Among the many things money can buy are financial goods, like mortgages and insurance policies. What separates a financial good from something else is the service that goes with it, and that’s where financial services come in.
As an industry, financial services is huge. It includes thousands of depository institutions, providers of investment products, insurers and credit-financing organizations. It also encompasses companies that facilitate global payments and provide critical financial utilities like stock and derivative exchanges, as well as debt-resolution services. The sector is also home to independent regulatory bodies, such as the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA).
Some of the most familiar financial services are those that help individuals manage risk. People pay a premium to get protection against the cost of certain unforeseen events, such as health, life, home, and car insurance. Insurance agents and brokers help their clients choose the right policies. Other risk-management services are provided by reinsurance firms, which sell insurance to insurers themselves to protect them against catastrophic losses.
Other services include lending, which involves giving people or businesses the means to borrow and invest capital, such as loans, mortgages, credit cards, and other forms of financing. Banks are major lenders, and they can earn interest on the money they hold for customers. Investment services help people grow their wealth through investments, such as stocks and bonds. And the debt-resolution side of financial services helps consumers and businesses settle unpaid bills, such as credit card debt or student loans.