FINANCE INDUSTRY PROFILE

Recruitment: Pipeline and Diversity
Among the challenges facing the financial services industry is a lack of a worker pipeline. Currently, industry employers often recruit workers from competing employers, failing to bring new workers into the industry. Additionally, the industry is faced with a lack of diversity among available workers. A diverse group of workers is especially important in service-oriented professions including retail, banking and insurance, where consumers often prefer employees with which they can relate.

Retention
Stemming from intense competition and high turnover rates, the financial services industry also faces low retention rates among workers. A lack of an industry-wide competency model makes it difficult for new workers to enter and navigate the career ladder in the industry.

Technical Talent Development
The financial services industry is heavily dependent on continuous skill development because workers must keep up with the rapidly changing array of products and services offered to customers. This reality requires employers to think more creatively about how to deliver on-demand training that can be accessed 24/7 and refreshed with new information as needed.

Recruitment: Pipeline and Diversity
Among the challenges facing the financial services industry is a lack of a worker pipeline. Currently, industry employers often recruit workers from competing employers, failing to bring new workers into the industry. Additionally, the industry is faced with a lack of diversity among available workers. A diverse group of workers is especially important in service-oriented professions including retail, banking and insurance, where consumers often prefer employees with which they can relate.

Retention
Financial services and products help facilitate and finance the export of U.S. manufactured goods and agricultural products. In 2017, the United States exported $114.5 billion in financial services and insurance and had a $40.8 billion surplus in financial services and insurance trade (excluding re-insurance, the financial services and insurance sectors had a surplus of $69.6 billion). The financial services and insurance sectors employed more than 6.3 million people at the end of 2018.

Investment in the U.S. financial services industry offers significant advantages for financial firms. As of 2018, at least 28 financial services companies out of all companies in Fortune’s Global 500 listing have chosen to locate their headquarters in the United States to take advantage of its creative, competitive, and comprehensive financial services sector. The industry offers the greatest array of financial instruments and products to allow consumers to manage risk, create wealth, and meet financial needs.

The Finance and Insurance sector comprises establishments primarily engaged in financial transactions (transactions involving the creation, liquidation, or change in ownership of financial assets) and/or in facilitating financial transactions. Three principal types of activities are identified:
1. Raising funds by taking deposits and/or issuing securities and, in the process, incurring liabilities. Establishments engaged in this activity use raised funds to acquire financial assets by making loans and/or purchasing securities. Putting themselves at risk, they channel funds from lenders to borrowers and transform or repackage the funds with respect to maturity, scale, and risk. This activity is known as financial intermediation.

2. Pooling of risk by underwriting insurance and annuities. Establishments engaged in this activity collect fees, insurance premiums, or annuity considerations; build up reserves; invest those reserves; and make contractual payments. Fees are based on the expected incidence of the insured risk and the expected return on investment.

3. Providing specialized services facilitating or supporting financial intermediation, insurance, and employee benefit programs.
In addition, monetary authorities charged with monetary control are included in this sector.

The financial services industry seems almost all-encompassing today. Banks not only offer checking and savings accounts, but many offer other products like mortgages and auto loans. However, it wasn’t always like that.

Before the 1970s, each sector of the financial services industry more or less stuck to its own specialty. Banks provided a place for customers to hold checking and savings accounts. Loan associations offered mortgages and personal loans. Brokerage companies offered consumers investment opportunities in stocks, bonds and mutual funds. And credit card companies, like Visa and Mastercard, solely provided credit cards.

But then during the 1970s, consumers began to move away from big banks, which were previously the center of the financial services industry. Federal regulations prevented banks from offering a variety of financial services which is what consumers wanted. So consumers increased their business with other sectors like brokers and mutual funds companies. As a response to save themselves, banks began to offer products like money market and mutual funds, mortgages and other loans.

By the 1990s, the lines that separated the different financial services sectors had become blurred. Not only were companies offering products outside of their original range, but companies were merging together to become bigger financial conglomerates. That would enable them to earn and offer even more.

Even still, the financial services industry continues to grow and change. This is largely due to rapid advances in technology. Certain financial products are becoming increasingly available to a wider variety of consumers thanks to the internet. There are even banks and financial advisors and banks that operate entirely online. Technology has opened new doors for both the financial services industry and its consumers.

Industry Subsectors
Banking: By the end of 2018, the U.S. banking system had $17.9 trillion in assets and a net income of $236.8 billion. The sector supports the world’s largest economy with the greatest diversity in banking institutions and concentration of private credit anywhere in the world. Fitch Solutions expects asset and loan growth in the U.S. commercial banking sector to remain solid in the next couple of years bolstered by above-trend economic growth.

Asset Management: The U.S. asset management subsector is unrivaled in its depth and diversity. U.S. asset managers are currently meeting the pension management needs of over 60 percent of the global retirement market.  Total U.S. retirement assets were approximately $28.2 trillion at the end of 2017. Moreover, if insurance assets and mutual funds are included, U.S. asset managers held nearly $51 trillion of long-term conventional assets under management in 2016 (more than 47 percent of the global total for these funds).

Insurance: In 2016, the insurance industry’s net premiums written totaled $1.1 trillion. According to NAIC data, premiums recorded by life and health insurers accounted for nearly 53 percent, and premiums by property and casualty insurers accounted for 47 percent.  Additionally, about one-third of all reinsurance sold worldwide is bought by U.S. firms. International insurance companies are actively seeking business partnerships and collaborations with U.S. insurance companies.

Venture Capital: The United States is the birthplace of the global venture capital (VC) industry, and it continues to support many of our most innovative companies. In 2017, $84 billion was invested in the U.S. VC industry across more than 8,000 different deals (Pitchbook), the highest amount since the early 2000s and a 16 percent increase from 2016. VC-backed companies employ 38 percent of the U.S. workforce of public American companies, and account for 82 percent of private sector research and development. These companies have historically generated revenue equal to 21 percent of U.S. GDP. (Stanford University and NVCA)

Private Equity: U.S. private equity firms invested more than $500 billion in U.S.-based companies in 2017. The private equity industry in the United States comprises nearly 4,700 investment firms, operating U.S.-based businesses in all 50 states. The industry owns over 30,000 private U.S. companies. These U.S. companies backed by U.S. private equity firms employ 11.3 million people in the United States and 19.6 million people worldwide. In 2017, business services and consumer-related businesses attracted the majority of U.S. private equity investment. (AIC)