A financial services sector puts people’s money to work by helping them save, invest, borrow and spend. It also helps businesses grow and expand. It provides millions with secure jobs and allows individuals to buy homes, cars and other goods by providing loans. And it protects people’s property and health by offering insurance policies.
Most of us think of banks, mortgage lenders, stock brokers and investment firms when we hear the term “financial services.” But it’s much more expansive than that. It encompasses not only deposit-taking, loan and investment services but also insurance, asset management, trust and agency, estate, and securities services. And it serves not just individuals but also small businesses, large companies and even the government.
The basic idea of financial services is to provide intermediation—channeling cash from savers to borrowers and redistributing risk. Banks intermediate by taking on the risk that borrowers won’t repay, enabling other people to avoid it; insurance agencies distribute financial services by pooling their customers’ money to pay for risks that they can’t afford individually. And asset managers channel cash by managing assets such as mutual funds, pensions and insurance policies.
Whether it’s a bank that lends you a home equity loan to cover your debt-to-income ratio or an investment firm that manages your retirement savings, all financial services are designed to put your money to work for you. And the industry is constantly evolving to keep pace with new technologies and consumer demands.
Careers in financial services typically offer a higher salary than those in other fields, and a solid entry-level position can quickly lead to a significant increase in pay. The ability to move from one company to another is often easier than in many other industries, and working conditions are generally more flexible.
But the stress and long hours that characterize some positions can make it challenging to achieve a healthy work-life balance. It’s not uncommon for workers in financial services to be on the job for 16 to 20 hours a day, and burnout is real. The industry is also highly regulated, which can sometimes limit its flexibility and innovation.
But a well-functioning financial services industry is critical to all other sectors, including manufacturing, agriculture and retail. The industry’s products and services allow other industries to produce goods and create jobs, while consumers benefit from a stable economy with low inflation and interest rates, adequate protection against fraud and predatory lending, and reasonable regulation that keeps pace with rapid economic change. Moreover, financial services are a powerful engine that drives other industries’ practices, standards and operations. So it’s important to understand the role they play and how they interact with each other. That way we can make sure they are serving our best interests. A good place to start is with the four main types of financial services: