A:

Companies in the financial services industry are in the business of managing money.

Globally, the financial services industry leads the world in terms of earnings and equity market capitalization. Large conglomerates dominate this sector but it also includes a diverse range of smaller companies.

Commercial banking services form the foundation of the financial services group. The operations of a commercial bank include the safekeeping of deposits, issuance of credit and debit cards, and the lending of money. An investment bank typically only works with deal makers and high-net-worth clients, not the general public. These banks underwrite deals, secure access to capital markets, offer wealth management and tax advice, advise companies on mergers and acquisitions, and facilitate the buying and selling of stocks and bonds. Financial advisers and discount brokerages also occupy this niche.

Hedge funds, mutual funds and investment partnerships invest money in the financial markets and collect management fees in the process. These organizations require custody services for trading and servicing their portfolios, as well as legal, compliance and marketing advice. There are also software vendors that cater to the investment fund community by developing software applications for portfolio management, client reporting and other back office services.

Private equity funds, venture capital providers and angel investors supply investment capital to companies in exchange for ownership stakes or profit participation. Venture capital was especially important to tech firms in the 1990s. Though fundraising volume was significantly lower in 2006 than it was at the peak of the dot-com bubble in 2000, much of what goes on behind the scenes in the making of big deals is attributed to this group.

Insurance is another important subsector of the financial services industry. In the U.S., an insurance agent differs from a broker. The former is a representative of the insurance carrier, while the latter represents the insured and shops around for insurance policies. This is also the realm of the underwriter, who assesses the risk of insuring clients and also advises investment bankers on loan risk. Finally, reinsurers are in the business of selling insurance to the insurers themselves to help protect them from catastrophic losses.

The vast financial services sector also includes accountants and tax filing services, currency exchange and wire transfer services, and credit card machine services and networks. It also includes debt resolution services and global payment providers such as Visa and MasterCard, as well as exchanges that facilitate stock, derivatives and commodity trades.

RELATED FAQS
  1. What other sectors are most similar to insurance?

    Discover the other subsectors of the overall financial services sector that are most similar for investors in the insurance ... Read Answer >>
  2. What other sectors are most similar to banking?

    Learn valuable information about the many different subsectors in the financial services sector that most closely resemble ... Read Answer >>
  3. What are the biggest trends affecting the profitability of the financial services ...

    Explore the trends that most affect the financial services sector, including the role of central bank policy and challenges ... Read Answer >>
  4. What are the most popular mutual funds that invest primarily in the insurance sector?

    Understand why investors may be interested in investment opportunities in the insurance sector, and learn which mutual funds ... Read Answer >>
  5. What are examples of the largest companies in the insurance sector?

    Read about some of the largest and most influential companies in the insurance sector, a list that includes Berkshire Hathaway ... Read Answer >>
Related Articles
  1. Insurance

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
  2. Personal Finance

    Understanding the Financial Sector

    The financial sector is a category of stocks comprised of firms that provide financial services to commercial and retail customers.
  3. Insurance

    Insurance Companies Vs. Banks: Separate And Not Equal

    Insurance companies and banks are both financial intermediaries. However, they don't always face the same risks and are regulated by different authorities.
  4. Insurance

    12 Insurance Questions for High Net Worth Families

    High net worth families should ask themselves these 12 questions regarding comprehensive insurance.
  5. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  6. Insurance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  7. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  8. Investing

    FAS: Direxion Daily Financial Bull 3X ETF

    Obtain a thorough review and analysis of the Direxion Daily Financial Bull 3X fund, a leveraged ETF that tracks the performance of the financial sector.
  9. Insurance

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.
RELATED TERMS
  1. Underwriting Risk

    Underwriting risk is the risk of loss borne by an underwriter ...
  2. Brokerage General Agent

    An independent firm or contractor working for an insurance company ...
  3. Transfer Of Risk

    The underlying tenet behind insurance transactions. The purpose ...
  4. Underwriting Capacity

    Underwriting capacity is the maximum liability that an insurance ...
  5. Large-Line Capacity Insurance

    Large-Line Capacity is the maximum amount of liability that an ...
  6. Personal Lines Insurance

    Personal lines insurance includes property and casualty insurance ...
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. ...
  5. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability of potential investments.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center