Financial services are economic services provided by the finance industry, which encompasses a broad range of service sector firms that provide management of money and investment. They include credit unions, banks, credit-card companies, insurance firms and brokerage houses. Financial services are important because they allow individuals and businesses to manage risk, acquire capital, and distribute resources. They also promote investment, production, saving and consumption.
The banking industry forms the foundation of the financial services sector, and it is concerned primarily with direct savings and lending. Banks collect deposits from savers and lend them to borrowers, and they earn revenue through the interest rates charged on loans and the spread between deposit and loan rates.
Other parts of the financial services industry include securities research, which helps investors make informed decisions by conducting in-depth studies of stocks and industries. Brokerage services help traders buy and sell securities, and they often offer advisory and consulting as well. Credit-card companies and payment system providers also fall under this category, as do private-banking services for high-net-worth individuals.
Some financial services are regulated, which means that independent agencies oversee their operations and ensure they treat customers fairly. For example, FINRA and the Office of the Comptroller of the Currency regulate banks in the United States. In addition, financial services companies can be conglomerates that operate in more than one sector of the industry. For example, Berkshire Hathaway, which is headed by Warren Buffett, owns several large insurance companies such as GEICO and National Indemnity.