The term financial services relates to the various services that are provided to clients by the financial industry. It covers a wide range of institutions that are involved in the management of money and finances. These institutions can be in the form of banks, credit unions, insurance companies, credit card companies, investment funds, stock brokerages and consumer finance companies.
The financial service industry affords many different services to its clients. Different institutions provide different types of services to the clients; some cater to commercial clients, whereas some cater to individuals. There are various financial institutions that lend money, each for different purposes.
The financial service industry is a direct result of the Gramm-Leach-Bliley Act of 1999, which granted banks the right to branch out into areas of the financial industry that were previously off limits to them. It gave them the opportunity to either merge with other financial institutions or set up their own new divisions. Some banks bought, merged with or acquired insurance companies, brokerage firms, investment banks and holding companies, thereby diversifying their operations. Some simply created their own new divisions that began selling various financial products to their clients.
Banks comprise the largest section of the financial services industry. The main function of a bank is to provide a safe and secure place for people to put their money. The banks will invest the money that is deposited with them, usually for their own gain, and give the depositor a miniscule amount of interest if the money is placed in a savings account. There are various types of banks, but the most common ones are private/savings banks and commercial banks. Private or savings banks offer their clients many services such as checking services, lending services, mortgage services, depository services and credit card services. Commercial banks also take deposits and provide checking services, but make loans mainly to corporate or commercial customers for their business needs. The loans made by commercial banks are usually to finance major projects or business expansions.
Another branch of the banking sector is called investment banking. This refers to the part of corporate finance that enables large corporate clients to raise the necessary funds which they may require for their projects. This is done by issuing securities or bonds to the public, in lieu of equity or debt. Investment banks will also advise their customers during various financial transactions or during mergers and acquisitions. Investment banks also provide investment services such as hedge funds, asset management and custodial services.
Insurance companies provide risk coverage services to their clients. Risk coverage service is intended to cover various risks that are associated with a person's life or property. Besides providing security to the individual, many insurance plans also provide a monthly or yearly income to the individual by way of dividends. There are a number of insurance policies available, such as life insurance, general insurance and commercial insurance.
Advisory services companies generally provide investment services to their customers. There are many investment opportunities and options available to customers, but not every type of investment is right for every individual. Not every investor is right for every type of investment. There are many factors that must be considered before an investment is made. Some of these considerations are the security of the investment, risk of the investment and return on the investment. Advisory investment companies advise the investors to choose the correct investment that will suit their plans along with assessing all the risk factors. They also handle their clients' money and invest it according to the instructions of the clients.
A new phenomenon in the financial service industry is the birth of a concept called Money Center Banks. This term was given to massive institutions that have begun to operate in many different service areas of the banking industry. They have been named "one-stop shops" because, besides providing regular banking services, they also handle asset management, investment banking and brokerage services.
Another type of financial service company is the credit card company. These companies offer the necessary credit lines to their customers and charge interest for the money borrowed whenever a purchase is made with the credit card. When a purchase is made by the customer the credit card company immediately pays the seller for the item purchased and charges the customer a high rate of interest for the loan.