Financial Services: An Introduction

History of Financial Services

The term financial services gained popularity in the US partly because of Gramm-Leach Bliley Act
of the late 1990s that enabled merger of various companies engaged in provision of financial
services. According to critics, the term financial services made the unison of these companies
sound very natural, actually ignoring the history of problems that occurred from combining them
(such as conflicts of monopolization and interest). However, there are many others of the opinion
that the term financial services is a natural one, meaning nothing more than the constituent
words; this faith arises from observation that many restrictions that the Act abolished either never
existed in other countries or had been abolished much earlier than in the US.

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The popularity of the term financial services is such that every company in the US that described
itself as a brokerage house, bank, or an insurance company is now redefining itself a financial
services institution in some way or the other. For instance, Allstate Insurance now provides CDs
and services related to investment brokerage,Bank of America provides full-featured brokerage
products, and E*trade has expanded its offerings to include bank accounts and loans.

Most of the companies generally adopt two distinct approaches to this new business type. First, is
aimed at diversifying earnings through inorganic growth and increased product offerings. For
instance, a bank simply acquires an insurance company or investment bank, and retains the
original brands of the acquired entity while adding it to its holding company. For example, in
Japan, non-financial services companies are allowed within holding company. In such a scenario,
each company looks independent, even after the merger, and continues to have its own customer
base. This is essentially the style of JP Morgan Chase and Citigroup.

Second, is more to do with organic growth, wherein a bank would simply float its own brokerage
house or insurance division and try to sell it to its existing customer base, with incentives for
sourcing all related services from it. This is the business style of Wells Fargo and Washington
Mutual.

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Financial services can be defined as the products and services offered by institutions like banks
of various kinds for the facilitation of various financial transactions and other related activities in
the world of finance like loans, insurance, credit cards, investment opportunities and money
management as well as providing information on the stock market and other issues like market
trends.

The Gramm-Leach-Bliley Act enacted in the late 1990s brought the term financial services into
prominence when it repealed earlier laws which forbade a bank or any financial institution from
venturing into fields like insurance and investment. The result was the merger of many
organizations offering the above mentioned services under one banner giving rise to a new type
of banking popularly known as Commercial Banking and a number of organizations like Citibank
came into existence purely as service providers.

The Finance services industry though a highly profitable Industry with respect to earnings does
not count for a large share of the market and also employs a lesser number of people as
compared to some of the other Industries. Some of the major service providers and commercial
banks in this field are:
1. Citibank
2. HSBC
3. Standard Chartered
4. Citigroup
5. Merrill Lynch
6. Morgan Stanley
7. ING (Investment)
8. American Express (Credit Card)
9. VISA (Credit Card)
10. Allianz (Insurance)
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INSURANCE
In law and economics, insurance is a form of risk management primarily used to hedge against
the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of
a loss, from one entity to another, in exchange for payment. An insurer is a company selling the
insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The
insurance rate is a factor used to determine the amount to be charged for a certain amount of
insurance coverage, called the premium. Risk management, the practice of appraising and
controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in
the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract,
called the insurance policy, which details the conditions and circumstances under which the
insured will be financially compensated.
Contents
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Mutual Funds
A mutual fund is a professionally-managed type of collective investment scheme that pools
money from many investors to buy securities (stocks, bonds, short-term money market
instruments, and/or other securities).[1] A mutual fund has a fund manager that trades (buys and
sells) the fund's investments in accordance with the fund's investment objective.

In the United States, a mutual fund is registered with the Securities and Exchange Commission
(SEC) and is overseen by a board of directors (if organized as a corporation) or board of trustees
(if organized as a trust). The board is charged with ensuring that the fund is managed in the best
interests of the fund's investors and with hiring the fund manager and other service providers to
the fund. Under Internal Revenue Service (IRS) rules, a U.S. mutual fund must distribute
effectively all of its net income and net realized gains from the sale of securities at least annually.

Since 1940, with the passage of the Investment Company Act of 1940 (the '40 Act), there have
been three basic types of registered investment companies in the United States: open-end funds
(or mutual funds), unit investment trusts (UITs); and closed-end funds. Recently, exchange-
traded funds (ETFs), which are a type of open-end fund or unit investment trust that trades on an
exchange, have gained in popularity. Hedge funds are not considered a type of mutual fund;
while they are another type of commingled investment scheme, they are not governed by the
Investment Company Act of 1940 and are not required to register with the Securities and
Exchange Commission.

In the rest of the world, mutual fund is used as a generic term for various types of collective
investment vehicles available to the general public, such as unit trusts, open-ended investment
companies (OEICs, pronounced "oyks"), unitized insurance funds, UCITS (Undertakings for
Collective Investment in Transferable Securities, pronounced "YOU-sits") and SICAVs (société
d'investissement à capital variable, pronounced "SEE-cavs").
FD's
Fixed deposits are loan arrangements where a specific amount of funds is placed on deposit
under the name of the account holder. The money placed on deposit earns a fixed rate of
interest, according to the terms and conditions that govern the account. The actual amount of the
fixed rate can be influenced by such factors at the type of currency involved in the deposit, the
duration set in place for the deposit, and the location where the deposit is made.

The most unusual characteristic of a fixed deposit is that the funds cannot be withdrawn for a
specified period of time. In most cases, fixed deposits carry a duration of five years. During that
time, the money remains in the account and cannot be withdrawn for any reason. Individuals,
corporate entities, and even non-profit organizations that wish to set aside funds and limit their
access to the funds for a period of time often find that fixed deposits are a simple way to
accomplish this goal. As an added benefit, the monies in the account will earn a fixed rate of
interest regardless of any fluctuations in interest rates that apply to other types of accounts.