Shopping on line can be easy, simple and save you lots of money. It can also take a lot of your time, frustrate you, and result in unwanted purchases. Now the same can be said for regular high street shopping, but with the vast opportunity presented by the Internet it will pay you to spend a few minutes reading this and understanding how to better optimize your Financial Services shopping experience:
1. Compare - without doubt the biggest advantage that the Financial Services offers shoppers today is the ability to compare thousands of Financial Services at a time. This is a great thing, but not necessarily all the time! Too much can be daunting at times so take advantage of the great comparison sites and where possible let them do the hard work for you.
2. Research - if it has been said it will be on the internet. Ignorance is no longer a justifiable reason for buying the wrong thing. Take the time to research in detail everything that you could possible want to know about
3. Testimonials - don't know anybody that has bought a Financial Services? Wrong! If the Financial Services is good the internet will let you know. Use the Internet as a friend and get testimonials before you buy.
4. Questions - Got a question about Financial Services then search the Forums, FAQ's, Blogs etc. Don't be afraid to ask .....
5. Reputation - Never heard of the company selling Financial Services? Don't worry, no reason why you should know every company in the world, but you know someone that does! Use the internet to find out what people are saying about Financial Services and build up a picture of their reputation for sales, returns, customer service, delivery etc.
6. Returns - still worried that even after all of the above your Financial Services wont be what you want? Check out the returns policy. There is so much competition now that someone, somewhere is bound to offer the terms that you are comfortable with.
7. Feedback - happy with your Financial Services then let people know, after all you are depending on others people input in your buying decision, so why not give a little back.
8. Security - check for the yellow padlock on the Financial Services site before you buy, and the s after http:/ /i.e. https:// = a secure site
9. Contact - got a question about Financial Services, or want to leave a comment then check out the sites contact page. Reputable companies have them and respond.
10. Payment - ready to pay for your Financial Services, then use your credit card or PayPal! Be aware of companies that don't accept them, there may be genuine reasons but given the huge amount of choice you have when buying online there is no reason at all not to buy via credit card or PayPal.
Financial services is a term used to refer to the
services provided by the
finance industry. Financial services is also the term used to describe organizations that deal with the management of money and includes
merchant banks, credit card companies, consumer finance companies,
government sponsored enterprises, and stock brokerages. Financial services is the largest
industry (or industry category) in the world, in terms of earnings; as of
2004, the industry represents 20% of the
market capitalization of the S&P 500. Contrary Investor
History of financial services
United States: Gramm-Leach-Bliley Act
The term
financial services became more prevalent in the United States partly as a result of the
Gramm-Leach-Bliley Act of the late 1990s, which enabled different types of companies in the US financial services industry to merge. Critics of this act say the term
financial services attempts to make the unison of these operations sound natural, ignoring the history of problems that have arisen from combining them, such as
Conflict of interest and Monopoly . Others, noting that many of the restrictions abolished by the Gramm-Leach-Bliley Act had never existed in other countries or had been abolished earlier than in the US, say the term
financial services is a natural one, in long term use, which means nothing more than its constituent words .
In the USA almost every company now which previously described themselves as a bank, insurance company, or brokerage house, now describes themselves in some way as a financial services institution.
Allstate Insurance, for example, now provides
certificates of deposits and investment brokerage services. Bank of America offers full-featured brokerage products, while E*TRADE has expanded into offering bank accounts and loans. Companies usually have two distinct approaches to this new type of business. One approach would be a bank which simply buys an insurance company or an investment bank, keeps the original brands of the acquired firm, and adds the acquisition to its holding company simply to diversify its earnings. Outside the U.S., e.g., in Japan, non-financial services companies are permitted within the holding company. In this scenario, each company still looks independent, and has its own customers, etc. This is essentially the style of Citigroup and
JP Morgan Chase.
In the other style, a bank would simply create its own brokerage division or insurance division and attempt to sell those products to its own existing customers, with incentives for combining all things with one company. This is the style of Washington Mutual and Wells Fargo.
Banking services:
What do banks do?
The primary operations of banks include:
- Keeping money safe while also allowing withdrawals when needed
- Issuance of checkbooks so that bills can be paid and other kinds of payments can be delivered by post
- Provision of loans and mortgage loans (typically loans to purchase a home, property or business)
- Issuance of credit cards
- Allow financial transactions at branches or by using Automatic Teller Machines (ATMs)
- Facilitation of standing orders and direct debits, so payments for bills can be made automatically
- Provide overdraft agreements for the temporary advancement of the Bank's own money to meet monthly spending commitments of a customer in their current account.
- Provide Charge card advances of the Bank's own money for customers wishing to settle credit advances monthly.
- Provide a cheque guaranteed by the Bank itself and prepaid by the customer, such as a cashier's check or certified check.
Commercial bank
A
commercial bank is what is commonly considered a 'bank'. The term 'Commerce' is used to distinguish it from an 'investment bank', a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of Bond (finance) (debt) or stock (equity). Major commercial banks include:
Top ten banking groups in the world ranked by
tier 1 capital
Top ten banks in the world (as at end-2006) according to The Economist: The Economist: The world's biggest banks, List of the world's ten largest banks by tier 1 capital at the end of 2006
{] billions)!Country|-|1.||[Bank of America||90||US|-|3.||[HSBC||85||France|-|5.||[JPMorgan Chase||69||Japan|-|7.||[ICBC||59||UK|-|9.||[Bank of China||47||Spain|-|}
Private banking
The term
private bank is simply a marketing term for a bank or a division of a financial services company targeted towards wealthy individuals. Often it is used to describe specifically the lending services targeted towards this group, such as large margin loans.
This table displays the results of the Ultra high net worth (
US Dollar30m+) category of the 2006 private banking awards: Euromoney
{| class="wikitable"!Rank 06!Company!Rank 05|-|1.||JPMorgan Chase||1|-|2.||Goldman Sachs||2|-|4.||[Citigroup Private Bank||5|-|6.||[HSBC Private Bank||6|-|8.||[Merrill Lynch||8|-|10.||[ABN Amro Private Banking||10|-|}Ranking: 'n' denotes 'nominated'
Capital market banks
Capital market banks underwrite debt and Stock, assist company deals (advisory services, underwriting and advisory fees), and restructure debt into structured finance products. Prominent amongst them include:
See also: Mergers & acquisitions
Bank cards
Bank cards include both
credit cards and debit cards. Bank Of America is the largest issuer of bank cards.
Credit card machine services and networks
Companies which provide credit card machine and payment networks call themselves "merchant card providers". These include:
Investment services
Asset management
Asset management is the term usually given to describe companies which run collective investment funds.
The following is Global Investor’s 2005 ranking of the top 10 investment managers by assets under management: Barclays Global Investors
{]million)!Country|-|1.||[Barclays Global Investors||1,367,269||US|-|3.||[Fidelity Investments||1,050,435||US|-|5.||[The Vanguard Group||790,513||Germany|-|7.||[JPMorgan Asset Management||738,294||US|-|9.||[Deutsche Asset Management||589,800||US|-|}
Hedge fund
Custody services
Custody services and securities processing is a kind of 'back-office' administration for financial services. Assets under custody in the world was estimated to $65 trillion at the end of 2004. Prudential: Securities Processing Primer Firms engaged in custody services include:
Insurance
Insurance brokerage
Insurance brokers shop for insurance (generally corporate property and casualty insurance) on behalf of customers. Significant companies in this sector of the financial services market include:
Insurance underwriting
Personal lines insurance underwriters actually underwrite insurance for individuals, a service still offered primarily through agents,
insurance brokers, and
stock brokers. Underwriters may also offer similar commercial lines of coverage for businesses. Activities include insurance and Annuity (financial contracts),
life insurance, retirement insurance,
health insurance, and
property & casualty insurance. Some well known insurers include:
Reinsurance
Reinsurance is insurance sold to insurers themselves, to protect them from catastrophic losses. Firms in this sector include:
See also: Underwriting
Intermediation or advisory services
Stock brokers (private client services) and discount brokers
Stock brokers assist people in investing, online only companies are called 'discount brokerages', companies with a branch presence are called 'full service brokerages' or 'private client services. Some of these are:
*
Ameritrade IZone - a subsidiary of Ameritrade
Other low-cost brokerages that function in a similar way to a dividend reinvestment program include:
- BUYandHOLD
- Edgar, Dunn & Company (Edgar, Dunn & Company is a financial services consultancy)
- FolioFN
- General Electric (GE is one of the largest financial companies)
- Sharebuilder
Conglomerates
A
financial services conglomerate is a financial services firm that is active in more than one sector of the financial services market e.g. life insurance, general insurance, health insurance, asset management, retail banking, wholesale banking, investment banking, .....
A key rationale for the existence of such businesses is the existence of diversification benefits that are present when different types of businesses are aggregated i.e. bad things don't always happen at the same time. As a consequence,
economic capital for a conglomerate is usually substantially less than economic capital is for the sum of its parts.
Market share
The financial services industry constitutes the largest group of companies in the world in terms of earnings and equity market cap. However it is not the largest category in terms of revenue or number of employees. It is also a slow growing and extremely fragmented industry, with the largest company (
Citigroup), only having a 3 % US
market share. The Opportunity: Small Global Market Share, Page 11, from the Sanford C. Bernstein & Co. Strategic Decisions Conference - 6/02/04
In contrast, the largest home improvement store in the US, Home Depot, has a 30 % market share, and the largest coffee house
Starbucks has a 32 % market share, etc. Despite this fragmentation, financial service companies as a group are by far the most profitable in the world, and if any grew to the same market share percentages as any other retail industry, the potential profit would be large.
2004
S&P 500 index market capitalization in 2004: Street Authority
- Financial Services: 20.30%
- (Computer hardware & software: 15.30%) (as comparison to 1999)
- Healthcare: 13.40%
- Industrial Materials: 12.20%
- Hardware (computer hardware): 10.80%
- Consumer Goods: 9.70%
- Consumer Services: 8.80%
- Energy: 6.50%
- Software: 4.50%
- Business Services: 3.90%
- Media: 3.90%
1999
S&P 500 index (500 large American companies) market cap in 1999: Contrary Investor
- Technology (hardware, software): 29.8%
- Financial: 13.1
- Consumer Staples: 11
- Consumer Cyclicals: 9.2
- Healthcare: 9
- Capital Goods: 8.4
- Communication Services: 8
- Energy : 5.5
- Basic Materials: 3.00%
- Utilities: 2.3
- Transportation: 0.7
Brand equity
Each year,
BusinessWeek and Interbrand publish their 100 Best Global Brands study, ranking the
brand equity. The following are the financial services companies in this list, ranked by this study for
2006: BusinessWeek/Interbrand 2006 Global Brand Survey
{]billion)!Annual
change!2005
Rank!Country
of origin|-|11||
Citigroup|-|14||[American Express|-|21||[Merrill Lynch|-|28||[HSBC|-|33||[J.P. Morgan|-|36||[Morgan Stanley|-|37||[Goldman Sachs|-|42||[UBS AG||8.73||15%||44||Switzerland||3.47||9%||87||[Netherlands|}
Glossary
Glossary for reading financial services reports:
- Asset sensitive - a financial institution that has a negative duration of equity may also be described as having a positive gap or as being asset sensitive.
- Charge-offs - written off debt
- Cost of funds - the cost of loan capital, the cost of funding assets; free liabilities include interest free checking accounts
- Liability sensitive - the inverse of asset sensitive.
- Operating leverage - a simple indication of a firm' s earnings strength; usually measuring the operating income as a percentage of gross income
Acronyms
- NCL - net credit losses - cost of charge-offs, written off debt CardReport: Charge-off
- NCL rate - net credit loss rate - the percentage of the lending portfolio that is not expected to be repaid The Street
- NII - net interest income - interest income less interest cost
- NIM - net interest margin - margin between interest income and interest cost
- NPA - non performing assets - interest bearing assets not paying interest
Companies
See also
Notes
References
| last = Porteous
| first = Bruce T.
| coauthors = Pradip Tapadar
| title = Economic Capital and Financial Risk Management for Financial Services Firms and Conglomerates
| publisher = Palgrave Macmillan
| date = 2005
| month = December
| id = ISBN 1-4039-3608-0 -->
| last = Wengler
| first = C.
| coauthors = Cornelia Gerster
| title = European Banking and Financial Services Law
| publisher = Kluwer Law International
| date = 2004
| month = September
| id = ISBN-10: 9041122990 -->
Financial services is a term used to refer to the
services provided by the
finance industry. Financial services is also the term used to describe organizations that deal with the management of money and includes merchant banks, credit card companies, consumer finance companies, government sponsored enterprises, and
stock brokerages. Financial services is the largest industry (or industry category) in the world, in terms of earnings; as of
2004, the industry represents 20% of the market capitalization of the S&P 500. Contrary Investor
History of financial services
United States: Gramm-Leach-Bliley Act
The term
financial services became more prevalent in the United States partly as a result of the Gramm-Leach-Bliley Act of the late
1990s, which enabled different types of companies in the US financial services industry to merge. Critics of this act say the term
financial services attempts to make the unison of these operations sound natural, ignoring the history of problems that have arisen from combining them, such as Conflict of interest and Monopoly . Others, noting that many of the restrictions abolished by the Gramm-Leach-Bliley Act had never existed in other countries or had been abolished earlier than in the US, say the term
financial services is a natural one, in long term use, which means nothing more than its constituent words .
In the USA almost every company now which previously described themselves as a bank, insurance company, or brokerage house, now describes themselves in some way as a financial services institution.
Allstate Insurance, for example, now provides certificates of deposits and investment brokerage services. Bank of America offers full-featured brokerage products, while
E*TRADE has expanded into offering
bank accounts and loans. Companies usually have two distinct approaches to this new type of business. One approach would be a bank which simply buys an insurance company or an investment bank, keeps the original brands of the acquired firm, and adds the acquisition to its holding company simply to diversify its
earnings. Outside the U.S., e.g., in
Japan, non-financial services companies are permitted within the holding company. In this scenario, each company still looks independent, and has its own customers, etc. This is essentially the style of Citigroup and
JP Morgan Chase.
In the other style, a bank would simply create its own brokerage division or insurance division and attempt to sell those products to its own existing customers, with incentives for combining all things with one company. This is the style of
Washington Mutual and
Wells Fargo.
Banking services:
What do banks do?
The primary operations of banks include:
- Keeping money safe while also allowing withdrawals when needed
- Issuance of checkbooks so that bills can be paid and other kinds of payments can be delivered by post
- Provision of loans and mortgage loans (typically loans to purchase a home, property or business)
- Issuance of credit cards
- Allow financial transactions at branches or by using Automatic Teller Machines (ATMs)
- Facilitation of standing orders and direct debits, so payments for bills can be made automatically
- Provide overdraft agreements for the temporary advancement of the Bank's own money to meet monthly spending commitments of a customer in their current account.
- Provide Charge card advances of the Bank's own money for customers wishing to settle credit advances monthly.
- Provide a cheque guaranteed by the Bank itself and prepaid by the customer, such as a cashier's check or certified check.
Commercial bank
A
commercial bank is what is commonly considered a 'bank'. The term 'Commerce' is used to distinguish it from an 'investment bank', a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of Bond (finance) (debt) or
stock (equity). Major commercial banks include:
Top ten banking groups in the world ranked by tier 1 capital
Top ten banks in the world (as at end-2006) according to The Economist: The Economist: The world's biggest banks, List of the world's ten largest banks by tier 1 capital at the end of 2006
{] billions)!Country|-|1.||[Bank of America||90||US|-|3.||[HSBC||85||France|-|5.||[JPMorgan Chase||69||Japan|-|7.||[ICBC||59||UK|-|9.||[Bank of China||47||Spain|-|}
Private banking
The term
private bank is simply a marketing term for a bank or a division of a financial services company targeted towards wealthy individuals. Often it is used to describe specifically the lending services targeted towards this group, such as large margin loans.
This table displays the results of the Ultra high net worth (
US Dollar30m+) category of the 2006 private banking awards: Euromoney
{| class="wikitable"!Rank 06!Company!Rank 05|-|1.||JPMorgan Chase||1|-|2.||
Goldman Sachs||2|-|4.||[Citigroup Private Bank||5|-|6.||[HSBC Private Bank||6|-|8.||[Merrill Lynch||8|-|10.||[ABN Amro Private Banking||10|-|}Ranking: 'n' denotes 'nominated'
Capital market banks
Capital market banks underwrite debt and
Stock, assist company deals (advisory services, underwriting and advisory fees), and restructure debt into
structured finance products. Prominent amongst them include:
See also: Mergers & acquisitions
Bank cards
Bank cards include both
credit cards and debit cards. Bank Of America is the largest issuer of bank cards.
Credit card machine services and networks
Companies which provide credit card machine and payment networks call themselves "merchant card providers". These include:
- BA Merchant Services (Bank of America)
- First Data Corporation
- Heartland Payment Systems
- US Bank
Investment services
Asset management
Asset management is the term usually given to describe companies which run collective investment funds.
The following is Global Investor’s 2005 ranking of the top 10 investment managers by assets under management: Barclays Global Investors
{]million)!Country|-|1.||[Barclays Global Investors||1,367,269||US|-|3.||[Fidelity Investments||1,050,435||US|-|5.||[The Vanguard Group||790,513||Germany|-|7.||[JPMorgan Asset Management||738,294||US|-|9.||[Deutsche Asset Management||589,800||US|-|}
Hedge fund
Custody services
Custody services and securities processing is a kind of 'back-office' administration for financial services. Assets under custody in the world was estimated to $65 trillion at the end of 2004. Prudential: Securities Processing Primer Firms engaged in custody services include:
Insurance
Insurance brokerage
Insurance brokers shop for insurance (generally corporate property and casualty insurance) on behalf of customers. Significant companies in this sector of the financial services market include:
- Aon Corporation
- Marsh & McLennan Companies
- Wachovia
- Wells Fargo
- Willis (Insurance)
Insurance underwriting
Personal lines insurance
underwriters actually underwrite insurance for individuals, a service still offered primarily through agents,
insurance brokers, and stock brokers. Underwriters may also offer similar commercial lines of coverage for businesses. Activities include insurance and
Annuity (financial contracts),
life insurance, retirement insurance,
health insurance, and
property & casualty insurance. Some well known insurers include:
Reinsurance
Reinsurance is insurance sold to insurers themselves, to protect them from catastrophic losses. Firms in this sector include:
See also: Underwriting
Intermediation or advisory services
Stock brokers (private client services) and discount brokers
Stock brokers assist people in investing, online only companies are called 'discount brokerages', companies with a branch presence are called 'full service brokerages' or 'private client services. Some of these are:
*
Ameritrade IZone - a subsidiary of Ameritrade
Other low-cost brokerages that function in a similar way to a dividend reinvestment program include:
- BUYandHOLD
- Edgar, Dunn & Company (Edgar, Dunn & Company is a financial services consultancy)
- FolioFN
- General Electric (GE is one of the largest financial companies)
- Sharebuilder
Conglomerates
A
financial services conglomerate is a financial services firm that is active in more than one sector of the financial services market e.g. life insurance, general insurance, health insurance, asset management, retail banking, wholesale banking, investment banking, .....
A key rationale for the existence of such businesses is the existence of diversification benefits that are present when different types of businesses are aggregated i.e. bad things don't always happen at the same time. As a consequence, economic capital for a conglomerate is usually substantially less than economic capital is for the sum of its parts.
Market share
The financial services industry constitutes the largest group of companies in the world in terms of earnings and equity market cap. However it is not the largest category in terms of revenue or number of employees. It is also a slow growing and extremely fragmented industry, with the largest company (Citigroup), only having a 3 % US
market share. The Opportunity: Small Global Market Share, Page 11, from the Sanford C. Bernstein & Co. Strategic Decisions Conference - 6/02/04
In contrast, the largest home improvement store in the US,
Home Depot, has a 30 % market share, and the largest coffee house
Starbucks has a 32 % market share, etc. Despite this fragmentation, financial service companies as a group are by far the most profitable in the world, and if any grew to the same market share percentages as any other retail industry, the potential profit would be large.
2004
S&P 500 index market capitalization in 2004: Street Authority
- Financial Services: 20.30%
- (Computer hardware & software: 15.30%) (as comparison to 1999)
- Healthcare: 13.40%
- Industrial Materials: 12.20%
- Hardware (computer hardware): 10.80%
- Consumer Goods: 9.70%
- Consumer Services: 8.80%
- Energy: 6.50%
- Software: 4.50%
- Business Services: 3.90%
- Media: 3.90%
1999
S&P 500 index (500 large American companies) market cap in 1999: Contrary Investor
- Technology (hardware, software): 29.8%
- Financial: 13.1
- Consumer Staples: 11
- Consumer Cyclicals: 9.2
- Healthcare: 9
- Capital Goods: 8.4
- Communication Services: 8
- Energy : 5.5
- Basic Materials: 3.00%
- Utilities: 2.3
- Transportation: 0.7
Brand equity
Each year,
BusinessWeek and Interbrand publish their 100 Best Global Brands study, ranking the
brand equity. The following are the financial services companies in this list, ranked by this study for 2006: BusinessWeek/Interbrand 2006 Global Brand Survey
{]billion)!Annual
change!2005
Rank!Country
of origin|-|11||Citigroup|-|14||[American Express|-|21||[Merrill Lynch|-|28||[HSBC|-|33||[J.P. Morgan|-|36||[Morgan Stanley|-|37||[Goldman Sachs|-|42||[UBS AG||8.73||15%||44||Switzerland||3.47||9%||87||[Netherlands|}
Glossary
Glossary for reading financial services reports:
- Asset sensitive - a financial institution that has a negative duration of equity may also be described as having a positive gap or as being asset sensitive.
- Charge-offs - written off debt
- Cost of funds - the cost of loan capital, the cost of funding assets; free liabilities include interest free checking accounts
- Liability sensitive - the inverse of asset sensitive.
- Operating leverage - a simple indication of a firm' s earnings strength; usually measuring the operating income as a percentage of gross income
Acronyms
- NCL - net credit losses - cost of charge-offs, written off debt CardReport: Charge-off
- NCL rate - net credit loss rate - the percentage of the lending portfolio that is not expected to be repaid The Street
- NII - net interest income - interest income less interest cost
- NIM - net interest margin - margin between interest income and interest cost
- NPA - non performing assets - interest bearing assets not paying interest
Companies
See also
Notes
References
| last = Porteous
| first = Bruce T.
| coauthors = Pradip Tapadar
| title = Economic Capital and Financial Risk Management for Financial Services Firms and Conglomerates
| publisher = Palgrave Macmillan
| date = 2005
| month = December
| id = ISBN 1-4039-3608-0 -->
| last = Wengler
| first = C.
| coauthors = Cornelia Gerster
| title = European Banking and Financial Services Law
| publisher = Kluwer Law International
| date = 2004
| month = September
| id = ISBN-10: 9041122990 -->
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