Investing Talk #15: Financial Service Business
A financial services business provides money management services to individuals, businesses, or institutions. This can include everything from banking and insurance, to investment advice, lending, wealth management, and fintech solutions.
Major Types of Financial Services Businesses
| Sector | Description | Examples |
|---|---|---|
| Banking | Deposit-taking, lending, and payments | Chase, RBC, Commonwealth Bank |
| Investment Services | Asset management, brokerage, financial advice | BlackRock, Vanguard, Morgan Stanley |
| Insurance | Life, health, auto, property insurance providers | Allstate, AIA, Sun Life |
| Lending & Credit | Personal loans, credit cards, mortgages | Discover, LendingClub, SoFi |
| Fintech | Tech-driven financial products | Stripe, PayPal, Robinhood |
| Wealth Management | Tailored investment and estate planning | Merrill Lynch, Edward Jones |
| Accounting & Tax | Financial reporting, tax filing, audit | Deloitte, H&R Block |
| Payment Processing | Handling digital payments | Square, Visa, Mastercard |
Key Features of Financial Services Businesses
| Feature | Details |
|---|---|
| Regulated | Must comply with laws (e.g. FINRA, ASIC, SEC, etc.) |
| High Trust | Consumers expect security, accuracy, and privacy |
| Scalable | Many models (especially fintech) scale rapidly |
| Tech-Driven | Increasing use of AI, blockchain, and automation |
| Recurring Revenue | Many models (e.g. AUM fees, premiums, SaaS) |
How to Start a Financial Services Business
Step 1: Pick Your Niche
Choose a sector (banking, fintech, insurance, advisory, etc.) based on:
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Your expertise
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Market demand
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Regulatory requirements
Step 2: Meet Licensing & Legal Requirements
Depending on your country and services, you may need:
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Financial licenses (e.g. broker-dealer license, investment advisor license)
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Insurance permits
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AML/KYC compliance
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Registered business entity
Step 3: Build Your Infrastructure
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Develop or license a secure technology platform
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Set up data privacy and cybersecurity protocols
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Partner with banks, payment networks, or custodians
Step 4: Build Trust
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Hire certified professionals (CFAs, CPAs, CFPs)
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Get insured (e.g. E&O insurance)
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Develop a strong brand, transparency, and track record
Business Models in Financial Services
| Model | Revenue Source |
|---|---|
| AUM-based (Wealth) | % of assets under management |
| Commission-based | Sales of financial products (insurance, loans) |
| Subscription | Monthly/annual fees (SaaS fintech, newsletters) |
| Spread-based | Profit on lending/borrowing rate difference |
| Transactional | Fees per transaction (brokerage, payment) |
Is It a Good Business to Start or Invest In?
| Pros | Cons |
|---|---|
| High demand (everyone uses money) | Heavily regulated |
| Scalable (especially fintech) | Requires trust and strong branding |
| Recurring revenue potential | Legal risk if mismanaged |
| Tech innovation creates new space | Complex compliance requirements |
Summary
A financial services business helps people or organizations manage money through tools like lending, investing, insurance, or payments. It’s a high-potential sector if you can navigate regulation, build trust, and deliver value.