Financial services is a broad sector that impacts everyone in big and small ways. And while you probably think of bankers and hedge fund managers, financial services touch small community banks and even nonprofits, too.
Financial Services Overview
Financial services are “everything that touches money,” says Ryan Duitch, president and CEO of Arro. While it sounds like that include everything and everything that has to do with your finances, that’s not exactly the case.
There are financial services and financial goods, and understanding the difference is important.
A financial good is a product, such as a mortgage or insurance policy. It’s like any other object you purchase or possess (like groceries or clothes), only it’s related to your finances. Financial services are what helps you secure the product or support its purchase. So, everything that goes into securing your mortgage (like the inspection and appraisal) is financial services.
Duitch offers this example using cryptocurrency. “Receiving a token is not a financial service. It’s a good. The crypto company that facilitates storing and owning the token is a financial service.”
Types of Financial Services
The U.S. government defines financial services like this:
The Financial Services Sector includes thousands of depository institutions, providers of investment products, insurance companies, other credit and financing organizations, and the providers of the critical financial utilities that support these functions.
That’s an expansive broad definition, likely because the depth and breadth of the sector is immense. However, when most people think of financial services, they usually think of the following broad categories.
While banks provide financial goods, they also offer many financial services. For example, your checking account is a financial good but cashing a check is a financial service. Other include issuing credit cards, electronically transferring money, and notary services.
Investment banks are a separate category from “banks.” Unlike traditional banks, investment banks focus on helping businesses raise money. The kinds of financial services investment banks provide include mergers and acquisitions, underwriting debt and equity, restructuring, and investment management.
Investment services differ from investment banks in that this financial service is offered to individuals. This category includes things like hedge fund management, advisory and wealth management services, and retirement planning.
Insurance is part financial good and part financial service. As a financial good, an insurance policy protects you. If your house burns down, your insurance policy will help you rebuild and replace items. Likewise, a life insurance policy helps take care of your family.
But the insurance industry is also a financial service. The brokers who search for or negotiate rates and the underwriters who create the policies are also providing a financial service.
Real estate is also a financial good and financial service. The property you purchase is a good, and everything that goes into supporting that purchase (getting a mortgage, insuring the property, inspecting the home) are financial services.
Other Kinds of Financial Services
Outside of these “traditional” categories are other services that defy categorization because they are so small or so new. Some of these are:
- Buy now, pay later
- Angel investment networks
- Credit card networks
- Consumer credit counseling
- Payment recovery
Financial Services Careers
Even if you only focus on the expected categories, there are still nearly endless careers in the industry. Some job titles are obvious (investment banker, loan officer, real estate agent), but others may not seem as apparent.
For example, Duitch notes that PayPal is a financial service because it processes money, moving it from account to account. So, someone working in customer relations or dispute resolution for PayPal is working in financial services. Likewise, a person in marketing or business development also works.
It’s also important to note that not all companies are for-profit ventures. There are just as many nonprofits that are part of the industry. Many community-based nonprofits provide counseling services or money management advice.
All that said, if you’re considering a job in this sector, you should consider what the role is and how it fits into your overall career plan.
Duitch points out that while there are thousands of job titles across the industry, “not all pave the way for you to grow in your career.” For example, if you want to become an investment banker, working as a teller at a community bank may not help you achieve your goals.
Pros of Working in Financial Services
If you’re considering a career in financial services, here are a few of the pros you can look forward to.
Part of Something Bigger
Nearly all parts of the sector contribute to the overall local, national, and even global economy. No matter how small or large the company (or your role), working in this sector helps keep the economy moving and growing. “Without a strong financial services sector,” says Duitch, “the economy can only go so far.”
Great Proving Ground
“If you can hack it in financial services, you can work in a lot of places,” says Duitch. Because the industry play a vital role in everyday life, you’ll often develop excellent interpersonal skills. From selling a product to solving complex financial issues, you’ll have an extensive set of transferable skills that will help you go anywhere you want professionally.
Cons of Working in Financial Services
However, before choosing a career in financial services, carefully weigh the cons.
While stress is often role-dependent, it’s not uncommon for people in some financial jobs to work 16 to 20 hours a day. Work-life balance may not be possible in these positions, and burnout is a real possibility.
Many services and products are subject to regulations. While these regulations exist to protect consumers, they are often a reaction to something negative happening in the economy (think: the 2008 recession). As a result, regulations can hamper growth and innovation.
Likewise, some are so cutting-edge that there are no regulations — yet! Cryptocurrency is a good example. It’s so new, governments are still trying to figure out what it is (a security? an investment?). And because of the lack of regulation, the crypto market has run into problems.
Eventually, there will likely be new regulations for the cryptocurrency sector, and ultimately that could change how crypto services are sold and marketed, changing the entire industry.
From the largest and most common financial services (venture capital) to the smallest (community-based banks), many people distrust the industry, often with good reason. Though some businesses look out for their customers, not all do. As Duitch says, for many companies, “It’s about finding a way to make as much money as I can.”
How to Get Into Financial Services
Depending on the specific career path you want to pursue, a degree is not always necessary. While it will help you move up the career ladder, a successful career in financial services often relies more on your interpersonal skills than your education. Because the industry is so big, you have a variety of career options.
That said, for many positions, you’ll need a mix of hard and soft skills to enter the field.
Math and data analysis are two of the most important hard skills you need. You don’t need to be able to perform calculus, but you do need a strong foundation in the basics. For example, you should be able to read complex financial documents, then analyze, interpret, and present that information to help others make decisions.
As for soft skills, many jobs in the field involve working with others, which often requires tact and grace. Possessing strong collaboration and teamwork skills will serve you well.
Wondering if a career in financial services is right for you? Enroll in a Forage finance virtual experience program, and test drive this exciting industry.