cards and insurance. Great strides have been made in financial inclusion, and many formerly excluded adults now have access to accounts.
The complexities of the financial industry can be overwhelming. There are a variety of terms and acronyms that can be confusing, but there is no need to get bogged down. The most important thing to remember is that financial services are not the same as consumer products like food or furniture. Financial services involve facilitating transactions and providing advice, while consumer products are tangible goods that people use to satisfy their needs.
Banks, investment firms and credit card companies are all considered financial services. It wasn’t always this way, however. Until the 1970s, each sector stayed within its own niche. For example, banks primarily offered checking and savings accounts and loan associations gave out mortgages. But then, in response to consumers’ demands, these sectors began to offer more. Consequently, the lines between them became blurred and today most major financial services providers are conglomerates.
A key function of financial services is to connect savers with borrowers. They take deposits from individuals and businesses, often earning interest on them, and then lend the funds to those who need it for various purposes. This can include starting a business, buying a home or financing an existing one. The loans are typically unsecured, but may come with some form of collateral such as a car or a house.
The financial services industry also helps businesses by enabling them to manage their finances and make informed decisions. These businesses need to know what the market is doing and how their own business plans can fit into it. For this reason, companies that perform these functions are called advisers. They help their clients choose the best investments, decide how much to save and set financial goals for themselves.
Another part of the financial services industry involves assisting companies in managing risk. This includes providing insurance against loss (e.g. life insurance, property insurance and liability insurance) or against bankruptcy. This kind of financial service is usually provided by insurance companies, which are part of the financial services industry.
Other types of financial services companies offer investment management, which means buying and selling stocks, bonds and other securities for clients. This can be done through an investment firm or by a private investor who provides venture capital for startup companies. Those who work in this area are known as portfolio managers. They are also responsible for overseeing the performance of the investment portfolios that they manage. Some of them are employed by companies, while others operate as independent contractors. There is a lot of competition in this sector, which can lead to job security and high pay levels. But it also requires a lot of hard work.