A Comprehensive Analysis of Financial Services Sector

A Comprehensive Analysis of Financial Services Sector
Karan Singh
| Updated: Aug 03, 2021 | Category: Finance & Accounting

As you know that the country’s economy is made up of many various segments called sectors. These sectors are consist of different businesses that deliver goods and services to clients. The companies or entities are combined together in a sector and provide identical goods or services. For example, if a company that provides cellular or mobile services are part of the telecommunication sector. If a company provides agricultural services, then it comes under the agricultural sector. As per the finance & development department of IMF (International Monetary Fund), financial services are the processes by which clients or businesses obtain economic goods. For instance, a payment system provider delivers a financial service when it accepts and transfers funds between recipients and payers. This comprises accounts settled via debit cards and credit cards, electronic funds transfer, and checks. Scroll down to check more information regarding Financial Services Sector.

Financial Services Sector – Meaning

The financial services sector offers different financial services to individuals and corporations. This part of the economy is made up of a range of financial firms consisting of lenders, banks, investment houses, real estate brokers, lenders, insurance companies, and finance companies. As we said above, the financial services industries are the most vital sector of the economy, leading the world to the equity market and earnings. Big conglomerates rule this sector, but it also comprises a varied range of smaller companies.

Companies in the financial services sector manage money. For example, a financial advisor works or regulates assets and provides advice on behalf of a customer. The financial advisor doesn’t directly offer investments or other products; rather, they assist the movements of funds between the issuers and savers of securities & other instruments. This service is a provisional task rather than a tangible asset.

On the other side, financial goods are not tasks. A mortgage loan may look like a service; however, it is actually a product that stays beyond the early provision. Loans, bonds, real estate, stocks, insurance policies, and commodity assets are some instances of financial goods.

Significance of Financial Services Sector

The financial services sector is the primary operator of a country’s economy. It offers the free flow of liquidity and capital in the marketplace. When the industry is robust, the growth of the economy and companies in this industry are better able to direct risk. The power of the financial services sector is also vital to the wealth of a country’s population. When the country’s economy and the sectors are strong, clients usually earn more. This encourages their purchasing power and confidence. When they require credit for huge purchases, they turn to the financial services sector to borrow.

In case the financial service sector fails, it can drag a country’s economy down. This can give rise to a recession. When the financial system begins to break down, the economy starts to suffer. Capital starts to dry up as lenders tighten the wheels on lending. Unemployment increases, and wages may even drop, leading customers to stop spending. To compensate, Central Banks have lesser interest rates to try to boost economic growth.

What are the Types of Financial Services Sector?

Following are the types of Financial Services Sector:

Types of Financial Services Sector
  1. Investment Services: People may access financial markets such as bonds and stocks via investment services. Brokers, either self-directed online services or humans, facilitate the buying & selling of securities, taking a commission for their efforts. Financial advisors may accuse a yearly fee based on AUM (Assets Under Management)[1] and numerous direct trades in the pursuit of managing & constructing a well-diversified portfolio. Robot advisors are the advanced personification of financial advice and portfolio management will completely automated algorithm portfolio allocations and trade implementations.

Mutual funds, investment partnerships, and hedge funds invest money in the financial markets and collect management fees in the procedure. These organisations need protection services for servicing & trading for their legal, compliance, portfolios, and marketing advice. There are also software vendors that provide the investment fund community by developing software applications for customer reporting, portfolio management, and other backend-office services.

Venture capital, angel investors, and private equity funds supply investment capital to entities in exchange for proprietorship stakes or profit participation. Venture Capital was especially vital to technology companies in the 90s.

  • Banking Services: The banking industry is the base of the financial services sector. It is concerned chiefly with direct lending & saving, while the financial services sector integrates insurance, redistribution of risk, insurance, and other financial actions. Banking services are offered by big commercial banks, credit unions, community banks, and other companies.
  • Banks earn profits primarily on the difference in the rates of interest charged for credit accounts & the prices paid to depositors. Financial services like these majorly make revenue via commissions, fees, and different ways like the increase in interest rates between deposits and loans.
  • Insurance Services: Insurance services are available for the security against injury or death (for example, health insurance, life insurance, disability income insurance), against property loss or damage (such as car insurance, home insurance), or against lawsuit or liability.

In India, an insurance broker is different from an insurance agent. The past is a representative of the insurance carrier, while the latter shows the insured and shops around for insurance policies. This is also the area of the underwriter who assesses the risk of insuring customers and also suggests investment bankers on loan risk. Reinsurers are in the business of selling insurance to insurers to aid safeguard them from catastrophic losses.

  • Accounting and Tax Services: This financial services sector is also comprised tax filing and accountants services, currency exchange and wire transfer services and credit card device services & networks. It also includes debt resolution services & international payment providers like Mastercard & Visa and exchanges that facilitate stock derivative and commodity trades.

Accountants make sure all financial statements and records, the balance sheet, cash flow statement, income tax return, and income & loss statement are in line with laws & regulations of the government. Accountants also accumulate the information required to arrange entries to company accounts like the general ledger and documents business financial transactions over time. This information is used to prepare or arrange weekly, monthly, yearly closing statements and cost accounting reports. Accountants also resolve any differences or inconsistencies they find in records, statements or documented transactions. They generally monitor established accounting control processes via an accounting system or software program.

Moreover, they also prepare & file taxes for entities & individuals. They examine all company assets, income earned & paid, or expected to provide a detailed examination of tax efficiency or inefficiency & make recommendations for decreasing total tax liabilities in the future.

Conclusion

The financial services sector comprises thousands of depository institutions, providers of insurance entities, investment products, other financing & credit organisations, and the providers of the significant financial utilities and services that hold up these functions. Financial organisations vary broadly in presence & size, ranging from some of the world’s biggest international companies with thousands of employees and billions of dollars in assets to community banks and credit unions with a small number of employees helping individual communities.

Read our article:Collaboration of NBFC with the Financial Companies

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Karan Singh

A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.

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