Financial Intermediary

AAA

DEFINITION of 'Financial Intermediary'

An entity that acts as the middleman between two parties in a financial transaction. While a commercial bank is a typical financial intermediary, this category also includes other financial institutions such as investment banks, insurance companies, broker-dealers, mutual funds and pension funds. Financial intermediaries offer a number of benefits to the average consumer including safety, liquidity and economies of scale.

INVESTOPEDIA EXPLAINS 'Financial Intermediary'

Financial intermediaries encompass a wide range of entities in terms of size and scale of operation, ranging from a small insurance brokerage, to giant global institutions that provide a complete range of financial services including commercial banking, investment banking and asset management.


In certain areas such as investing, advances in technology threaten to eliminate the (financial) intermediary, a phenomenon known as disintermediation. For example, the advent of online brokerages has resulted in millions of active investors bypassing traditional full-service brokerages and investing directly in the markets. Disintermediation is much less of a threat in other areas of finance such as banking and insurance.

RELATED TERMS
  1. Disintermediary

    Anything that removes the "middleman" (intermediary) in a supply ...
  2. Broker-Dealer

    A person or firm in the business of buying and selling securities, ...
  3. Disintermediation

    1. In finance, withdrawal of funds from intermediary financial ...
  4. Financial Cooperative

    A financial institution that is owned and operated by its members. ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Central Counterparty Clearing House ...

    An organization that exists in various European countries that ...
RELATED FAQS
  1. How does the landscape of the financial services sector in the U.S. compare to Canada?

    In recent decades, banking reforms and exposure to new business practices has served to increase the similarities between ... Read Full Answer >>
  2. What is the long-term sector outlook for financial services?

    The broader financial services sector faces an uncertain long-term future. The enormous growth of the financial sector between ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  2. Options & Futures

    Managing Interest Rate Risk

    Learn which tools you need to manage the risk that comes with changing rates.
  3. Options & Futures

    Savings Accounts Not Always The Best Place For Cash Assets

    Money market funds may be all that stands between you and increasing your wealth.
  4. Options & Futures

    Brokers and Online Trading

    How do you find the right broker for your investment needs? Start by reading our broker tutorial.
  5. Professionals

    Should Investors Nix Actively Managed Funds?

    Index fund returns are on a tear but does this mean investors should nix actively managed funds?
  6. Mutual Funds & ETFs

    Are These 2015's Most Promising Mutual Funds?

    For 2015, the mutual funds covered below are likely to offer more upside potential than the vast majority of mutual funds in existence.
  7. Mutual Funds & ETFs

    Why These Could Be 2015's 10 Best Mutual Funds

    These 10 mutual funds offer strong potential for 2015. Here's why.
  8. Professionals

    State Street Slashes ETF Fees

    State Street has slashed fees on 41 of its ETFs in the wake of historic redemptions.
  9. Stock Analysis

    Will Spinoffs Give American Capital A Pop?

    American Capital shareholders have long awaited a plan to spin off the company's investments from its prized asset-management business.
  10. Mutual Funds & ETFs

    Pimco and Vanguard: A Tale of Two Fund Managers

    A look at the similarities and differences of asset management giants Pimco and Vanguard.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center